Piracy and Revenue Optimization

A winning business model requires a unified and all-encompassing approach that goes far beyond how monies are collected and products or services are delivered. In an earlier article, I mentioned a long list of functional areas that must align around a winning business model, but neglected to include Legal. How the legal eagles affect business models is critical and deserves an article of its own. That’s right–even the legal team is part of a winning business model.

The risk is that the legal team will act in ways that undermine the rest of the business model, and this is especially true with software. It is no different than an IT or finance team that fails to build the appropriate operating infrastructure.
According to the Business Software Alliance, losses from software piracy totaled $39 billion in 2006. While software piracy is “under control” at about 20% of the market in North America, it remains at 82% in China–and this is actually an improvement from 92% as recently as 2003. China is gradually improving its court system to attract more international investment and recognizes in coming years it will begin to have intellectual property that it wants to protect. The timing seems right to ship in the lawyers to shut down the pirates.

Review the entire business model
A winning business model, however, examines all aspects of a company’s business, and might decide that at this stage of the technology life cycle, adoption is more important than maximizing near-term revenue. The biggest software company in the world, Microsoft, is a perfect illustration. Microsoft’s Windows near-monopoly does not extend to emerging markets for PC software like China where the cost of software hovers around the cost of producing a CD and the Chinese government requires Linux on new government PCs. Microsoft Office has even less adoption.

In North America, however, PC software is a mature market, so the focus shifts from driving adoption to driving revenue. Lawyers aren’t useful for the former, but are for the latter.

An aggressive anti-piracy effort in China at this point would limit Microsoft’s long-term position as it sees a host of benefits from the near-universal adoption of Windows and Office in the North America. A longer-term view suggests that working towards a similar position in China and developing countries is a wiser course even at the expense of near-term revenue. Once the PC software market matures in China, rolling out the lawyers aligns with the technology life cycle and a becomes part of a winning business model.

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