Permitting Piracy for 'Competitive Advantage'

jimhenson

Sorry for such a long post but the poll on illegal copies of Windows reminded me about the following article:

Permitting Piracy for ‘Competitive Advantage’

If you’re in the IT field and that too in Software Development, you must adopt the saying ‘THINK BIG’. Bill Gates and CO adopted this and came out with a new marketing strategy; as no name has been given till date to this strategy let us call it ‘Permitting Piracy for ‘Competitive Advantage’. This strategy perhaps helped them to become what they are today: They have become the Market leaders and the richest people living on this earth.

How did this strategy work? It may look simple if I say that he allowed people to copy his Software applications as many times as possible. Please don’t remind me of ‘Intellectual Property Rights [IPRs]’ and ‘Copyright Laws’. The lawmakers were there to protect by carrying out raids and issue legislations. This helped Bill Gates and CO. because their software became attractive to steal and they never sponsored any raid or cried foul. They simply nodded their heads and were smiling all the way to the Bank.

I will try to explain ‘Permitting Piracy for ‘Competitive Advantage’ by the following example:

MS Dos 2: Copies Sold = 1000 - Copies Pirated = 10000 - Users Trained = 100,000

MS Dos 6.22: Copies Sold = 1 Million- Copies Pirated = 100 Million - Users Trained = 1 Billion

Win 95: Copies Sold = 10 million Copies Pirated = 500 Million

[All figures shown are only illustrative guesstimates and are not the real figures of Microsoft]

If we say from the above table that Microsoft sold DOS 6.22 for $ 2 each, they should have made 2 million dollars, whereas the Pirates made a cool profit of 5 million with a sale of 100 million for 10 cents each with a 5 cents cost.

The Copyright Law makers will cry foul and say Microsoft made 200 million losses in the bargain. Did Microsoft make loss in the bargain? The answer is a big NO.

How? Imagine after selling a paltry million copies they have developed a Brand conscious User Base and ‘knowledge workers ‘of 1 billion without spending much on marketing. The Pirates were their marketing agents. They were doing the job of training the users, testing the software and attending to all the calls and troubleshooting FREE.

Further Microsoft did not launch DOS alone in the market, along with their OS came various other versions of Windows for standalone PCs and Servers, not to mention many other applications from them like MS Office, Visual Studio, RDBMS [FoxPro a popular product for DOS users] etc. They concentrated on product development and allowed other corporations to develop applications for their OS. They grew in size and allowed their brand conscious User Base also to grow in size. If only 10% of Microsoft products were licensed and the rest were pirated, the rest i.e. 90% was working overnight training billions of users without needing Microsoft to spend any money on them. For 1 million products sold the brand users market will 100 million i.e. 1 to 100. Can we call this Marketing leverage? If Microsoft launches any product today, its license version itself gets sold in billions within a week’s time. Even pirated copy users will go in for original version as it is updated free of cost.

Lets take an example of Indian word processing software Word Lord. In early 90’s it became No 1 giving a tough fight to MS Word, WordStar and WordPerfect. [Source PC Quest} In the later part of the 90’s it vanished away from the market. Why? It never allowed itself to be copied. You have to uninstall the software if you have to reinstall it elsewhere.

Much Indian software are not becoming popular or taking the lead because of this. Take the example of the Accounting software’s available in the Indian market today. The User Base of this software’s is very low. Many Corporate are reluctant to buy these products because the software company will be training only a few staff free on installation. But after a couple of years new staff would have been recruited. Old ones would have left the organization or would have been promoted and sent elsewhere. To train these fresh batch they have to pay to the Software Company. Users base dwindles and vanishes.

Microsoft launched MS Word version after version almost every year. Today for their new product MS Office XP launched very recently, they already have a User Base of more than a billion. You can straight away appoint a typist and ask him to type in MS Word or use EXCEL or ACCESS. But you ask him about any of the Indian Accounting Software. He will say he had not heard about them or had no access to them.

This is because a training institute using a licensed software will charge anywhere between $200 – $850 for a six week course. A training institute using only the pirated versions will charge between $20- $50 for the same product and period. A common man who can’t afford to spend huge amount will naturally go to the institute charging less. With the certificate earned in these institutes he gets appointed easily. Is not Microsoft gaining a typist, accountant, steno or a DTP assistant who is aware of their products and thereby gaining a corporate client who need not spend anything on training users when they go for Microsoft products?

In short, the products of Microsoft today have a worldwide market with no competitor anywhere near; a position reached with almost no stress on Marketing or Property rights. The situation has also resulted in large-scale employment opportunities and growth of software industry engaged in developing applications.

Analysts may also say that Microsoft had in fact no strategy rather than admitting that it had a Permitting Piracy for ‘Competitive Advantage’ strategy or lateral thinking, considering the fact that the growth of Microsoft is beyond all human imagination and foresight. In any case the point that one cannot miss is that the totally unconventional and open approach of Microsoft has created a history of astonishing success. Here is a lesson worth learning for entrepreneurs and professionals[/B]

dahamsta

If you didn't write this, please link to the source.

adam

jimhenson

Dont know the source a friend emailed it to me..

sceptre

Originally posted by jimhenson
How did this strategy work? It may look simple if I say that he allowed people to copy his Software applications as many times as possible. Please don’t remind me of ‘Intellectual Property Rights [IPRs]’ and ‘Copyright Laws’. The lawmakers were there to protect by carrying out raids and issue legislations. This helped Bill Gates and CO. because their software became attractive to steal and they never sponsored any raid or cried foul. They simply nodded their heads and were smiling all the way to the Bank.

Good lord, I'm afraid you've got it seriously wrong there. Not only did Gates not deliberately allow piracy, or ignore it, he was the first major developer to condemn it. See his Open Letter To Hobbyists in Computer Notes (Feb 3, 1976), published when he became enraged that people were distributing tickertape containing Basic code for the Altair at their computer club meetings. Google for the text of the letter. It caused quite a fuss at the time and after - people were far more outraged than they were when Napster closed down. Then come back and say Gates never cried foul.

More so than any other software company (including even Adobe), Microsoft encourage as many raids on pirate outfits, large businesses and national governments as they can. They've always been the driving force behind both the happy public face and the shady private face of the BSA.

You are correct in saying that every pirated copy isn't necessarily a lost sale for the developer. It's a concept that the BSA (and for that matter the MPAA and RIAA) don't seem to be able to understand. The rest of the conclusions, based as they are on the idea that Microsoft and its founders never said "hang on a bit, we're losing money out of this" can't be relied upon.

To an extent, there might be some truth in the idea that Microsoft were less pushed about lost sales of MS Office constituent programs (back in the day when it didn't come as a suite and they were still very much a language development company rather than an application development company) as the cash cow for the company was DOS. They still took the time out to make sure that 1-2-3 wouldn't run on DOS2 though (as documented by Bob Cringely in Accidental Empires).

MS Multiplan didn't sell because it was crap, not because people didn't pirate it. Access won out over later versions of DBase because Ashton Tate dropped the ball and released terrible versions that didn't work. WordPerfect and AmiPro/WordPro were just as easy to pirate as the Microsoft offering and both bit the dust. WordStar disappeared because they forgot to put any money into development of a Windows version so the world passed them by. Being easy to pirate was one of the minor reasons for Micrsoft software's dominance of the desktop but far from being the major one.

sceptre

Incidentally the sales figures are way out. Piracy figures are pure guesses obviously but that is pointed out.

For example, Windows 95 sold far more than 10 million copies. It was bundled as an OEM product with 78 million machines by the end of 1996 IIRC. That's an error by a factor of 8.

dahamsta

Originally posted by jimhenson
Dont know the source a friend emailed it to me..

Righty-ho, thanks.