Microsoft urges resellers to play it straight, beef up revs

Whose bottom line is it anyway?

Microsoft has claimed that each dollar it “loses” to software piracy equals $5.50 in “lost opportunities” to the firm’s channel partners.

A Microsoft-sponsored white paper (pdf) released by IT analyst house IDC yesterday highlights the effects of copyright infringement on the software ecosystem across the tech industry.

The report claims that Microsoft’s partners would bump up revenues by $4.37 and push down operational costs by $1.13 if the software giant were to make back each of those lost dollars.

However, the illegal software figures are based on what many argue is broken methodology used by the Business Software Alliance (BSA), which calculates estimated losses that impact the multinational tech firms it represents.

IDC reckoned resellers, VARs, system integrators and service outfits could see the largest portions of the potential revenue increase come from speedier sales cycles (31 per cent) and faster product and service delivery (40 per cent).

Microsoft unsurprisingly backed that claim. It said in a statement yesterday that pirated software can put a serious dent in sales or even force partners to walk away from a deal when illegal software is discovered.

"Worse, in many emerging markets where legally licensed software is difficult even to obtain, it can be next to impossible for a legitimate partner to operate," said Redmond.

The BSA has claimed that the value of just PC software that was counterfeited in 2007 was close to $50bn worldwide.

That staggering figure led the IDC, despite previously expressing doubts about the BSA’s methodology, to conclude the following in its report: “The value of all software pirated in 2008 could be as high as $100bn – bigger than the software market for all of Europe. Drop the piracy rate a few percentage points, and billions would move to the industry’s bottom line.”

The analyst outfit suggested in 2004 that the BSA sums on software piracy and license misuse were misleading because it looked at sale losses rather than retail value.

IDC also tapped into unlocking unwitting piracy in corporations, as well as the multiplier effect or “hidden opportunities” for companies trying to make a living while playing it straight with their software licensing situation.

“Much of the misuse, especially in developed countries, is inadvertent," said IDC senior veep John Gantz. "A savvy vendor can realise an opportunity by helping customers to ‘true up’ their licensing, realising that every dollar saved from software pirates can translate to over five times that amount for the channel.”

However, while it is entirely possible that a reseller who deliberately sets out to defraud Microsoft could reel in all the service revenues and more profits, it doesn’t necessarily follow that the payback “translates” to $5.50 on each dollar lost by the software multinational. Why? Because Microsoft not only sells its products direct but of course also scoops up services and support costs from corporates.

In other words, while it is perfectly legitimate for Microsoft to chase down illegal software, scoring a few points against the pirates won’t kick up the subordinate revs anywhere near as much because the corporate is already paying for the privilege of using the software.

The IDC report is at best speculative on the positive impact reducing software piracy can have on the channel, and importantly it misses a key point: Microsoft’s complex licensing beast is where the true revs and benefits lie. ®