How Piracy Opens Doors for Windows

Bill Gates may not be entirely dismayed by software thieves. They seed the world market and make Microsoft a standard.

Microsoft Corp. estimates it lost about $14 billion last year to software piracy — and those may prove to be the most lucrative sales never made.

Although the world’s largest software maker spends millions of dollars annually to combat illegal copying and distribution of its products, critics allege — and Microsoft acknowledges — that piracy sometimes helps the company establish itself in emerging markets and fend off threats from free open-source programs.

The gist of the beneficial piracy argument is that the retail price Microsoft charges for signature products such as Windows and Office — as much as $669, depending on the version — can rival the average annual household income in some developing countries. So the vast majority of those users opt for pirated versions.

The proliferation of pirated copies nevertheless establishes Microsoft products — particularly Windows and Office — as the software standard. As economies mature and flourish and people and companies begin buying legitimate versions, they usually buy Microsoft because most others already use it. It’s called the network effect.

“The first dose is free,” said Hal Varian, a professor of information management at UC Berkeley, facetiously comparing Microsoft’s anti-piracy policy to street-corner marketing of illicit drugs. “Once you start using a product, you keep using it.”

Even as the Internet makes global piracy easier than ever, Microsoft’s revenue and profit have risen steadily. It earned $12 billion on $41.4 billion in revenue in calendar ‘05.

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