The Cost of Software Piracy
One topic of discussion in the recently released Symantec Report on the Underground Economy is software piracy. Software piracy occurs primarily in two basic forms: physical counterfeiting and file sharing. Counterfeiters create unauthorized physical copies of software intended for sale as legitimate products (though often the attempt to create a realistic valid copy is minimal). The motivation of counterfeiters is typically financial gain, and customers who know that the software is counterfeit are likely trying to save money. In contrast, piracy by means of file sharing—whether by copying a disc for a friend, uploading files using a peer-to-peer (P2P) application, or some other means—is not typically profitable for the people who share the files. The advent of rapid P2P file-sharing protocols has provided a readily available means for people to distribute and obtain software essentially free of charge.
While both methods of piracy financially affect the legitimate software producers, P2P-based piracy may also affect counterfeiting operations. As broadband Internet penetration increases and digital distribution becomes more mainstream, many people who knowingly purchase counterfeit software may turn to P2P-based piracy to save money, thus cutting into the profitability of counterfeiting. This is an interesting perspective that in some ways makes P2P-based software piracy seem like the lesser of two evils. However, the effect on legitimate producers could be substantial either way. While analyzing data for the report, Symantec observed software piracy that represented over $83 million (USD) in retail costs. Considering that this was only a small sample of the total software piracy occurring over one protocol over a brief period of time, the value is substantial. A study conducted in 2007 estimated the annual cost of software piracy worldwide to be nearly $40 billion (USD).
Nearly half of all the software piracy activity that Symantec observed was of desktop games, with none of the other software categories even coming close. The assumption from that might then be that the desktop game business sector would be the most affected financially; however, the multimedia applications category (which includes photo editors, 3D animation applications, and HTML editors) accounted for substantially more of the total piracy costs observed than desktop games, despite a substantially lower volume of pirated files. This is because the average manufacturer’s suggested retail price (MSRP) for multimedia applications is typically much higher than those of desktop games, $1,300 (USD) for multimedia compared to just $50 (USD) for desktop games. Thus, of the $83 million estimated total for software piracy observed, multimedia applications accounted for over $53 million of that and desktop games for just over $8 million.
For a complete analysis of the software piracy activity observed by Symantec as well as discussion on other cybercrime activity occurring in the underground economy, please see the Symantec Report on the Underground Economy.