Microsoft Examines the Financial Harm of Software Piracy on Play Fair Day

In addition to undermining the security of businesses around the world, pirated software robs businesses of the ability to compete. That is why we wanted to demonstrate the financial impact software piracy has on companies that use legal software, and why businesses and countries should take note.

Today, as part of Microsoft’s global Play Fair Day, we are examining the financial harm software piracy inflicts on those that “play fair” in developing countries. We’re announcing the results of a study we commissioned that measures the direct financial impact on manufacturing companies who use legal software in Brazil, Russia, India and China, four of the fastest-growing countries in the world.

Demonstrating Competitive Disadvantage

In these four countries alone, manufacturers that play fair and use genuine software suffer more than $1.6 billion in competitive disadvantage each year at the hands of companies who illegally slash their costs and steal it. In fact, according to Microsoft-commissioned research by Keystone Strategy, this disadvantage scales up to $8.2 billion over the typical five-year software lifecycle.

The dollar harm is even more significant when one considers the actual consequences in a competitive business environment when any edge can translate into higher ROI which attracts more investment capital. The ability to make investments that can distance one competitor from another is an important advantage that businesses that play fair simply don’t have. For example, in China, businesses who play fair suffer an $837 million competitive disadvantage. Put another way, Chinese manufacturers that play fair experience a disadvantage to pirating competitors equivalent to:

· Construction of 66 major manufacturing plants; or

· Purchase of 12,700 plastic molding machines; or

· Hiring 217,000 employees.

For the full data and report, you can visit our Play Fair Day website.

As part of this research, we were able to sit down with several companies that have chosen to play fair. Severstal, for example, is the largest steel company in Russia and the fourth largest in the U.S. Severstal has made it a priority to ensure that its more than 84,000 employees around the world use properly licensed and legal software on all of their computers.

“Software is critical to our business. Our board believes that it is a key differentiator of our business and a source of competitive advantage,” Severstal CIO Evgeny Charkin said. “We are a business with a very good reputation and strong ethics — and we want to maintain that reputation. We do not steal. We do much business globally, such as in the U.S. We hold ourselves to the same standards as the international business community.”

We have posted several other stories from other companies that play fair and the full results of the study on our Play Fair Day site.

Leveling the Playing Field

Playing fair is not just an issue in emerging markets. Recently, 39 state and territorial attorneys general signed a letter to the U.S. Federal Trade Commissioners, calling for stronger federal enforcement against companies around the world who use stolen information technology to gain an unfair business advantage and who seek to sell their products in the U.S. In the same letter, the attorneys general affirmed their own commitment to use existing state laws to address the anti-competitive harm done when companies — both foreign and domestic — steal information technology. Microsoft also voiced its support for this letter.

As Microsoft announces Play Fair Day, we wish to highlight the point made by the attorneys general in their letter: “…competition is unfairly distorted when a manufacturer gains a cost advantage by using stolen information technology, whether in its business operation or its manufacturing processes. It offends our sense of fairness when such wrongdoers reap a commercial advantage from their illegal acts.”

The study released today quantifies the amount of that cost advantage in four of the most vibrant markets in the world. We hope this information and the powerful, real-life examples of companies in those countries who’ve chosen to compete by paying for their software rather than stealing it, helps people and businesses understand the importance of playing fair.

About the Author

Associate General Counsel & Executive Director, Microsoft Cybercrime Center