When I was a little boy, the worst thing you could call someone without using a swear word was fink. Some adjectives usually preceded the f-word if it was to be delivered properly, and it was always said with a sneer or a scowl. I am told that this particular insult still carries significant implications on the school yard as well as the prison yard, although I no longer spend much time on either.

Recently, several respected news sources worked to perpetuate this juvenile mentality. In a post by Chris Gaither in the LA Times, “Strapped for cash? Report your company’s software piracy” and in a piece by Kelly Fiveash in Channel Register, “Turn in workmates, make fat dollar a few quid”, both launched attacks on the practice of employees blowing the whistle on corporate misconduct.  In this instance, the criminal act was theft, also known to us in the industry as software piracy.

So, in praise of rats, finks, squealers and snitches everywhere, I offer a short list of my favorite whistleblowers who have acted courageously to expose corporate wrongdoing.

-          Jeffery Wigan, who, to use the language of Ms. Fiveash, was willing to snitch on his bosses and colleagues  in big tobacco and expose the hidden practice of adding carcinogens to cigarettes (How many lives do you suppose this giant rat has saved?).

-          Cynthia Cooper, who worked in secret to discover and expose the $3.8 billion fraud at Worldcom (Time Magazine named her one of their “People of the Year” for 2002).

-          Christoph Meili, the only Swiss national ever to be granted asylum in the US, who revealed that his employer, a major bank, was destroying records of deposits from Holocaust victims, assets the bank was required to give to heirs of the victims.

Perhaps some people report crimes solely for the cash reward. The more noble part of me believes that most take action because they have a proper sense of right and wrong, because they have an irrepressible feeling of social responsibility, or because they won’t allow themselves to become the type of person who sits on their hands while a crime is committed.

Or maybe in the case of reporting software piracy, it is because they were offended by an employer that required them to use pirated software and forced them to be an unwillingly participant in the criminal act. Yes, perhaps this is also why such a large percentage of the finks refuse any monetary reward for their actions.

The Frank Serpico’s of the world don’t really care what names they're called. I prefer the simple term hero.

There is no escaping the blunt force trauma of the global recession. The fallout dominates headlines everywhere and it is the most frequent conversation starter in business circles. Where it will end and how to ameliorate the impact of the downturn is a subject of much debate and little action. What is not debated however is the real hardship it is imposing on enterprises and people worldwide – job losses, service reductions, and business failures.

An unfortunate consequence of most downturns is a rise in crime. The majority of people won’t steal under any circumstance but the numbers of those who do grow and the frequency of their crimes increases in response to hard times. In an October story, Reuters reported that, “most of the criminologists, sociologists and police chiefs interviewed by Reuters forecast a rise in crimes in certain categories… opportunistic crimes like theft.”

A FAST (Federation Against Software Theft) survey conducted at the start of the downturn queried company directors and found that 79% believed that businesses would be more likely to try to save costs by not securing appropriate software licenses. When budgets are cut sometimes corners are too.

More recently, in a two-month global poll that just concluded, Aladdin asked technology users and software publishers if they felt the recession would ultimately result in greater instances of software piracy. 73% said they believed software piracy would increase.

[View detailed Survey Results]

Whether you believe the absolute accuracy of Reuters, industry associations, Aladdin or even surveys in general, the damages inflicted by piracy on software vendors becomes much more critical in times of economic crisis. Software vendors are under attack at their greatest moment of weakness; sales are down because of recession-induced reductions in demand, and they are reduced further because of increases in theft (software piracy).

The result is more job losses and more hard times. For some of our brethren in the software community, the ones that will be teetering on the edge of survival, software piracy will be what pushes them over the edge and out of business. Sorry, I don’t have the usual funny or witty close for this entry – just a sobering frontline observation about the growing body count from the piracy wars. 

Say the name Goldilocks to most people and you evoke happy childhood memories of a favorite bedtime story about a young girl who samples many items seeking that perfect fit; neither too big, nor too small, and that is instead “just right.”

The term Goldilocks has since grown beyond the original story of three bears and a sociopathic juvenile delinquent who commits multiple crimes.  Astronomers, economists, and others now use the term to describe a zone where situations are “just right” to sustain life, stimulate economic growth, etc.

So what is the Goldilocks zone for software DRM?  

Too much of the wrong DRM and you could bring hassles to your end users who will respond by not buying your software. Too little DRM (or easily defeated DRM) and pirates will use your product without paying you which means fewer jobs for programmers and less features in the next release of your software.

I offer this simple formula to achieve a level of DRM that is “just right” - invest only up to the amount of extra profit you can gain by reducing piracy. Here is an illustration: an ISV sells a solution for $1,000 that yields and incremental net profit of 20%. This means that for each license sold there is $200 profit.   The last time we measured it, our average ISV recorded a 19% increase in revenue when they started using DRM to protect their software.  19% of the $200 profit is $38, and that is the maximum amount that the ISV should invest in software DRM per license. Fortunately, most effective DRM solutions cost far less and the difference is extra gain for the ISV.

Your number one goal is increased sales of your product. It has to remain easy to use and still stop piracy. Do this right and you can grow sales, even in a down economy, and invest more into making a better solution.  This is the simple reason Microsoft invests so many millions in their fight against piracy.

In the original version of the story, the three bears practice some quick street justice and dispatch the little forest pirate after they catch her. Short of the emotional satisfaction this approach would bring many ISVs, proper use of DRM can reduce piracy and deliver a big increase in revenue.

While walking down a cold and crowded city street, I passed a teenager wearing a bright orange T-shirt with a large message that was amusing but vulgar (cannot be printed here). A couple of thoughts came to mind. First, the offer being promoting was truly a generous one by any measure, but that’s my wife’s exclusive domain. Second, aside from the intrinsic benefits derived from the demonstration of free speech, I wondered why some people feel compelled to broadcast this type of message to a larger audience and what type of audience finds it appealing.

We sometimes find answers in unexpected places. In a recent blog entry, Software Developer Realizes That Pirates Are Giving Him Market Feedback, Mike Masnick of TechDirt crosses the line he previously vowed to avoid (10-Jan,2008) and actively promotes the criminal act of software piracy. He does this by justifying the activity and extolling the imagined benefits to the developers who are victims of piracy. The purported benefits of piracy include obtaining supposedly valuable market feedback and generating greater awareness.

I have read many of Mike’s columns and have found him to be an intelligent and articulate voice of the industry. Unfortunately, in this instance he conveniently ignores the simple truth that there are far more efficient and reliable methods for software developers to gather great feedback on their products. Any knowledgeable marketer would much rather receive feedback from paying clients or from a focus-group comprised of their target audience rather than from thieves (unless criminals are their target audience). Mike’s reasoning displays about as much logic as defending the use of rufees so that coeds can get quick and honest feedback about how they look when naked and unconscious, or promoting auto theft so that auto makers can get feedback from drivers on a limited budget .

The claim that “piracy almost always is a leading indicator for what the market wants, but isn't being delivered” may be true but only to the extent that most people would of course rather get everything they desire for free, and some are willing to commit the illegal act of stealing software to satisfy this particular desire. Yes, there are pirates and they steal the most desired items most often. This is an argument for software protection not for free distribution.
Software developers have many proven and effective vehicles other than pirates to get their products into the market. I recall playing countless hours of Doom, the poster-child for a successful shareware strategy. After getting hooked on the free download, I bought the follow-on version. So did a lot of other people and it generated more than $10 million for id Software. There are many advanced licensing solutions available that are designed for this exact application. This is the developer’s choice to make not the software pirates’.

Last questions for Mike: Why use the denigrating term “freaking out” to describe software publishers who act to protect their assets and revenues by using an effective DRM solution or by pursuing action against people that steal from them?  Wouldn’t you do the same? Many developers fight piracy very effectively and as a result they derive more revenues and can invest in developing a better product. I would describe this simply as a smart business practice.  Been wearing any bright orange T-shirts lately?

Microsoft sees great ROI from their anti-piracy investment.  

The New Year started with a bang for anti-piracy advocates. It was the bang of a judge’s gavel as a south China court sentenced 11 software counterfeiters to terms of 18 months to six and a half years in prison. Now I don’t actually have any direct experience, but I would guess that most Chinese prisons don't have color TVs, fancy exercise yards, or an efficient method for the filing of inmate grievances.  Hooray for Microsoft, hooray for justice, and hooray for ISVs of all sizes around the world.

If we lived in a perfect world, no one would steal; not executives of financial institutions, not our elected politicians, and especially not everyday users of our software. Regrettably, we don’t live in a perfect world. So we have physical security, logical security, and software DRM (anti-piracy protection) among a myriad of security strategies. The common characteristic that all of the aforementioned share is that they protect items of value and they have a real cost associated with them.  

My radical theory: as smart business people, with a keen focus on ROI, we should invest in security just up to the point where the costs of protection are slightly less than the gains from our protective actions, e.g. for Microsoft it would be that point where the cost of reducing piracy equals the extra profits they receive from making people pay to use their solutions.

Microsoft agrees with me. They have systematically increased their anti-piracy efforts over the past several years and they are continuing to yield great ROI. Really no big surprise here. Detractors can throw stones at Microsoft all they want, but you have to make a very high percentage of very intelligent decisions to reach 60 billion dollars in revenue.

Microsoft has invested millions in their anti-piracy efforts including a 75 member team dedicated to the cause. Why? Because it simply yields great ROI for them.  The value of the software that the previously mentioned counterfeit ring was stealing was $2 billion. Stopping that kind of theft, now that is great ROI! With the potential for sharply declining PC sales in 2009, stopping piracy could be Microsoft’s number one revenue generating activity this year.

So why is Microsoft investing so much while most ISVs are investing so little? In my next entry, we will take a deeper look into this paradox.