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.
