Piracy is bad, right? Maybe not, and it seems Microsoft figured it out. Piracy can be indirectly profitable, both by giving you additional customers that you may collect from at some future point, and it also serves to reduce or limit the market share of rivals. Microsoft chairman, Bill Gates, acknowledged this back in 1998 while speaking at the University of Washington, saying:

Although about 3 million computers get sold every year in China, people don’t pay for the software. Someday they will, though,…

And as long as they’re going to steal it, we want them to steal ours. They’ll get sort of addicted, and then we’ll somehow figure out how to collect sometime in the next decade.

While Microsoft claimed losses of $14 billion for 2005, there were also several benefits as a result, that Microsoft rarely acknowledges. Among these is:

• Limiting growth of rival products
• Locking users into Microsoft products
• Increasing overall market-share
• Increasing brand awareness

Given the choice, I’m sure that Microsoft would rather see the $14 billion they claimed they lost, though in reality, I don’t believe the number would be that high. There is an unknown variable in the equation, when determining what the loss due to piracy is; the number of users that would have chosen the same product if they had to pay for it.

Even though at least one Linux vendor sees possible value in piracy, for the most part Linux stands to lose the most. It has been shown that cracking down on piracy actually helps Linux. Users they are either not fully locked in, or adding new systems tend to be looking towards Linux, instead of sticking with Windows and its related products due to the high costs involved.

Microsoft has a vested interest in limiting the market share of Linux, and it other competitors, keeping this in mind, it easy to understand some recent moves Microsoft has made. One of the more interesting is the decision to block pirates from using the new Aero shell in Windows Vista (there is also Windows XP Starter Edition which is interesting in its own right). This begs the question, if Microsoft thinks they can stop pirates, why let them run the OS at all?

While hard numbers aren’t easy to find, there are several reports on the expense of migrating from Windows to Linux. Regardless of TCO, ROI, any business metric, it can be safely acknowledged that it isn’t cheap to move an entire corporate network to a different platform. This fact is a key benefit for Microsoft, as many businesses may find it cheaper to just pay, than to switch platforms.

As an example, take this fictional Asian company, running purely on pirated software, here is the vital information about their network:

• 400 PCs running Windows XP
• 18 Servers running Windows 2003 Server
• 250 PCs with Office 2003
• Extensive use of Excel automation in critical business processes
• Most data stored in 2 SQL Server 2005 servers
• All email stored in Exchange server

This would be a nightmare to convert, the user re-training, data migration, re-development of business processes. Facing a crackdown on piracy, this fictional business would have little choice but to pay up for what they are using.

If you can lock users into your products, and then later try to put pressure on them to pay for what they are using, you have a far better chance of seeing money, than if the users had went with a different platform from the beginning.

Through the use of programs like the afore-mentioned restriction on the use of the Aero shell, and the use of the Windows Genuine Advantage program to restrict the use of Windows Update, Microsoft can apply additional pressure on the users of pirated versions of its software. While most anti-piracy schemes have been cracked fairly quickly, it does add significant pressure to the ‘casual pirate’ – home or corporate users that simply got a copy from a friend.

By leveraging legal pressure and user annoyance, you can slowly begin to reap in profits from these users, if you can avoid pushing them to another platform in the process.