Piracy a Global Phenomenon

At the recent 360iDev conference, mobile analytics company Pinch Media shared some findings about piracy in the iTunes App Store. They've been tracking jailbroken devices for several months now and have started to get a handle on this previously unexamined ecosystem. According to their data, which includes 4 million jailbroken devices, 38% have at least one pirated application installed. Pinch Media says this estimate is low since pirates often take extra steps to avoid detection. Still, it's worth noting that this percentage is nowhere near being the majority of jailbreaking users. There are more people who just want extra control over their device and not an opportunity to steal apps.

They also discovered that the piracy phenomenon is not limited to any one particular market. Although piracy rates are relatively low in the U.S., the U.K. and Japan, where perhaps Apple iPhone users have more money at their disposal to spend on premium applications, piracy is a global problem. However, it does appear to be much more rampant in markets like China, Russia, Brazil and Mexico, where it's negatively correlated with per capita national GDP, notes Pinch Media.

"Try Before you Buy" - Just an Excuse to Steal?

However, the most interesting finding was the one where the "try before you buy" mentality was exposed as being a myth. Despite jailbreakers' claims that the need to "demo" an app is among their top reasons for pirating, Pinch Media found that this simply wasn't the case. To test this, they set a baseline for typical conversion rates of legitimate "lite" to paid applications and found that the conversion rate there is 7.4%. That means about 1 in 14 who try the "lite" version go on to purchase the paid version. However, among the pirate community, pirated-to-legitimate conversions are 0.43%. That's only 1 in about 233 installations. In other words, few users of pirated apps are truly "trying before they buy," they're just trying.

That being said, the pirates aren't necessarily using the pirated apps all that much. Pinch Media found that pirated apps are used less frequently than paid applications and for a shorter amount of time. They theorize that this is due to a few reasons: pirates are less attached to apps considering that they didn't pay for them, pirates often install more applications in bulk and therefore don't have much time to spend with each one and jailbroken iPhones tend to crash, leading to more frequent app uninstalls.

Although these findings may initially disappoint application developers who see piracy as contributing to lost revenue, the argument could be made - as it often is among other content-producing industries - that the people doing the pirating weren't actually going to pay for those apps anyway. They're simply sampling them because they can. While it's still a stretch to say that piracy helps developers, it's hard to really quantify how much it hurts them.

This being the Pirate Bay, however, we don't really expect the site to be down for too long. Chances are that the group will simply relocate to another ISP (the service is already somewhat decentralized) or move its operations to an offshore location. Just a few weeks ago, somebody actually created an archive of the Pirate Bay as a torrent file. With this, a third party could possibly recreate the Pirate Bay.

The sale of the Pirate Bay to GGF, however, will remain uncertain, even if the site comes back online. Currently, Swedish stock market regulators are looking into this deal to determine if GGF actually has enough money to complete the deal or if the announcement was just a scam to boost GGF's stock price.

Specifically, Oberholzer-Gee and Strumpf review some of the latest studies related to file sharing and music and bust some of the myths that the music industry is still pushing, including the idea that every download equals a lost sale. One study, for example, examined the iPod listening habits of 5,600 consumers and concluded that only 64% of the songs on these players had ever been played. It's unlikely that these users would have paid for the songs they never played.

The two researchers also argue that the fact that music was basically available for free increased a lot of consumer's willingness to buy MP3 players in the first place. According to another study, 65% of respondents said that they did no buy a CD because they had downloaded a free copy of a song, but at the same time 80% said that they bought a CD because they had sampled it.

In addition, the authors argue that mashups are likely to drive consumers to the original recordings and don't necessarily lead to lost sales either.

Number of Recordings has Doubled Since 2000

Oberholzer-Gee's and Strumpf's focus is not so much on whether or not the music industry is loosing money because of file sharing, but whether file sharing has deterred the production of music. While there are lots of arguments about the financial losses the music industry might or might not have incurred from file sharing, the production of music is clearly up (the number of recordings produced has doubled since 2000), and so is the demand for concert tickets (and the price of these tickets). As for films, even in countries where piracy is rampant (including South Korea, India, China), as well as in the U.S., the number of yearly film productions has only increased in the last couple of years.

This study, of course, comes as a crucial moment in the file sharing debate, as the Thomas vs. Capitol case is entering its final days (our report from earlier today). There, the music industry and the court are still working under the assumption that every copy is a lost sale.

If you have some spare time and an interest in this topic, you should definitely have a look at this paper. It's actually quite readable - especially for an academic paper by two economists - and short.

CC-licensed logo image used courtesy of Flickr user Rev Dan Catt.

It is important to note that a lot of Google's competitors in China, including Baidu, Sohu, and Yahoo, have recently been sued by the music industry in China because of their MP3 search engines which often link to illegal copies. Indeed, according to the International Federation of the Phonographic Industry, the record industry's international lobbying group, 99% of all music files distributed in China are pirated (in 2005, by the way, the piracy level in China was 'only' 85%). Baidu's MP3 search engine is responsible for about 7% of the traffic to its service.

While Google has clearly been able to work out deals with the music industry in China, it is currently locked in a number of battles with the music industry in Europe and the United States, and we don't expect that Google will offer a similar service anywhere else in the world anytime soon.

It will be interesting to see if Google manages to steal away users from Baidu thanks to this new offering. If anything, users have shown to be quite resistant when it comes to changing their search habits, and while Google's MP3 catalog is interesting enough by itself, it remains to be seen if it can be competitive against the other MP3 search engines in China.

Ben Chatelain is the software engineer behind the Full Screen Web Browser application which was released in the iPhone App Store on February 12th, 2009. It soon became fairly popular, having now been downloaded over 66,000 times and ranking in the Top 100 Paid Apps lists in ten countries. In the U.S. and nine other countries, it also ranks in the Top 20 Utilities list.

However, within four days of the initial release, Ben received a Google Alert informing him that a cracked version of the application had been made public on Appulo.us - a site that supposedly provides the "try before you buy" functionality that's currently missing from iTunes. In theory, users can download and evaluate applications using Appulo.us, but in reality it mostly serves as a way to download pirated copies of paid iPhone applications for free.

Upset to find his application pirated, Ben began to investigate ways to detect the cracked apps in order to do something to the pirated copies out there, like shutting them down remotely or causing them to self-destruct. Still, he didn't want to do anything that would affect legitimate users of the app or cause problems with Apple that could lead to his app being pulled from their store.

Instead, Ben developed a server callback mechanism that alerted him when a copy of his application was cracked. The data sent back to him included the app's unique device identifier (UDID). For those applications registered as cracked, the server will now control a demo period. After 10 runs, a message is presented to those running the bootlegged copy, encouraging them to purchase the Full Screen Web Browser page in the App Store. The only other option provided is to exit the application.

In addition to the warning message, Ben also cleverly adds a "guilt trip" to the message, informing the users of the pirated copies that purchasing the application legally will help him feed his 1-year-old baby. (He decided against his wife's suggestion of actually putting a photo of the baby in the message.)

Says Ben, one of his main motivators for choosing the server-controlled demo option was because with iPhone applications, there's no way to save data outside the tightly-controlled sandbox in which they run. That means that demo periods could easily be reset by simply reinstalling the application. His method, which uses a web service instead, lets him control applications from outside the app's sandbox.

Piracy Troubles

Since the announcement of Crackulous, a program for pirating applications from the iPhone App Store, a lot of developers have been discussing what they can do to prevent their applications from becoming compromised. Some game developers have considered using server-based tracking methods to separate the high scores of the pirates from those of the paid users, but to our knowledge, no one has yet implemented anything like this yet.

Other developers are turning to solutions like Kali's Anti-Piracy service, which is installed as an additional layer of protection on top of the application itself. Although not entirely foolproof, it does make it more difficult for hackers to crack an application. Hackers attempting to crack Kali-protected apps will end up with non-functional copies, says the company.

But unlike other anti-piracy methods, Ben's server-controlled method, inspired by John Gruber's article on Daring Fireball, allows for the possibility of converting pirated copies into paid versions. Since the introduction of his new anti-piracy measures only two days ago, 23 of the pirated users have seen the "crack detected" message. One of the 23 ended up purchasing a legal copy. Ben reports that the current rate of pirated users is around 9.1% (758 pirates out of 8241 users who have run the app since the crack appeared). For applications whose install base is even larger, turning pirates into customers in this manner could have even a greater impact. This method could be especially useful to iPhone game developers, who, according to a game developer quoted by Gruber, are the most affected by piracy. For example, two out of three users of that particular game ran bootleg copies of the application.

The server-based tracking method implemented in the Full Screen Web Browser represents what is likely to be only one of many future attempts by iPhone developers to prevent their apps from being cracked and pirated. Expect to see more of the same soon.

This arrangement was brokered by New York State Attorney General Andrew Cuomo and, at its core, resembles the RIAA's deal with a number of colleges.

It's Not that Easy

We are happy to see the flood of lawsuits against file sharers come to an end, but we also think that there are some problems with this plan, which, of course, is mostly geared towards allowing the RIAA to save on legal fees while being able to reach far more people by simply sending an email to an ISP.

More importantly, however, we agree with Cindy Cohn of the Electronic Frontier Foundation, who argues that this will mean that people won't be able to access the Internet "based on allegations of breaking a law that have not been evaluated in a court of law."

It is still a bit hard to flully evaluate this deal without knowing the exact details and which ISPs actually agreed to this, but, as most people could have told them a long time ago, the RIAA has clearly decided that its current approach wasn't working, as overall music sales have continued to decline, while file sharing has only increased.

A major problem that plagued the release of Spore was the inclusion of a DRM system. This has caused multiple reviews of Spore to be disappointing for Electronic Arts (EA), the developing and publishing company of Spore. If EA hoped the problem would go away, it hasn't. Fans and "pirates" have taken things one step further to make Spore one of the most pirated games ever.

The DRM system included in Spore has caused an outrage in the gaming community. We stated in our review of the game that the DRM system would have to go if Spore wanted to succeed. Apparently, consumers of the game seem to feel the same way. As of today, Spore has been downloaded over 500,000 times on various bittorrent sites and doesn't look to be slowing down. The first 300,000 downloads of Spore happened after just one day of the game being released. These pirated versions of Spore remove the DRM system that users encounter when installing the game. While it's not uncommon for popular games to hit those type of numbers on P2P sites, it's unusual for it to happen so quickly. Currently, the game has been the most popular download all week on The Pirate Bay, one of the most popular and controversial bittorrent sites around.

DRM is Not the Answer

The Sims 2 currently holds the record for the most pirated game. Pirates and disappointed fans are looking to change that. According to the TorrentFreak blog,

[Spore's] download rate exceeds that of any other pirated game in history, and in a week or two from now it will be the most pirated game ever on BitTorrent.

Spore is still one of the worst rated games on Amazon. Since its release it has been given a rating of only 1 star by more than 50% of its reviewers. The majority of these ratings address problems with the DRM system. DRM is not the answer and continues to provoke "pirates" to release what publishers should have given to customers from the beginning.

There's no doubt that Spore would've been pirated regardless of the DRM system. However, users of P2P networks are now encouraging others to pirate the game in order to teach EA a lesson. A commenter on the Pirate Bay known as "deathkitten" stated,

"You have the power to make this the most pirated game ever, to give corporate bastards a virtual punch in the face."

Due to the transparency of college networks, students are an easy target for the RIAA's resistant efforts. However, don't get it twisted. Colleges are not about to start defending the students that actually violate copyright laws. For not only are these students violating the laws of the music industry, but also those of the college. With that being said, colleges are fighting back because they feel that the resources and time spent on chasing these students is cutting into better things that faculty members could be doing.

The Costs and Efforts of the Hunt

So what exactly does it cost colleges to hunt down these students? With the increasing number of subpoenas and "cease-and-desist" letters coming from the RIAA, it's become a full-time job for college administration to keep up with students across their network, especially if the campus is huge. This has resulted in some colleges having to hire more full-time employees to monitor the networks and make sure the correct correspondents are actually violating the law and receive their notices. Talk about a time-consuming job! Not only that, colleges have also had to install more software to help track and monitor illegal network activities, which results in yet another software that IT employees have to get a handle on.

Just Not Worth All the Effort

In the end, it's understandable for some colleges to simply stop helping out the RIAA. Their efforts are costing them a ton of money and time. Instead, colleges are opting to focus their efforts towards their school's mission statements and to the academic well-being of their students. Colleges could spend more time better educating their students on the most current software, upgrading their own systems to reflect these teachings, and overall helping their students in a variety of other ways. We're sure students will be happy to hear this, but we'd like to warn college students once again that campus efforts to stop piracy will not stop completely.

Titled "The Impact of Software Piracy and License Misuse on the Channel," the paper was released in conjunction with the launch of a new Microsoft site for "proactive partners" interested in helping Microsoft fight piracy. We're generally skeptical of big company claims that piracy is a sin, but we can't deny that this study is quite interesting and raises some valid concerns.

The press release issued this morning spells out some of the ways that software piracy hurts players large and small:

The velocity of sales, the life cycle of a project and the ability to fulfill contracts as negotiated can all be affected. During the course of a deployment project, for instance, consultants and solution providers may have to stop work when illegal software is discovered, or may be unable to sell their product at all upon learning that the customer's underlying architecture is illegitimate. Worse, in many emerging markets where legally licensed software is difficult even to obtain, it can be next to impossible for a legitimate partner to operate.

All hope is not lost, however. Microsoft notes that rampant piracy also represents an opportunity for inconvenienced channel partners to sell licenses!

"The flip side of this is that within those hidden costs may lie hidden opportunities in helping these customers turn their licensing situation around," said John Gantz, senior vice president of IDC. "Much of the misuse, especially in developed countries, is inadvertent. A savvy vendor can realize an opportunity by helping customers to 'true up' their licensing, realizing that every dollar saved from software pirates can translate to over five times that amount for the channel."

Is Microsoft's new strategy for dealing with unlicensed software in developing countries to deputize the good customers to sell licenses for them to the "inadvertent" pirates? We assume that would-be customers in developing countries know exactly why they are using unlicensed Microsoft software.

How the Numbers Break Down

The company's study argues that "every dollar Microsoft loses to software piracy translates to $5.50 in lost opportunity for other companies in the partner ecosystem." Those numbers seem pretty shaky to us, including would-be sales and benefits from predicted market expansion.

...for every dollar Microsoft gains from a reduction in piracy in 2008, the ecosystem that sells, services and develops products on the Microsoft platform could gain $4.37 from faster delivery and sales cycles, enhanced cross-selling and upselling, and the natural market expansion of having more legally licensed customers. In addition, the ecosystem could also realize another $1.13 in efficiencies from each of those dollars, primarily from a lower cost of goods sold, as well as lower development and testing, sales and marketing, research and development, and training costs.

While this presumes, as the music industry often does, that the alternative to piracy is purchase (instead of, for example, open source alternatives), there is some undeniable logic here - especially when it comes to efficiency if all other things remain equal.

Legitimate Concerns

We asked micro-ISV consultant Bob Walsh how these claims played out on the ground and he confirmed that they had some validity.

While the numbers are more spin than science, desktop software piracy is a major issue for small developers because it adds something like 8% to development time, a good 15% of tech support effort and can catastrophically gut sales overnight.

Walsh didn't agree with Microsoft's proposed solutions, though. "If they're serious about this issue," Walsh asked, "why don't they sign on to Apple's open source password management system Keychain and do the channel a huge favor?"

We're not sure what the solutions are; we like to cheer for the little guy and for Open Source, but we recognize that there are big advantages to developing in the Microsoft environment as well. We're not excited about the "Proactive Partners" program turning small players into deputies and sales people, either.

We like Microsoft better when they are opening up documentation for interoperability more than when they're chasing around unlicensed software users.

None the less, we find the secondary economic and development consequences of software piracy to be an interesting problem to consider. Readers' perspectives are more than welcome in comments.