Thursday, October 05, 2006

Microsoft's Newest Piracy Plans

Microsoft has annouced much stricter controls to combat piracy of its soon-to-be-released operating system, Vista:

Microsoft, the world’s largest software maker, said Wednesday that people running a version of Windows Vista that it thought was pirated would initially be denied access to some Vista features. That includes Windows Aero, an improved graphics technology.

If a legitimate copy is not purchased within 30 days, the system will curtail functionality much further by restricting users to just the Web browser for an hour at a time, said Thomas Lindeman, Microsoft senior product manager.

Without having the data to support it, I'm going to go out on a limb and suggest that more Microsoft software is pirated than software from any other company. OK, here's a little bit of data. According to Microsoft, 60 million installed copies of Windows XP are pirated. That's a lot, and even given the fact that some (most?) of the owners of those copies would not have bought an official copy, that's a lot of money left on the table, even for Microsoft. So, you can understand why they may want to fight piracy. But....

There's another issue here. If those 60 million were forced to pay for Windows, it's true that some would and that that would generate lots of additional profits for Microsoft. The problem with this, though, is what do the other do? If they can't use pirated Windows, and can't/don't want to pay for an official version, I'm guessing that most would turn to another OS. And if Linux (or pirated versions of Macintosh OS running on Intel) could grab a fair # of those converts, it could be a significant boost to their OS.

According to one estimate, right now Windows XP accounts for 85% of all installed OSs. The same article cited above says that those 60 million copies that failed the Windows Genuine Advantage test were out of 300 million that were checked in total. Combine these two numbers, and that means that 20% of Windows XP's 85% share could be up for grabs. Imagine the potential change in the industry if, rather than shell out $300 for Windows Vista, 50% of that 20% switched to Mac, or Linux. That would be 8.5% of the total OS market. If someone got a hold of that (right now, Mac is about 4-5% share, Linux is about 0.5%), it would be a huge shock to the OS market. I'm not saying that Microsoft should be afraid (probably most people would just hold onto their "illegal" version of XP and not upgrade), but it's something to think about.

Now, Microsoft would still be the dominant force in OS, even if this happened. But in a market where network externalities are this important, the value of allowing pirated copies to be used by those unwilling to pay for a legit copy should not be underestimated, even by Microsoft.


Anonymous Anonymous said...

An important source of network externalities in the OS world is that each user enlarges the market for complements to the OS (applications). This is probably the most important network externality.

However, users who are unwilling to pay for the OS are probably users with a low willingness to pay for applications. Thus, losing software pirating users should be far less important than losing the users who pay for software.

10/05/2006 12:48 PM  
Blogger Tony Vallencourt said...


I agree with you there, but keep in mind that even if those that pirate are unlikely to buy applications, if they are using pirated copies of applications, there are benefits there too. That is, if they were to use pirated versions of the Mac OS on their Intel machine, and then use pirated versions of Mac apps, then there is a standardization effect (obviously not as strong as a sales effect) that makes both the app and the Mac OS more valuable.

10/05/2006 5:06 PM  

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