Factors that influence software piracy: a view from Germany

Introduction

In their sixth annual piracy study, The Business Software Alliance (BSA) provided compelling evidence that software piracy continues to be a global problem. The BSA estimates that approximately 41% of all PC software worldwide was acquired illegally in 2008 (from 38% in 2007), totalling over $53 billion in lost revenues. Although the overall global piracy rate remains relatively stable, the growing worldwide use of PC's has contributed to a 84% increase in piracy losses since 2003 (see Figure 1), a number that is expected to continue to rise in the future.

Without question, software piracy has clear and negative economic consequences for manufacturers and distributors striving to compete in a competitive global market space. In addition to lost revenues attributed to software piracy, it is estimated that a 10% reduction in piracy rates would result in more than 2.4 million jobs globally and an additional $70 billion in taxes. Over the next four years, a reduction in global piracy by a mere one point a year would increase industry revenues by $20 billion. Software piracy is thus jeopardizing the future growth and development of the IT industry, which in turn disproportionately impacts countries with the highest piracy rates.

Much of the popular press and academic attention has focused on the high piracy rates in developing countries such as China (80%), Russia (68%), Vietnam (85%), and others. Unfortunately, as with the multitude of legal, political and sociological problems that developing countries face, solutions for controlling pirated software installations are likely years away. In contrast, the largest dollar losses due to software piracy are in developed countries with high PC usage such as the U.S. ($7.6 billion), France ($2.6 billion) and Germany ($2.2 billion). As a consequence, lowering piracy rates by even a few percentage points in these mega-economies would have a large and positive economic impact.

This study focuses on a comprehensive set of potential determinants of illegal software installations among mid-level business managers in Germany and is important for four reasons. First, Germany suffers from a significant software piracy problem and is ranked seventh globally in terms of dollar losses. Second, mid-level business managers constitute one of the largest markets for software and a better understanding of this software segment has important strategic ramifications for designing piracy policies and communications. Third, Germany's piracy rate at 27% is dramatically lower than the 33% averaged by European Union countries and is one of the few developed countries that has produced a substantial reduction in losses due to pirated software. Specifically, software piracy losses in Germany fell from $2.3 billion in 2003 to $1.64 billion in 2006, a drop of 28%. Although the total dollar amount has increased in 2008 due to inflation, the piracy rate is dropping and remains low compared to other countries. Lastly, although piracy rates and loss revenues are high in rapidly developing countries such as China ($6.7 billion) and Russia ($4.2 billion, they have shown dramatic improvements from 2003--2008. A better understanding of the factors that curtail software piracy in low piracy rate countries like Germany may help to further reduce the rates in countries with improving infrastructures and economies.