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Random thoughts on software piracy and open source business models

In a recent blog entry, Jeff Atwood discussed the subject of software piracy, bringing up the example of a succesfull indie game called World of Goo, whose estimated piracy rate is about 82% (initially reported as 90%).

Perhaps in an effort to appeal to the ethical side of his readers, Jeff underlines how “this is not a game that deserves to be pirated”, how it’s developed by a team of two indie developers “not another commercial product extruded from the bowels of some faceless Activision-EA corporate game franchise sweatshophow”, and how its low price point makes it affordable (it’s currently on sale for $15).

I understand the psychological reasons behind those arguments, but I don’t feel that their implications are acceptable. No software deserves to be pirated, whether it costs 15 bucks or 3 million dollars, if it’s developed by a single programmer who’ll end up bankrupt or by a huge corporation like Microsoft. Piracy is unlawful, independently from the cost or creator of the object at hand. It is not theft, but it’s still wrong and a violation of a licensing agreement.

Piracy is rampant and the 82 or 90% figure is not far-fetched, I’m sure. The software industry is in fact in a similar position as the music industry. And Jeff gets two important points right. First, there is no point in punishing your legitimate customers with DRM and other inconveniences. It’s OK to “keep honest people honest”, but going out of your way to prevent piracy can do more harm than good, as EA learned through their Spore experience. In December, EA finally released a DRM-free version of Spore on Steam which is considered by many to be an acceptable method for delivering games. According to many people it offers a decent balance between software protection and the level of annoyance for users. Second, it is absurd to assume that the 90% of non-paying users of your software would have bought it if they couldn’t get a hold of a pirated copy. The BSA and RIAA’s astronomical claims in this regard are utter bullshit, which conveninetly ignores both simple economics and reality.

Jeff’s post then goes on to argue that the best anti-piracy strategy is to build a great product and charge a fair price for it. World of Goo itself proves that those two points do not constitute a reliable strategy when it comes to reducing piracy. That game is truly a great product (I don’t like games and even I enjoyed the demo) and it sells for what is arguably a very reasonable price. What’s true though, is that the secret of being successful in the business of software is to create programs that people want, and to price them accordingly so that the legitimate “10% crowd” will be open to buying them. It’s not the best anti-piracy strategy in the sense that independently from the quality and price, people will still pirate your software anyway. It is however the best business strategy, since it’s an appealing offer to your pool of potential buyers.

In addition to that, a third point that actually reduces piracy is offering additional value to genuine users. You could for example reward your customers by providing them with physical goods (e.g. a manual, stickers, posters, etc…), access to an online support community and/or allowing them access to additional sever side services which are not available to illegitimate users.

I think that the lesson here is the same one that can be applied to the music world. Focus on quality, price in a manner that is appealing to your audience, take same basic technical counter measures to keep people honest, and then just ignore piracy. You cannot protect your software, no matter what you do. It’s annoying, but piracy is not going away, so any effort put towards penalizing your paying customers in a futile attempt to combat it, will only hurt your business.

It is also true that other business models exist, even though they are not always applicable to every type of program. For example, Software as a Service (SaaS) takes care of piracy by providing sofware server-side, once users have been charged a fee. This also has the added benefit of enabling a recurring billing cycle that would have been far less welcomed by consumers and small businesses, were it to be applied to a standard shrinkwrapped piece of software. But I don’t feel that piracy is a strong enough argumentation for killing off desktop application development, whenever a desktop app is better suited than a web one for a given job.

Amongst other alternative business models that kill piracy, there are open source ones. The open source world can claim to have accomplished many great things software wise, but it seldom provides viable ways of earning money directly from software. In a rebuttal to Jeff’s post, Dare Obasanjo (a Microsoft Evangelist) provides three open source business models and shows how they rarely fit the reality of B2C shrinkwrapped software. Quoting from his post, these points are:

  • Selling support, consulting and related services for the “free” software (aka the professional open source business model ) – Red Hat
  • Dual license the code and then sell traditional software licenses to enterprise customers who are scared of the GPL – MySQL AB
  • Build a proprietary Web application powered by Open Source software – Google

There may be variations, but those are the main ones. Some people may raise objections against the second point. Why would companies be scared of the GPL? Working for IBM, I’ve experienced a bit of the enteprise world, and let me tell you that Dare is absolutely right. Many companies in the enteprise space are scared by open source software, particularly those programs released under the GPL license (due to its possible viral implications), and wouldn’t touch them with a ten foot pole. I have seen companies spend thousands of dollars on products that were available for free under the GPL license, mainly due to the legal implications of using GPL software.

You’ll notice how none of these models are really applicable to B2C desktop applications. So, as far as desktop applications are concerned, the traditional “Word of Goo approach” is the right way to go.

Moving away from the problem of software piracy, the inadequacy of the main open source model when it comes to the world of shrinkwrapped software brings us to two points that I feel are worth bringing up. Let me prefix this by saying that I believe in the value of open source, but I do see fundamental flaws in the business models surrounding it. The first is that it’s the developer’s right to charge for software they produce. Freedom 2 of Richard Stallman’s free software philosophy (“The freedom to redistribute copies so you can help your neighbor”) works against developers’ best interests. People should be paid for the fruits of their labor, whether copying it is almost free (like in the case of digital content) or not. And this is true for software, songs, videos or any digitally transmissible content.

It’s nice that people decided to volunteer their time to build an empire of free software that’s openly available to everyone. It’s a huge accomplishment that derives from the GNU philosophy, but it should be viewed as the same thing as when lawyers do pro bono work. We shouldn’t expect developers (or lawyers, or architects, or similar professionals) to stop charging for the product of their work. Again, I think it’s great that developers help each other with free tools and libraries for developing programs, but there is no reason why people should be ashamed to sell their programs commercially to businesses and consumers, and make a living off of them.

In fact, selling software, whether desktop, mobile or web based, is a great way of earning money. The proliferation of startups is a testament to many people’s desire to combine their love of the software craft with the possibility of acquiring wealth. “But Antonio, developers can make money by selling support and related services” I hear you say. And this brings us to a second flaw of FOSS. Instead of being paid for writing the best software you can, you get paid for providing technical support to the few people who buy it or the occasional ad-hoc customization. Where is the incentive to provide good documentation and easy to use quality software, when your livehood depends on your customers needing help from you? As a developer, would you rather spend your time building great software or act as a customer service representative? Consulting or providing technical support doesn’t scale nearly as much as software sales do. You can sell 10,000 copies of your application without lifting a finger, but you can’t scale to 10,000 people paying for technical support that easily. Both approaches can bring in similar revenues, but while the first requires an indie developer, the second requires a full blown company with many, many technical agents.

Open source models are fine, when they actually make business sense, but programmers should not be afraid to charge for their software. Trying to avoid piracy by switching to an inferiror business model that gives software away for free is foolish. Accept piracy as a necessary evil, and focus your attention on coding and promoting your commercial applications.

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13 Responses to “Random thoughts on software piracy and open source business models”

  1. “Accept piracy as a necessary evil”

    I might add that you should not only accept it, but use it as you might do with any other variable implied in the commercial process.

    Piracy could be a way to do unconventional marketing in some situations, and might bring more costumers.

    Accepting the – huge – percentage of piracy means stopping “hating” it (it’s difficult, I know) and start thinking about ways to use it in your favor. Maybe the answer in the end is “I can’t do anything”, but having the right open-mindness could be useful.

    Great piece Antonio. :)

  2. Rudolf, I’m familiar with the article at hand, but it doesn’t change the fact that I can charge you for a copy, but you are free to redistribute it to others for free. It’s not a viable model for those who depend on those sales to make a living.

  3. Interesting post Antonio…
    and more interesting is the fact that most companies behind OS products can’t spend effort on good documentation, offering customisation/teaching on them… ;)

  4. Alex says:

    You left out one very viable way of selling open-source software: charge for the binaries, but provide the source for free. Transgaming has been doing this for years with Cedega, and Boxee is adopting a similar approach (though they’re not currently charging for Boxee either).

    I really think that this provides the best of both worlds. Other programmers can learn from your code and provide patches, and ordinary users will gladly pay a reasonable fee to get a pre-built copy that can easily be installed and used.

    With this kind of setup you are charging customers for support and the convenience of just downloading a file and running it, while keeping the software “free” (as in speech).

  5. Harry Weeds says:

    Antonio,

    Good for you for not indulging in moral relativism and political correctness like so many others do. A big problem is that even people who don’t actually do it themselves excuse piracy for any number of reasons.

    Substitute music for software. Piracy is justified because people dislike the way the music industry operates, i.e. the cost of music and how the talent are treated. Never mind that the industry operates legally, and that there are few industries outside of music, publishing and software where the barriers to entry are so low. The cost to create, distribute and market any of these products is incredibly low thanks to free software and the internet. All that is missing for anyone who truly thinks that there is a problem, and therefore, by definition, an opportunity, with one of these industries is for them to get off their butts, do a little hard work, and test their ideas in the marketplace.

    Let’s be completely honest and describe piracy for what it is and those who do it for what they are, however politically incorrect that may be in today’s world: It is theft, and they are criminals, pure and simple. Except in the scale of their crimes, they are no different than Jeff Skilling of Enron or Bernie Madoff. The people who engage in piracy may not like the face that stares back at them from the mirror, but when you shuck it down to the cob, that’s what you are left with. And people who excuse piracy even it they don’t do it themselves are not much better.


    Unfortunately, it seems like a lost battle. Colleges and universities actually encourage student piracy using school property by refusing to make I.P. addresses available for prosecution. It all begs a hugh question: The majority of higher education students are of legal age… if they adults and yet are too dumb to grasp the simple concept of right and wrong, why are we wasting precious taxpayer resources to subsidize their “education” when there are so many other pressing and deserving social uses for it?

  6. batasrki says:

    @Harry Woods:

    You started out well, but your last paragraph exposes you as the RIAA shill. I don’t know how you found this blog, but that doesn’t matter.

    Universities do not encourage piracy by refusing to shell out IPs to whomever will ask. That is straight out of the RIAA marketing flyer. They’re protecting their customers, just like any good business will do.

    Now, please go away and ply your shilling trade elsewhere.

  7. Harry says:

    batasrki:

    Thank you for helping me make my point, and not only by engaging in a cheap personal attack. For what its worth, I have never had any connection with the music industry in any way, shape, or form. I used universities as an example to demonstrate why piracy seems to be a losing battle.

    As for the RIAA, some of whose tactics I find repugnant at best, I will quote you verbatim: “They’re protecting their customers, just like any good business will do.” The critical and not so subtle difference, which seems to have escaped you, is that the RIAA’s customers aren’t engaged in illegal activity.

    It is ironic that universities provide an education for careers in computer science, journalism, and music, three professions that are arguably hurt the most by piracy. They should be doing whatever is necessary to prevent their facilities from being used for piracy, which hurts their own graduates, among others.

    Presumably you are reading Antonio’s blog because you find some value in it. If he stopped writing it because people were plagiarizing it without attribution, both he and and his readers, including you, would be damaged because of that theft. If you had a program or some other product that you wanted to commercialize, you would not take kindly to people stealing it, nor to those people who didn’t steal it but excused those who did.

    Not to put too fine a point on it, but you seem to have thrown logic out the window. I hold you up as exhibit “A” of my point that large parts of society seem to think that personal property rights take a back seat for any and all reasons: while you yourself may not be a music pirate, you seem to think it is acceptable because of your apparent hatred of the RIAA.

    Finally, can we stop calling it piracy? However despicable pirates may be, at least they do their thing in the open at some considerable risk to themselves. People who steal software, music, etc. are completely different animals — they are cowards who do it in the anonymously in the dead of night.

  8. batasrki says:

    @Harry:

    “The critical and not so subtle difference, which seems to have escaped you, is that the RIAA’s customers aren’t engaged in illegal activity.”

    This may be technically true, but RIAA’s customers, such as music studios, have historically abused their position with regards to pricing of music, as well as their treatment of bands. So, while there’s nothing in the law books saying they shouldn’t be doing that, they’re violating ethical laws.

    Secondly, IP infringement is a very murky area. The studios themselves have not created the content they’re selling, the artists have. Has anyone asked those artists how they feel about it (save for Metallica, of course)? Again, we can have a nice, long debate about it, but it wouldn’t do any good.

    My “personal attack” against you came, because you so strongly suggested that universities, to use your example, need to give up the IP addresses on their network, therefore violating privacy laws, all because there might be a suspicion of piracy somewhere on campus. And don’t try to say it’s been proven, because then you’d be discounting the armies of bots that might be nested there.

    My point is, don’t say something inflammatory and then act surprised when you get slapped. I didn’t prove your point one way or the other. People who pirate content, pirate it for a reason. Maybe they can’t afford it, maybe they want to make their voices heard and this is the only way they know how. Maybe this is a cultural thing. You don’t know and persecuting someone for it will only encourage them and those around them to do more of it. Why do you think speakeasys flourished during Prohibition and before nor after it?

    So, please, again, take your judgment elsewhere. We can talk about technical stuff.

  9. harry says:

    batasrki:

    Your position reminds me of the Red Queen from Alice in Wonderland. How else to make sense of your position that stealing from artists helps those artists? Maybe by taking illicit drugs?

    You say: “This may be technically true, but RIAA’s customers, such as music studios, have historically abused their position with regards to pricing of music, as well as their treatment of bands. So, while there’s nothing in the law books saying they shouldn’t be doing that, they’re violating ethical laws.”

    Show me the proof and don’t hide behind some canard of like ‘technically true’. When and where and by whom, besides you and your ilk, in your imaginations, have they been found guilty of abusive pricing? As for whining about the treatment of bands… didn’t the bands know the game before they agreed to play (pun intended)? Whose ethical laws besides yours are they violating, and what gives your ethical views more value than those of people who disagree with you? Before preaching to me about ethical laws, I suggest you look up the one about not stealing.

    Your comment that “People who pirate content, pirate it for a reason. Maybe they can’t afford it, maybe they want to make their voices heard and this is the only way they know how” only proves my point that people will use any pathetic excuse to justify bad behavior. You conveniently left out a big reason: they have no respect for the law and the property rights of others, although I have no doubt that you and your cohorts think yours are inviolate.

    It’s beyond absurd to suggest that someone who has the ability to find and download something from the internet is too stupid to make their voice known in some other way. Similarly, change two variables in your premise: ‘illegal downloading’ to ‘vandalizing’ and ‘music company’ to ‘you’ (batasrki). Do you really take people to be so stupid as to have us think that if one of your neighbors vandalized your property, you would have no hard feelings towards them?

    I have as much right to read this blog and post as you do. I would be disappointed if Antonio denied me the right to post, but it is his blog and therefore his right, although I know you would disagree with that because you obviously don’t believe in property rights. Nor was it my intent to shill, although I will concede one thing to you: you might consider running for ‘anarchists unlimited.’

    Finally, in the same spirit as you telling me to take my judgment elsewhere, let me offer you this advice:

    I am sorry if you got a red bicycle on your seventh birthday when you had your heart set on a blue one, and that it has had a negative effect on you ever since. Grow up. Get over it. Life is unfair. Take some responsibility for yourself. If you think the laws are wrong, work to change them. Even if you fail, at least you will have tried. Breaking the law because you disagree with it is for losers, except in exceptional cases of civil disobedience. And I’m sorry to rain on your parade, but you and the hordes who download and copy illegally are not exactly in the same league as Rosa Parks. Instead of wasting your time with a reply, do your self a favor: indulge in some continuing education and take two introductory classes — ethics and logic.

  10. John says:

    What you don’t get is that piracy often isn’t “either or”. What if you bought a CD, then lost it. Is it okay to copy the music? What if you would watch a movie with a friend, that the friend owns, but ended up watching it on your own instead. What if the software you paid for works better in the pirated version? What if you actually care about privacy? It’s not as obvious as you portray it; that piracy is always a crime.

  11. batasrki says:

    @Harry:

    First of all, who are these cohorts of mine you’re describing? I didn’t know that you knew me and my “associates”. I would have been much more pleasing and conciliatory to your inflammatory rhetoric.

    Now, to slowly piece your flawed post together.

    “As for whining about the treatment of bands… didn’t the bands know the game before they agreed to play (pun intended)?”

    It seems you’re not all that familiar with the music industry, are ya, buddy? So, to answer your question, no most bands don’t know the game before they agree to play. Most bands have been struggling for years and will take the first perceived big break they get. Secondly, those that DO know the game still have to play it. There have been a few notable exceptions: Radiohead, NiN and a few others. But they all still get raped by the studios and they don’t like it. How would you like if your employer told you that he/she will take 90% of your paycheck and you need to use the rest to feed, clothe and live, as well as buy the tools you need to do your work? Is that ethical in your eyes? Is that something you’d be happy about? If you are, you need to find something better, my friend.

    “It’s beyond absurd to suggest that someone who has the ability to find and download something from the internet is too stupid to make their voice known in some other way.”

    Again, what exactly are you thinking here? Are you suggesting that anyone who’s able to download a file through a browser is internet-savvy? Technically oriented? Seriously? Once more, you’re just assuming things, bro. Stop assuming.

    As for your last paragraph, as someone who has denounced my first answer as “engaging in a cheap personal attack”, boy, you really showed there that you’re the more grown-up one. I have nothing more to say about that, other than stop assuming that I pirate just because I’m challenging your views on piracy. If you don’t like what I have to say, so be it. If you’re against pirating content, so be it as well. But at least inform yourself before spouting misinformation.

    Peace and happy New Year

  12. Sebastian says:

    My sugession for running a business:
    As open as possible – as closed as necessary to make money.

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