Study says reducing piracy enriches Microsoft's partners

Microsoft may have a massive army of channel partners selling and supporting its software, but not all are equally loyal. Some knowingly install counterfeit software alongside legitimate seats. Others turn a blind eye to customers with lapsed licenses.

Microsoft has used the stick to try to correct such behavior, suing partners selling counterfeit or nonlicensed software. Now it is also trying to use the carrot and appeal to partners' economic self-interest.

Wednesday, the company released an IDC study claiming that partners potentially could gain an additional US$5.50 for every $1 Microsoft makes from eliminating pirated software.

Counterintuitively, it's not retailers and other software resellers that would gain the most from less piracy, according to IDC. Rather, value-added resellers (VARs) and independent software vendors would accrue increased revenues from shorter sales cycles for add-on software and faster delivery of technical services, as well as lower costs for delivering service to legitimately licensed software. The study was co-sponsored by Microsoft and the International Association of Microsoft Certified Partners (IAMCP).

For instance, most partners will hesitate to do work for a customer that's potentially pirating software because they worry that if the "customer is discovered, the liability could suddenly jump to them," said Michael Beare, director of license compliance for Microsoft's worldwide antipiracy team, in an interview last week before the Worldwide Partner Conference, where the study was released.

Citing IDC's findings, Beare also claims that pirated software tends to be poorly maintained or insecure, in part because end users don't want to download updates from Microsoft and expose themselves to the company's antipiracy detection technology. As a result, such software is more difficult for partners to work with, increasing their cost of work, he claimed.

Oh really?

But several experts interviewed by Computerworld questioned Microsoft and IDC's assertations, arguing that they appear to be based on unproven assumptions and suspect methodology.

Paul DeGroot, an analyst at the independent Directions on Microsoft, said that although Microsoft has "every right to discourage piracy ... I think the additional revenue for the channel from legal software is speculative.

"My guess would be that partners make more money from customers who use legal software because those customers are less likely to be cheapskate corner-cutters," continued DeGroot. "Making a cheapskate corner-cutter send Microsoft extra money isn't going to make the ISV or partner much richer, in my view. It'll probably kill the relationship, with a net cost to the partner for the time spent burning bridges with a bad customer."

DeGroot also questioned the claim that pirated software used by businesses tend to be buggier. Companies pirating software don't use counterfeit software downloaded off the Internet, he said, but use "legal, official Microsoft volume media to install more copies than they have licensed." Obtaining patches and updates can be done without exposing software directly to Microsoft, he said.

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In praise of piracy

"There are plusses and minuses to partners from less piracy, and Microsoft/IDC don't seem to have considered the minuses," said Ivan Png, a business professor at the National University of Singapore. For instance, some customers, especially in developing nations, may only have budgeted for buying PC hardware or services because they expect to pay little or nothing for software, said Png -- who, ironically, has done consulting work for Microsoft.

In interviews with seven unnamed Microsoft partners, IDC also found that "they have to walk away from projects when they discover pirated software -- which obviously affects deal completion."

Moreover, when partners discover customers using pirated or noncompliant software, this "can halt solution deployment -- which then lowers average utilization and billing rate."

DeGroot said the situation is rarely so obvious to partners, though. More often, partners "walk in to do a deployment, are handed a disk and a volume key, and have no idea what the real license limit is. They could kill the job -- and the customer relationship -- by insisting on seeing the invoice or checking the volume licensing Web site to make sure it's legal, but they can plausibly deny that they knew the customer was not compliant. They might ask 'You do have enough licenses to install this, right?' and if they get an affirmative answer, they've covered their ass, at least in their mind."

In an e-mail reply to questions, IDC analyst John Gantz, a co-author of the study, said the research firm stands by its assertations, which he said are based on prior research such as its calculation last year that for every $1 Microsoft makes, partner firms made US$7.80, and also incorporates recent interviews with seven unnamed Microsoft partners located around the globe.

"I agree that the willingness of a VAR or system integrator to work with pirated software -- to walk away from a deal -- will vary by country, partner type and culture. The model takes this into account," he wrote. "I also believe that even for those who support or work with unlicensed software, there are benefits to working with licensed software that are greater than the costs of doing so."