Software piracy hits $40B worldwide, says study

Efforts to curb software piracy in China are bearing fruit although the piracy rate remains high, costing vendors billions of dollars in lost revenue, according to a survey paid for by large vendors, including Apple Inc. and Microsoft Corp.

That was one of several findings of a report published Tuesday by the Business Software Alliance (BSA) in collaboration with IDC.

Industry observers generally agree that piracy rates are high, though some question the assumptions behind the BSA's and IDC's methodology.

The study is based on various data, including the number of new PC shipments, the installed base of PCs and software licenses, as well as estimates of the number of software applications installed on PCs. Open source, which is included, is handled as paid software.

"We know, for instance, that new PCs going to consumers in the U.S. generally have eight pieces of software, four of which are free like Adobe Reader and the other four should be paid for," said John Gatz, chief research officer at IDC. "So if you know how many pieces of hardware have software and how many pieces of software were paid for, the difference is the pirate."

China's piracy rate dipped four percentage points for the second consecutive year and a total of 10 percentage points in the last three years -- from 92 percent in 2003 to 82 percent 2006. Revenue lost through piracy over the three-year period is estimated at US$864 million.

But the rate of reduction is the result of government efforts to increase the use of legitimate software within its own departments, vendor arrangements with PC suppliers to use legitimate software and industry education and enforcement initiatives, according to the report.

The legitimate software market in China grew 88 percent to $1.2 billion in 2006 -- and more than 358 percent since 2003.

Russia saw its piracy rate drop to 80 percent in 2006 from 87 percent in 2003.

Globally, 35 percent of software installed on PCs in 2006 was obtained illegally, amounting to $40 billion in lost revenue, up 15 percent over the previous year, according to the study.

Put another way, for every two dollars of software purchased legitimately, one dollar was obtained illegally, according to BSA. Global losses increased in 2006 by more than $5 billion over the previous year. Of the 102 countries covered in the 2006 study, 62 reported moderate drops in software piracy, while 13 registered an increase.

Another key finding: while the U.S. had the lowest piracy rate of all countries at 21 percent, it reported the greatest losses at $7.3 billion.

IDC estimates that over the next four years, businesses and consumers worldwide will spend $350 billion on PC software but predicts that more than $180 billion worth of software will be pirated during the same period.