Microsoft (Tries to) Shoot Pirates Out of the Channel WatersBy Lisa Vaas | Posted 2006-02-09 Email Print
Updated: News Analysis: Microsoft is doing plenty to stop the counterfeiting, but analysts and partners say there's still more that could be done.
So, you got a bargain. You got Windows software for a song. What difference does a little piracy make? Microsoft has plenty of money, right?
Maybe so, but every piece of pirated software makes a lot of difference to the little guys—to channel players like Joe Stopski.
"[The] perception in the past was it's strictly a Microsoft-centric problem," Stopski said. "But what happens with companies such as ours, it's not just the Microsoft part [of the sale] that you lose. You go in and are working with other competitive partners out there, and all it takes is one using pirated software. It's not just one piece of software you lose—you end up losing the total deal, the $150,000 deal."
Stopski is the vice president of business development at Fusion Microsystems,an OEM. He's been sitting on Microsoft's Partner Advisory Council to address some of the piracy pain that eventually culminated in the WGA (Windows Genuine Advantage) program, a non-piracy program that now requires customers to download an ActiveX control that checks the authenticity of their Windows software before allowing them to upgrade.
Microsoft made the WGA, which was once voluntary, mandatorylast year.
Since then, the company has made it clear it wasn't joking. Most recently, Microsoft in December filed charges against 10 partieswho allegedly violated its MAPS (Microsoft Action Pack Subscriptions).
MAPS is a means for partners to obtain heavily discounted Microsoft software, but the software must only be used for internal testing and development and may not be deployed on product systems or resold.
Even with the WGA in place and charges being filed against alleged MAPS misuse, however, the going is rough for channel players.
Microsoft Director of License Compliance Cori Hartje refers to estimates from the Business Software Alliance that 35 percent of all software bought today is counterfeit.
In plain paycheck-speak, that means that anybody in the industry who comes to work five days a week is only getting paid for three.
"We want to make sure we protect and help OEM system builders and partners, because it's hard to compete," Hartje said.
"There's a small margin in systems. If somebody down the street is selling a counterfeit Windows system and you're selling legitimate software, it's very hard to compete."
Analysts back Microsoft up on this one.
"Piracy is a huge problem, and it's certainly much more prevalent in some parts of the world than it is in others," said Julie Giera, an analyst for Forrester Research.
"As companies expand globally, especially into Asia-Pacific, any of the OEMs and resellers are finding it very difficult to compete, because this issue of piracy, or lack of IP protection or lax IP protection, is really significant."
Not only does piracy undercut OEM and reseller revenue, Giera pointed out; it also affects the entire supply chain, since most OEMs and resellers provide a set of value-added services, from support to consulting to tools, not to mention relationships with other resellers and partners.
According to a study done by IDC, counterfeit software made up 53 percent of software installed in Asia-Pacific in 2003; in Eastern Europe, the piracy rate was 71 percent; and in Latin American countries the rate averaged 63 percent. Indeed, throughout the world, piracy rates are high.
That's not to say it's not going on in the United States—IDC estimated a 23 percent piracy rate for installed software for the same time frame.
But whereas in the past anybody could make copies of Microsoft with a CD duplicator for just pennies for the disk, enhanced keycodes and the WGA program have made it much harder to activate counterfeit products.
That's a good thing. Still, there are issues to iron out.
Hartje said that as technology has grown more sophisticated, so too has counterfeiting.
"As we've gotten more sophisticated, with holograms and packaging, with things to help identify counterfeits, with the 'How to tell' site on Microsoft.com, people have migrated piracy to being very sophisticated," she said.
That means spam e-mail offering cheap Microsoft software. Some spam even claims it's OEM.
But since the spammers are transmitting bits and not shipping boxes, it could well be an OEM counterfeit, Hartje said.
At other times, systems builders will claim to have Windows hard-disk loaded, she said. But that can lead to another major source of channel revenue loss: namely, the sale of software that's not fully licensed.
Microsoft could do better.
Microsoft admits that on this one, it could do better. "As consumers start thinking about software, there's a certain level of education we haven't done as well as we should," Hartje said.
One of the simplest things that Microsoft needs to educate customers about relates to the one-license, one-machine tenet.
"Windows runs on one license, on one machine, and you can't move it to other machines," she said. "That's common to us in the industry, but to the consumer, they don't realize that it's licensed to one use at a time."
Another misconception out there leads to mis-licensing. Namely, many corporate customers believe that when they have a volume licensing agreement, something they signed that allows them to make x many copies when they need it, they believe those agreements cover the ability to purchase a naked PC, shipped without Windows, and to install it on the machine.
The reason that's deemed mis-licensing is that volume licenses don't pertain to the original license—rather, they pertain only to updates. Thus, customers mistakenly buy hardware without an operating system.
"They say 'Don't ship the software, I already have a volume licensing agreement,'" Hartje said. "But it's not a full license. It's just an upgrade."
Stopski agrees with Hartje: Microsoft needs to do a better job around clarifying volume licensing.
"Microsoft never did a good job or had a good understanding of licensing guidelines in the past," he said. "Specifically I'm talking about large corporations with enterprise agreements. The perception out there with Fortune 500s is 'I'm covered under my enterprise agreement.'
"It was left to us as the partner to do the education, to say, 'No, desktop operating systems aren't covered under any enterprise agreement,'" he said. "Upgrades are. You have to have a previous copy on the machine to upgrade it."
Or, rather, that's what partners should be telling customers but aren't necessarily, Hartje said.
The channel may be the victim here, but it's also at fault for being "hesitant to tell consumers when they're wrong," Hartje said. Such delicacy, however, leads to improperly licensed users.
Another issue that bedevils partners is Microsoft's inability to set a price on a channel product, Stopski said.
"One issue we still run into and still have to do a better job at, or Microsoft has to do a better job at, and this is a tough one—Microsoft can't set a price on a channel product," he said.
"You could have a MSRP [manufacturer's suggested retail price] on retail, but no MSRP on an OEM product."
Because the OEM price isn't published, customers tell OEMs they've found the license for compliance online for, say, $50, Stopski said.
Because it's unpublished, partners can't point customers to a standard price and instead have to educate them as to what the price range would be for compliant software.
"…What Microsoft could do [is] put a message out there, 'If you see a price too good to be true, it means it is,'" he said.
Some software vendors, including Oracle and IBM, have resorted to keys embedded in the software that have to be renewed every so often. But while that tactic cuts down on piracy, it makes it miserably hard to deploy the software, Giera said.
"How do you balance customer satisfaction and administrative overhead with intellectual property rights?" she said. "Especially in large companies with hundreds and hundreds of licenses and different vendors."
Meanwhile, as far as confusion goes, Giera thinks Microsoft is making strides at simplifying licensing.
It still has work to do with regards to how it licenses its software to outsourced customers or customers that want to provide services to one another, she said. Currently, such customers find doing so "onerous," she said.
She also sees some inconsistencies with server licensing. "Some server products you license by server with a CAL [client access license]," she said. "Others you license on a per-server basis. So there's still that sort of complexity built into licensing agreements that needs some work."
Still, Microsoft is trying, Giera said, and they're making progress. As it is, it's sitting on a stockpile of technology that took years and years of exponential growth that occurred in the '80s and '90s, and licensing didn't keep pace.
"They were using bailing wire and chewing gum," she said.
But at least these days, product groups and licensing groups are together when a product is being developed, she said.
"That's a significant change," Giera said. "It allows them to avoid a lot of problems they're now having to clean up. It's much easier to fix it now before you roll it out to the field."
Editor's Note: This story was updated to correct the source of estimate on piracy rates as coming from the Business Software Alliance and to correct a statement about the origins of piracy.