November 15th, 2012 by Andy Peterson
One of the many serious problems facing software companies is software piracy. The numbers don’t lie. According to the Business Software Alliance’s 2011 study of global software piracy, 57% of the world’s computer users admit they pirate software. In 2011, the commercial value of pirated software grew to an astounding $63.4 billion.
We hear the same narrative from software companies again and again, “Yes, piracy is a problem and it does have a negative impact on our business. We also know that software pirates tend to gravitate towards products with the highest demand. So a high demand among paying consumers often translates into more piracy from users.”
However, rather than chalking up pirated users as lost revenue, there are ways to salvage some value from those illegal users by opening up a previously unknown revenue channel.
Protect your software
The first step in combating software piracy is to protect software with license keys or DRM solutions that are able to communicate with a central server. If a product has the ability to “phone home” to a central server, then the product has the ability to inform the system that someone is using the product without paying, and access can be shut off immediately.
Without these protective capabilities, license keys become up-for-grabs on the Internet. And there’s nothing to be done about it. When companies have the ability to identify pirated versions of their software, they build a key part in the process of converting pirates into paying customers.
Locating the pirates
After protecting software against pirates, the next task is to identify those countries where software piracy is prevalent.
In the sample table below, consumers in the USA, Germany and Japan bring high volumes of traffic and convert at a relatively high rate. Conversely, consumers from Italy, Russia and India also bring significant traffic but do not convert as well as customers from the USA, Germany and Japan.
As we noted in a previous post, high traffic, combined with low conversion rates and low per capita GDP, indicate that a high price might be scaring visitors away from submitting payment. This is the time to start price testing by researching competitor prices and local purchasing power.
The table above factors in a new piece of data: the likelihood of people pirating software. More often than not, software piracy tends to occur in regions with lower purchasing power. In 2011, the commercial value of pirated software in emerging markets more than doubled the value of pirated software in mature markets. Through observing an inverse relationship between piracy rates and purchasing power, we can assume that lower price points will be more attractive to software buyers in emerging economies.
Convert the pirates
Capturing value on the initial sale, before the user acquires a pirated version, is obviously ideal, but software companies can also take steps to convert pirate users to paid users by offering strong product discounts.
As DRM and wrapping solutions evolved, software publishers gained more insight into their users’ information than ever before. Many companies can now see who is using their products illegally, and there are many mechanisms for communicating directly with those pirated users.
Rather than pointing fingers or casting blame, take a more understanding and accommodating approach to your illegal user-base. Use human, friendly language with the pirates. Consider writing encouraging promotional ad copy, such as, “We’re happy to have you as a user, but we think you’ll be a lot happier with a fully functional version of our software.”
Also, be sure discounts go far enough to compel a sale. Offering 5% or 10% off the paid version will do very little to tug on the purse strings of a software pirate.
Here’s an example of how Microsoft tried to convert pirate users of Windows XP to paid customers.
The highlighted portion reads, “You may be a victim of software counterfeiting. The key installed on this computer is not genuine.” Below this message is an offer to purchase a genuine version of the product.
Microsoft isn’t accusing the customer of software theft. Rather they’ve made the customer a victim and have alerted him to the benefits of a fully paid version. If the user clicks on the offer, they are presented with a 60% discount on the product (Retail price for Windows XP Professional was $249.00 at the time of this offer).
The right price for a discount can be determined by the relative price points of your targeted regions. For example, in the sample table above, the markets of Italy, India and Russia, have different per capita GDP stats. Use those per capita GDP numbers to propose new price points for each market.
In Italy, with the highest per capita GDP, set the discount at 25%. For Russia, middle of the pack in purchasing power, set the discount at 50%. And finally for India, with the lowest average purchasing power, be very aggressive in pricing with discounts of 75%.
With new price points in mind, use Geo-IP detection in the cart to serve the correct pricing to the correct customer. A shopping cart should be set up in such a way that a customer can’t simply change his or her country selection and see a heavily discounted price. Only those customers from an IP address in a heavily discounted region should be eligible to see that price.
Revenue is the lifeblood of any business and converting visitors into paying customers is the ultimate source of revenue. The more people stealing license keys or downloading hacked software via torrents, the less people submitting payment via shopping carts.
Keystone: By protecting software and targeting specific regions for conversion optimization, software companies can offer discounts to software pirates as a way to drive revenue from an unexpected opportunity.