2005 Piracy Study
Last year, the worldwide rate of personal computer (PC) software piracy decreased by one percentage point to 35 percent. This occurred despite an influx of new PC users from high piracy market sectors — consumer and small business — and the increasing availability of unlicensed software on Internet peerto-peer (P2P) file-sharing sites.
Unfortunately, however, the value of pirated software increased as a result of the fact that the global PC software industry grew over six percent and the U.S. dollar fell by more than six percent against the world’s other currencies.
In 2004, the world spent more than $59 billion (U.S. dollars) for commercial packaged PC software. Yet, software worth over $90 billion was actually installed. For every two dollars’ worth of software purchased legitimately, one dollar’s worth was obtained illegally.
These are the results of this year’s Business Software Alliance (BSA) study of global trends in software piracy, the second conducted by International Data Corporation (IDC), the information technology (IT) industry’s leading global market research and forecasting firm. For this study, IDC used proprietary statistics for software and hardware shipments, conducted more than 7,000 interviews in 23 countries to confirm software piracy trends (adding to 5,600 surveys conducted in 15 countries last year),
and enlisted IDC analysts in over 50 countries to review local market conditions. With ongoing coverage of hardware and software markets in more than 65 countries, and with 60 percent of its analyst force outside of the United States, IDC provided a deep and broad information base from which to develop the 2004 piracy rates.
The results confirm that software piracy continues to be a major challenge. Although piracy rates decreased in 37 countries, they increased in 34. In more than half the countries studied, piracy was above 60 percent. In 24 countries, the piracy rate
exceeded 75 percent. Just over a third of the countries studied had a piracy rate under 50 percent.
The Global Picture
Figure 1 shows the relative ranking by piracy rate of six global regions, which consist of 87 countries and six sub-regions as categorized by IDC. The Asia Pacific region ranks lower in piracy than the other emerging regions1 despite the fact that
three of the top five pirating countries (Vietnam, China and Indonesia) are in the region. The reason for this is that two large countries with relatively low piracy rates — Japan and Australia — bringdown the average. There are a number of factors that can contribute to regional differences in piracy — from the strength of intellectual property protection to the availability of pirated software and cultural differences.
In addition, piracy is not uniform within a country; it varies from city to city, industry to industry and demographic to demographic.
The emerging regions are Latin America and the Middle East and Africa. Asia Pacific is also lower than the aggregate of all Eastern European nations, some of which are in the European Union and some of which are not.
Unfortunately, the high piracy regions are also the high market-growth regions. In the developed world, the IT market is growing by less than five percent today. By contrast, in high piracy countries such as China, India and Russia, the IT market
is growing at a rate of 15 percent or more. The emerging markets in Asia Pacific, Latin America, Eastern Europe and the Middle East and Africa account for over one third of PC shipments today, but only a tenth of spending on PC software.
Globally, businesses and consumers will spend more than $300 billion on PC software over the next five years, according to IDC estimates. Given the current piracy rates, IDC predicts that, during the same five-year period, almost $200 billion worth of software will be pirated.
Table 1 shows the 20 countries with the highest piracy rates and the 20 countries with the lowest piracy rates. This year, Ireland and Portugal join the ranks of
those countries with the least piracy, although that label is slightly deceptive because their rates — like those of Canada and South Africa — still exceed the world average. They replace Reunion and the Czech Republic, which were on the list last year. Among the top pirating countries, Venezuela is new to the list, and India, which was at the very bottom of last year’s list, is no longer on the list but still ranks high with 74 percent piracy.
Some key observations may be made about several countries in this year’s study, notably:
• In Venezuela, piracy rose seven percentage points over the previous year to 79 percent. While PC shipments doubled in 2004, software revenues grew by less than 10 percentage points.
• India, whose IT exports are more than triple the size of its domestic IT market, still has a piracy rate of 74 percent — despite the strength of its world-class software development skills and government efforts to quell piracy. This is a major inhibitor to the growth of a local packaged software industry.
• Italy and France continue to lead established European nations in piracy losses. Some of this is structural. Both countries have a higher-thanaverage proportion of the PC-using base in the small business sector, which typically has a higher piracy rate than do the medium and large business sectors.
• Ireland, ranked 21st among the low piracy rate countries last year, is now ranked 19th. Continual efforts at education and enforcement have paid off; Ireland’s status as a major distribution point for legitimate software shipped into Europe puts additional pressure on businesses to lower piracy.
• The United Arab Emirates (UAE), with a 34 percent piracy rate, is the only emerging economy listed among the top 20 low piracy nations. This is attributable to deliberate attempts to adopt stronger intellectual property protections during the 1990s, when a new generation of policymakers came into power and began luring foreign investments.
Some other countries are notable for their absence on the lists. Taiwan, Portugal, Puerto Rico and South Africa — once considered high piracy locales — now have rates below the median.
The Impact Of Piracy
Software piracy has many negative economic consequences: local software industries crippled from competition with high-quality pirated software from abroad, lost tax revenues and jobs from lack of a legitimate market and costs of ineffectual enforcement. These costs reverberate up and down the supply and distribution chains.
In an April 2003 economic impact study conducted for BSA,2 IDC concluded that lowering piracy by 10 percentage points over four years would add more than one million new jobs and $400 billion in economic growth worldwide. As the software
industry becomes bigger, those benefits increase.
In this year’s study, IDC has taken a very narrow view of the economic impact of software piracy and has tabulated only the retail value of pirated software — labeled losses — in Figure 2 (page 5) and Table 2 (page 6). These industry losses from
piracy were calculated using the known size of the legitimate software market in a country or region and using the piracy rate to derive the retail value of the software that was not paid for.3 Figure 2 (page 5) shows the value of pirated software, or industry losses, by region. The European Union, United States and Canada
experienced significant dollar losses, yet had relatively low piracy rates. This is in part
because their markets are so large. In such enormous markets, even small piracy rates can add up to large losses.
2 Available at http://www.bsa.org/idcstudy.
3 The “retail” value of software that came bundled with a personal computer was considered to be the share of the retail price of the
system attributable to software. Software that was legitimately free (such as shareware or some open source software) was not
considered pirated.
One way to understand the relationship of piracy losses to the piracy rate is to compare the developed world4 with emerging markets. Figure 3 shows the legitimate software market compared to the pirated software market. The legitimate software
market in the developed world is seven times the size of the legitimate software market in emerging markets, yet the losses from software piracy are only twice as much.
Within the European Union, piracy rates should fall over time among the 10 new members as they acclimate to the intellectual property protection policies of the rest of Europe. In the end, no country is immune from the impact of software piracy. Table 2 (page 6) shows the countries with the greatest dollar value of pirated software.
4 Assumed here to be the United States, Canada, Western Europe,
Australia, New Zealand and Japan.
Piracy Trends
This is the second year in which IDC has studied global piracy using the same methodology and encompassing the full, PC packaged software market. Previous studies conducted by BSA used a different methodology and covered only business
software, excluding operating systems. Now, with two years under the new methodology and over 12,000 surveys completed, we can begin to get a perspective on the broader issue of piracy in the worldwide PC software market.
Whether piracy goes up or down is the result of a complex equation that includes education and enforcement on one hand and, on the other hand, new users coming into the market, easier access to pirated software and/or new external factors
such as shifting political conditions.
Nevertheless, one thing seems clear: piracy will not diminish if nothing is done about it. Piracy rates are decreasing in some countries and, at the same time, increasing in others. In 36 countries or sub-regions, the piracy rate increased. In 39, it decreased. In 18, piracy stayed the same. Although the average world piracy rate went down a single percentage point, the median is still above 60 percent. In the 12,000 surveys of consumers and businesses conducted by IDC in support of this study, more than twice as many respondents felt that piracy was getting worse than felt it was getting better.
Efforts continue by BSA and others to stem the growth of piracy, including implementation of educational programs, policy initiatives to strengthen copyright laws and enforcement of those laws. These are effective inhibitors to piracy.
Unfortunately, there are also forces acting to increase piracy. These include the economic slowdown in some geographies, the influx of new users in emerging markets — mostly consumers and small businesses — and the increased availability of pirated software, particularly over the Internet and from P2P networks. Without strong online copyright laws and enforcement of those laws, Internet piracy — via warez sites, spam, auction sites and P2P systems — will continue to grow alongside increases in Internet usage.
During 2004, an additional 75 million people began using the Internet, bringing the total number of global Internet users to almost 800 million, according to IDC. By the end of 2008, 1.2 billion people will be online. The fastest growing Internet populations are those in the emerging countries; China alone will add 100 million new Internet
users over the next four years.
Online piracy is facilitated by increases in transmission speeds, since faster connections enable users to send and download large files, such as software programs, more quickly. According to IDC’s estimates, in 2004, 25 million more
households worldwide gained broadband access, expanding the total number of broadband households to just under 100 million. By the end of 2008, close to 200 million households will have broadband connections. A compilation of piracy rates and losses for 2004 follows in Table 3.
Study Methodology
IDC and previous studies conducted for BSA used the following basic research architecture to measure piracy rates and dollar losses.
1. Determine how much packaged software was put into use in 2004.
2. Determine how much packaged software has been paid for during the year.
3. Subtract one from the other to get the amount of pirated software.
Once the amount of pirated software is known, the piracy rate can be determined as the percentage of total software installed that was pirated. Figure 4 shows the general method IDC used to determine how much software was added in 2004
and how much was paid for. The text under each box refers to the sources of the data inputs.
Expanded Software Categories Examined
In the 2003 and 2004 studies, IDC examined operating systems and consumer applications such as PC gaming, personal finance and reference. As a result, both studies look at a market that is significantly larger than the market studied in previous
years. In previous studies, only business applications software (such as general productivity or office software, professional applications and utilities) was examined.
For instance, in 2002, the published value for pirated PC software of $13.1 billion and piracy rate of 39 percent would imply a $20.5 billion market for non-pirated software.
In 2003, the market for non-pirated PC software was more than $50 billion, and in 2004, it was almost $60 billion. This examination of a larger universe has minimal
impact on piracy rates but a dramatic impact on the calculation of the value of software losses. If the market studied is twice as big, losses will be twice as big, given the same piracy rate.
Year-to-year Comparisons
The basic market-based methodology generated the 2004 piracy rates, but as an additional quality control input, IDC conducted 7,000 surveys in 23 countries during 2004 to gain insight into consumer and business perceptions about the direction of software piracy. This additional input helped corroborate the findings generated by the piracy models.
It is important to note that the software market sizing for 2004 is captured in local currency by IDC and converted to U.S. dollars using the average exchange rate for that year. In the study, piracy losses were estimated by using the average exchange rate for the study year. Any comparison between 2003 and 2004 losses should take this into account.
The Step-by-step Process
The following information provides a more detailed description of IDC’s methodology process and its definition of terms.
PC shipments
These are needed to determine the total amount of software put into use in 2004. Quarterly, IDC collects detailed PC shipment tracking data on more than 65 countries. For the additional 20-plus countries and markets, the data were either collected
in-country or modeled regionally based on IDC’s rest-of-region estimates. The basic tracking data are generated from suppliers, including local suppliers. IDC’s definition of a PC includes desktops, laptops and tablets, but excludes handhelds and PCs used as servers, either singly or in clusters.
PC installed base
The installed base is captured as part of IDC tracking exercises.
Software revenues
These are captured annually in more than 60 countries by IDC software analysts around the world. Revenues are gathered from interviews with in-country suppliers and cross-checked with global numbers and financial statements. For the countries not normally covered by IDC, the data were either collected in-country or modeled
regionally based on IDC’s rest-of-region estimates.
Software shipments (legitimate)
These were derived using average system values estimated country-by-country and regional analysis for five software categories (e.g., collaboration, office, security, operating systems, and other). Prices were gathered from IDC’s pricing trackers,
local research and interviews with the channel. They included adjustments for OEM and channelloaded software as well as software by local suppliers. Software unit shipments were derived by taking revenues and dividing by the average system value. These shipments represent the legitimate software installed during the year.
Software load
This is the number of software units installed and/or pre-installed (OEM) on PCs during the year. To obtain the number of software units for each type of hardware platform, in 2003, we surveyed consumers and businesses in 15 countries: Bolivia, Brazil, Chile, China, Colombia, Costa Rica, Dominican Republic, Guatemala, Kuwait, Malaysia, Mexico, Romania, Spain, Taiwan and the United States. The results of these surveys were used to populate IDC’s input models for the other countries. For 2004, IDC updated its models based on local country research and interviews with users and the channels.
Within the software load, IDC accounted for:
• Software running on new computers
• New software running on existing computers
• Software obtained from retired computers
• Software obtained for free as shareware or open source
• Software running on Windows® and non-Windows OS
Total software base This is the total amount of software, legitimate and pirated, installed during the year. It is obtained by multiplying the number of PCs receiving new software during the year by the average number of software packages per PC that were installed in 2004.
Pirated software
This is the difference between paid-for or legitimate packaged software units and the
total software base.
Piracy rate
This is the percentage of the total packaged software base that is pirated.
Regional piracy rate
This is the piracy rate for the region based on the amount of pirated software in the region divided by the total amount of software installed in the region during 2004.
Value of pirated software
This is the retail value of pirated software. It is calculated using the size of the legitimate software market and the piracy rate. The actual formula is:
Value of Pirated Software = (Legitimate Market)/ (1 – Piracy Rate) — Legitimate Market. By using this calculation, IDC derived what should be considered the end-user spending value of pirated software. For shrink-wrapped software sold in stores, it is the retail price, and for factoryor channel-loaded software, it is the share of retail
system value attributed to that software.
IDC’s value of pirated software represents the “losses” to the total industry, including the channel, retailers and local in-country software vendors.
Source: BSA & IDC |
