Though software piracy rates may be driven down by increased vigilance on the part of governments and vendors in some parts of the world, the global dollar value of losses to software piracy continues to rise year-on-year, as the overall value of the industry rises. We lost over $50 billion world wide to software piracy in 2008.

But could there be a light at the end of the tunnel?

Kai-Fu Lee, who was head of Google, China, thinks cloud computing could offer the solution to the software piracy problem.

Speaking to Reuters in an interview at the Abu Dhabi Media Summit Lee said:

“China has been plagued by piracy for the last 20 years and that unfortunately has caused China not to have a software industry.”

“But it’s irrelevant now, because software distribution is shifting from packaged software, from end user licence, to cloud Internet distribution. And when you’re on the cloud you gotta pay,” said Lee.

Well maybe there is some hope. But SL.tv thinks that saying software piracy is “irrelevant now” may be over stating the case ever so slightly.

We spoke to Jon Gillespie-Brown, software licensing expert and CEO of software licensing solutions provider Nalpeiron.

“Cloud computing – the idea of all software running in a remote server is a great idea in theory. But it certainly isn’t a reality yet. Our research shows that currently only a tiny proportion of application usage takes place in the cloud, so at the moment software piracy certainly isn’t irrelevant to vendor’s or the world economy”

“There are several key barriers to the up-take to cloud computing and whilst these are still in place traditional software distribution methods and traditional software piracy challenges will prevail.”

“There is still resistance to cloud based computing from many users. Using an application in the cloud requires the user to maintain a constant connection to the vendor’s servers. Users see two problems with this. Firstly there is the technical issue. The world is not yet blessed with blanket, high quality broadband internet access and this is what you need to make cloud computing work. For many people, in many places getting and maintaining an internet connection is still a hit and miss activity and in these situations cloud based apps are simply a non-starter.”

“The second issue is one of privacy and security. The maintenance of a constant connection to the vendor’s servers means a constant exchange of information between the user and the vendor. Many users both corporate and consumer are not comfortable with this and it is going to take quite a shift in thinking before that changes.”

“I am sure in the future some of these problems will be overcome and server only software will be more prominent. But even when this does happen so many apps need to have client-side software running for various reasons that the “protection” from software piracy offered by a cloud based license could turn out to be a red herring. And we must remember that whenever a new technology is introduced there will be someone out there putting time and effort into “cracking” that technology, if the is financial reward to be had. We can be pretty confident that software piracy will find some way around any protection that seems to be offered by cloud computing solutions.”

So, overall, we think it’s a little too early for us all to breath a huge sigh of relief, relax and lower our guard on the software piracy front. We feel the world may still be struggling with the issues of software piracy and copy protection for a little while yet.

Related posts:

1. Software Piracy Rate FALLS to 80% in China?
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3. Vendors Must Get Closer to Their Customers to Effectively Deploy New Software Licensing Models

But things are changing; SaaS, the cloud and virtualization offer a whole raft of new software licensing options which we are likely to see emerging over the next 12 months.

The new software licensing models do potentially offer savings for business.  CIO’s have traditionally over-bought on software licenses for applications hosted in-house. The new models will allow CIO to purchase software licenses that are a much better fit for their actual needs.  But accessing those savings is going to present some real challenges, at least at first.

Two of the new licensing models being most widely discussed are pay-per-use and subscription software licensing.

Subscription software licensing starts out by looking fairly straightforward. You decide how much access you need, then get discounts based on the length of time that you are prepared to commit for.  All fine and dandy and easy to manage.  Until that is you factor options like peak and off peak usage into your subscription pricing – a bit like your gym membership, or your electricity bill.  Do CIO’s really have a handle on where their usage peaks and troughs are, and can they manage those to gain financial advantage in their software licensing deals?

Likewise with the pay-per-use software licensing model.  Sounds like a great idea.  But what is a “use”? Is it a logged-in session, a screen view, use of a particular feature? And are all uses created equal? For example, would we be charging the same for an hour spent creating an Access database, and an hour spent entering data into that same database?

The pay-per-use model seems like it offers the potential for much fairer pricing in software licensing, but there is a lot of work to be done before such a model can be effectively deployed.

On the buyers’ side, many corporates have hundreds of software licenses for applications deployed within their businesses.  Creating systems to gather and analyse data on the useage of these applications is gong to be quite a task.  But is is a task that will need to be addressed if as a priority if companies are going to benefit from the savings offered by these new software licensing models.

And for vendors the story is much the same.  Jon Gillespie-Brown CEO of software licensing solutions provider Nalpeiron says: “When a vendor sells a software license, traditionally they know what they have sold, they probably don’t know what has been deployed and the almost certainly don’t know what is being used.  Our licensing solution allows the vendor to see when software has been deployed and which features are being used.  This kind of functionality in licensing solutions is going to become critical as new pricing models evolve and vendors need to get closer to their customers.”

Thomas Wailgun, reporting in Computer World on an interview with Amy Konary, IDC’s research director of software pricing, thinks these changes could lead to the emergence of a new role on the buyers’ side:  Economist CIO.

SL.tv thinks that on the vendor’s side we are going to see a lot more openings for “customer champions” and a bonanza for the market research people!

Related posts:

1. Dell buys software license management company
2. Time to Review Your Software Licensing Policy?
3. Software License Management Solutions – a Buyers Guide

Is this because Americans are just naturally more law abiding than say the British, or New Zealanders, or the Swiss?

Well maybe, but it could also have something to do with the whole raft of legislation in place in the US around the area of computer usage and intellectual property protection.

Techrepublic’s recent article on “10 ways you might be breaking the law with your computer” makes fascinating reading.  Amongst the 10 potential legal pitfalls listed are four relating to copy protection.

First the article discusses the Digital Millennium Copyright Act.  This Act passed by Bill Clinton in 1998 is the USA’s implementation of the World Intellectual Property Organization’s treaties. The Act, which many computer users will have heard of, makes it a criminal offence to breach any kind of technological copy protection – even if you do so without actually infringing anyone’s copyright.

So a geek who spends her time cracking DRM just for the fun of it, will have committed a criminal offence even if she never makes pirate copies to hand out to her friends and family.

Another legacy of the Clinton administration is the No Electronic Theft Act. Before this Act was passed software copyright violations could not generally be prosecuted in the criminal courts, unless it could be proved that the infringement was committed for commercial ends.  If commercial motive could not be proved the matter was treated as civil, with the copyright holder being required to bring a case to court himself in order to see justice.

Now, under the Act, infringement of software copyright is a federal offence which is punishable by up to 5 years in prison and a fine of up to $250,000.  These penalties can apply regardless of whether any copy protection measures have been breached, or whether any financial benefit has been derived from the theft.

Last on the list and returning to the copyright front, the Prioritizing Resources and Organization for Intellectual Property Act (Pro IP Act), came into force in 2008.  This Act imposes stricter penalties for copyright infringements and also gives the authorities the power to seize the property of people suspected of software piracy or other forms of intellectual property theft.  This sounds fine in theory, but when you look at the way these powers are exercised in relation to those suspected of drug crime – where property is often not returned after a case is dropped or a defendant acquitted, the whole prospect could start to look a little scary.

The Anti-Counterfeiting Trade Agreement is still at the negotiation stage and negotiations are very much in secret.  The treaty will be between the USA, EU, Canada, Australia, Switzerland and many Middle and Far Eastern countries.

The section that will impact on copy protection is “Enforcement of Intellectual Property Rights”.  Sources say that provisions of this section of the treaty may include forcing ISP’s to hand over information on customers suspected of software piracy, without the need for a warrant, and powers to allow customers officials to conduct random searches of laptops, MP3 players and smartphones for illegally downloaded software, music and movies.

The treaty is thought by some to be a way for governments to bring into force anti – software piracy measures which they would have difficultly passing thought their own domestic legislative channels. It is currently a highly contentious topic within the industry with the strong opinions being expressed both for and against.

This is a real belt and braces approach copy protection and protecting the livelihoods of software developers and publishers.

There are those who will view such a strong and comprehensive approach to copy protection as an infringement on the liberties of computer users.  But at SL.tv we recognise that such measures are needed to protect the intellectual property of our software developers and publishers.

Related posts:

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2. Software copy protection methods of old
3. Ebook Copy Protection Confusion eases as Kindle Partners with Apple for New Ipad Reader App.

Robert Holleyman of the Business Software Alliance is quoted as saying “We’re really stalled on this process.” Last week he visited the Capitol to voice the industry’s concerns.

SL.tv wonders whether  Holleyman’s criticism of China could have prompted the announcement by South Korea that they intend to reduce software piracy rates to 35% by 2012. South Korea’s illegal software usage rate currently runs at 43%.

In an announcement from Seoul on March 11th Yu In-chon, the Culture, Sports and Tourism Minister said: “We will lower South Korea’s illegal software usage rate to 35 percent by 2012, which is the average level held by OECD member states,”

Yu said the ministry will conduct intensive research on 2,600 public companies and 1,200 private companies to examine the country’s overall software use.

So, pretty depressing figures for anyone trying to make a living from software publication.

Maybe things are better in Europe?  Well yes, in parts.  The software piracy rate in most of Europe runs at around 25%.  With the notable exception of the South of France where EU Politics Today reports that illegal software usage rates run at nearly 50%

“The south west region of France has, far and away, the largest percentage of software piracy incidents in the EU, according to a new study.

Almost half of the software in the southwest of France is thought to be pirated. France, in general, is believed to have a 2-in-5 rate of illegal-to-legal software. In countries such as the UK and Germany, a little more than 25% of all software is pirated.

Although one could point to several reasons for the eye-opening amount of pirated software, France’s attitude toward Internet control, which has made it one of the more oppressive governments in the EU toward technology, is often cited by proud pirates as their driving force behind theft.

As CeriseClub, a French Internet company, told The Times, “The French take a sly pleasure in getting round all the systems put in place, and it’s very difficult to persuade them to do otherwise.”

Perhaps things are better in North America then? Well the picture in the USA and Canada is comparatively good actually.  According to the Business Software Alliance’s Fifth Annual Global Study the USA comes in at #107 of 108 countries surveyed with a very respectable piracy rate of 20%.  Canada is clearly keeping close tags on the pirates too, coming in at #91 with an illegal software usage rate of 33%.

Looking at the US software piracy rate of 20% SL.tv can quite understand why the BSA are unimpressed with the progress China are making.

Related posts:

1. Microsoft Loses Hope in China
2. Apple App Store Has Lost $450 Million To Piracy
3. First successful criminal case to crack down on software piracy in China

In their article of January 13 they say:

Apple (NASDAQ:AAPL) and the companies that sell software for the iPhone and iPod touch at the App Store have lost over $450 million to piracy since the store opened in July 2008 according to an analysis by 24/7 Wall St. There have been over 3 billion applications downloaded since the App program began.  Bernstein analyst, Toni Sacconaghi, estimated that between 13% and 21% of those downloads are from paid applications. According to this analysis, the average price of an application purchased at the App Store is $3.  Sacconaghi estimated that Apple’s revenue from the App Store is between $60 million and $110 million per quarter.  That amount has certainly increased since this research report was published because of the rapid growth of the number of applications. 

However, behind all this success lies an insidious force that has plagued the music, software, and movie industry for decades.  Developers of iPhone applications have reported alarming piracy rates for their software, and the ease with which users may obtain pirated versions of paid applications for free is only increasing.  The total number of applications available at the store, including those which are free and those which require payment, is in excess of 100,000.

The argument goes that many phones have been “jailbroken” to allow the installation of any app and the removal of any Apple restrictions.

While it is difficult to get a firm grasp on exact piracy rates, some developers have put features in their software that prompts it to “phone home” when the phone has been cracked.  Developer testimonials put the figure much higher than many analyst would expect.  Developers Neptune Interactive Inc and Smells Like Donkey Inc have reported piracy rates has high as 90% for their game $1.99 Tap-Fu, and claim that it was available in a pirated version within 40 minutes of its release on the App Store.  Web Scout Inc. reports a 75% piracy rate for its $0.99 iCombat game.  The developer of the $4.99 art program, Layers, reports a piracy rate of 75%, and Fish Labs reports 95% for its $7 Rally Master Pro 3D. Piracy rates almost certainly increase with the cost of an application.  TomTom’s US & Canada GPS product for the iPhone, which retails for $79.99, ranks second in handheld application downloads on piratebay.com, a file-sharing torrent.  The top 100 downloads listed at piratebay.com is littered with expensive TomTom and Garmin GPS products.  A conservative estimate of the average piracy rate is that for every paid application developed and sold at the App Store 3 more are pirated.

So in summary, with some basic assumptions the authors have come up with a nasty close to half billion in losses, mostly on the side of the software developers!

There have been over 3 billion downloads since the inception of the App Store.  Assuming the proportion of those that are paid apps falls in the middle of the Bernstein estimate, 17% or 510 million of these were paid applications.  Based on our review of current information, paid applications have a piracy rate of around 75%.  That supports the figure that for every paid download, there have been 3 pirated downloads.  That puts the number of pirate downloads at 1.53 billion.  If the average price of a paid application is $3, that is $4.59 billion dollars in losses split between Apple and the application developers.  That is, of course, assuming that all of those pirates would have made purchases had the application not been available to them for free.  This is almost certainly not the case.  A fair estimate of the proportion of people who would have used the App Store if they did not use pirated applications is about 10%. This estimate yields about $459 million in lost revenue for Apple and application developers.

Apple, which takes 30% of  the revenue generated by downloads at the App Store has lost about $140 million from piracy. If Apple’s revenue was between $500 million and $700 million from the App Store since its launch, that is a significant loss.  Despite this fact, Apple has been mute on the subject and done nothing to prevent acts of piracy, which is not unlike the stance it has taken on illegal music downloads to iPods.  Even though piracy has caused a big financial loss for Apple, the income from the App Store is dwarfed by sales of iPhones and iPod touches.  As big a problem as $150 million is for Apple, the $310 million cost of piracy to developers really makes it their problem. Apple intends to ignore the piracy of applications and will focus on the tens of billions of dollars that it makes on its hardware.

Much of this could be avoided if Apple implemented some form of stronger security but it looks like they are headed in the opposite direction!

Related posts:

1. Apple to Target Software License Upgrade Revenue with New Ipad?
2. Software Piracy Costs Nintendo 50% of European Sales Revenue
3. Ebook Copy Protection Confusion eases as Kindle Partners with Apple for New Ipad Reader App.

In this podcast Jason D. Poole, Senior VP of the US Institute of Languages, discusses his candid views on Software Licensing, Software Piracy and Software Copy Protection.

The US Institute of Languages moved from their own in-house system to outsourcing their software license management but before they made this important change they had alot of internal discussion and also met with others who had built their own systems to get their advice, the feedback was instructive. Also, the CEO didnt want to move to a stronger protection and Jason had to convince him of the merits of a change along with the issues and costs. Finally, Jason was once a Software “cracker” himself and his story of his change in attitude as “poacher turned gamekeeper” is interesting for any Software ISV.

He discusses important industry questions like:

1. Love it, hate it or necessary evil? What are the pluses and minuses of implementing a licensing system?
2. Tell us a little about your most recent implementation, what were the benefits from the investment?
3. What vendors have you tried and what were your impressions of them?
4. What do you think is better, hardware dongles or software activation and why?
5. What other reasons would you use software licensing?
6. What do you think of developing license management in-house vs. outsourcing?
7. What are your general thoughts about software piracy?
8. Some developers hate DRM, Why bother with copy protection or licensing at all?
9. What would be your top tips for someone starting out with licensing?
10. Is there anything else you would like to share with the audience to help them understand more about software licensing and copy protection?

Click below to play the podcast:

About the ISV:

The U.S. Institute of Languages was formed in 1995 and developed The Visual Link™ Spanish Course, an unparalleled method for learning Spanish.

The Course has been sold and used by individuals in over 130 different countries around the world.

The course has also been, or is currently being taught, at major U.S. corporations, government agencies, and universities. The success of the course has come because of one basic reason–it really works!

It helps individuals learn to speak and communicate in Spanish in an easy to use, fun and effective format.

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As the Flex platform from Acresso is most pervasive in the group studied (software with an average value of more than $4,000 USD per seat) their license solution showed the most cracks.

This research is obviously only a very small sample of all the applications that are shipping and those that have been cracked but it does show the main ways crackers attack software and areas where ISVs should put more effort to strengthen their products from this threat.

The headlines:

• Tampering or bypassing the embedded license enforcement is a key enabler of piracy.
• Acresso (formerly Macrovision) is still the predominant system used by high value software vendors. In this sample of 83 releases, 73 percent, or 60 releases, used a version of the Acresso FLEXnet licensing system.

• The top five piracy groups (out of 212) contributed 59 percent of the cracked releases in the research sample. The top five most active groups in this sample were Lz0 (Linear Zero), NULL, Shooters, LND (Legends Never Die) and Magnitude.
• Strengthening licensing using hardware dongles or tamper resistant licensing may be useful for preventing overuse within a licensed customer environment, but it should not be viewed as a defense against overt piracy.

For more information or to download the full report, please visit: http://vilabs.typepad.com/vilabs/2009/07/software-piracy-risk-assessment-report.html

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This tends to be regulated via a document called the End User License Agreement, or EULA. Though software licensing can be a paper agreement, it is most often imbedded in the software itself as part of the installation process. In larger corporations much more complex agreements tend to be in place that require considerable legal expertise to manage and negotiate.

As software is "licensed" and not sold to the users an agreement is required to define the "rights" that the user gets when they pay for said license. A software licensing agreement protects the authors copyright and intellectual property rights (IPR) by placing restrictions on the end user in relation to the usage of the application. For example: duplication for purposes other than backup, installation on more than one computer, editing the code, or changing the program in any way is usually forbidden unless the product is "open source". Software licenses might also restrict reverse engineering and bypassing controls intended to cut down on pirating, technology for achieving this is usually referred to as "copy protection software".

Most EULAs also include statements to protect the publisher in the case of any unforeseen circumstances that might arise as a consequence of using the software. This could refer to anything from a computer crash to loss of data, time or income. In addition, generally due to the nature of software no or a limited warranty is given to the suitability or performance of the software.

In general if you are a software publisher it is critical that you "license" your software to the recipient very carefully in order to retain your IPR and the ability to generate revenues from your work. It is also important that you protect yourself from the various legal issues that arise from selling software.

If you are a user you need to be sure what type of license you need and be careful not to abuse the basis  of the license or you could be accused of "software piracy".

Publishers who wish to enforce their software license tend to use other software applications to help them control their IP and these tend to be referred to as "software license management" technologies.

Related posts:

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There are many different types of copy protection working at many different levels. Companies wanting to protect their source code and binaries have a confusing array of options. Part of the reason for this involves the way that the copy protection industry developed. Various techniques evolved over time, often in parallel with each other:

Manual protection—literally!

Copy protection evolved to help software vendors combat an enemy—the software pirate. Because the war against piracy is fought on a virtual battleground, the rules of engagement change frequently as the weapons evolve. In the early days, for example, the weapons used against software pirates were often analogue.

Software publishers would ask questions about the text of the manual accompanying the program, meaning that unless a user had the manual, the software would be impossible to use. Pirates soon got around that problem by photocopying the manuals, until photocopier- proof manuals came along, at which point they had to either become more devious or less lazy, re-keying the manual by hand.

Encoding code: making software secret

Software vendors became more devious, encrypting their code to make it impossible for crackers to disassemble the binary files. This stopped crackers for a short time, but not for very long—they soon realized that although the source files were encrypted on disk, they could not be encrypted in memory because of the performance overhead involved in decrypting code during execution. Software vendors were using loader programs to take the encrypted disk-based file and load it into memory, decrypting it in the process. Once the program was in memory, it was unprotected and therefore vulnerable to the conventional analysis that enabled crackers to strip the copy protection from the source code.

Debuggers proved to be an invaluable tool for the pirates and led to the continuing rise in cracker clubs and the emergence of the warez community, which distributed cracked programs online. While many pirates sold bootleg software for commercial benefit, others cracked and distributed the code as a hobby, enjoying the status associated with being the first to break a particular program’s copy protection.

Riding the loader

The discovery that pirates continued to thwart copy protection mechanisms led to yet another stage of development, as software vendors began introducing loaders that sucked parts of the encrypted program into memory separately, on an as-needed basis. This made it difficult for crackers to analyze the source code using a debugger, because it was never all in memory at the same time. It was difficult, but not impossible. Innovative crackers learned to simply run the program repeatedly through all of its configurations, examining the decrypted segments
as they appeared until the whole binary had passed through the RAM, in a technique known as ‘riding the loader’.

The dongle

Using accompanying text to verify the authenticity of the software was only ever going to be a short term solution. Instead, software vendors took the battle to a more sophisticated level. One popular method in the early days was hardware protection, using the dongle.

This was a plug-in device that would connect to one of the machine’s interface ports. The software would check for the presence of the device before it would run. While effective, dongles were expensive to produce, and so cheaper systems had to be devised.

Today is very different, with a number of options to choose from including the Dongle, Wrapper software and Software Developer’s Kits.

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