Does Microsoft Benefit From Some Cases of Piracy?

The economics here are interesting, but at the end there are some similarities to the gun control debate.

Microsoft Corp. estimates it lost about $14 billion last year to software piracy — and those may prove to be the most lucrative sales never made.

Although the world's largest software maker spends millions of dollars annually to combat illegal copying and distribution of its products, critics allege — and Microsoft acknowledges — that piracy sometimes helps the company establish itself in emerging markets and fend off threats from free open-source programs.

The gist of the beneficial piracy argument is that the retail price Microsoft charges for signature products such as Windows and Office — as much as $669, depending on the version — can rival the average annual household income in some developing countries. So the vast majority of those users opt for pirated versions.

The proliferation of pirated copies nevertheless establishes Microsoft products — particularly Windows and Office — as the software standard. As economies mature and flourish and people and companies begin buying legitimate versions, they usually buy Microsoft because most others already use it. It's called the network effect. . . .

"Although about 3 million computers get sold every year in China, people don't pay for the software. Someday they will, though," Gates told an audience at the University of Washington. "And as long as they're going to steal it, we want them to steal ours. They'll get sort of addicted, and then we'll somehow figure out how to collect sometime in the next decade." . . .

This last quote reminds me of the gun control debate, where we all want to take guns away from criminals but the regulations that do so may have a bigger impact on law-abiding citizens:

Microsoft, like most other software companies, has experimented with technical tricks to prevent copying, such as discs that could be used only once and hardware "dongles" that had to be connected to the PC before a software program could run.

Legitimate users complained bitterly. Such methods caused software bugs and prevented customers from reinstalling programs when their computers malfunctioned, yet hackers quickly subverted each new attempt. . . .