Wednesday, August 24, 2005

The cost of software piracy and why free software won't work

The fall of the dotcoms has substantially illustrated the point that you can't build a business by giving away things free or below cost. But one another fact that has received lesser attention is that as a business you can't do much good if you are always scraping the bottom to find resources. Because you priced your products and services too low you couldn't make enough profit to adequately resource yourself to serve your customers well. One of the stated objectives of our company's is to promote the use of IT in India. The objective is not purely philanthropic. The intention is to work out a business model for a low cost economy. The idea is to bring the cost of software to levels that is affordable for the average Indian customer & enterprise
Consider the difference between what an average American bloke earns in a year - $32000 to what an average Indian manages in a year - $500 and you can understand why a software that costs $3000 is very expensive to an Indian - roughly the equivalent of six years of income for an average Indian. Compare that to how it turns out for an average American - less than 1/10th of his year’s income.Now you could argue with the whole premise of being able to make money selling software in India, when (a lot of people believe) software in general is free in India, given the high level of piracy. So you'd say that going after the pirates would probably improve the prospects of software business in India. In fact a recent study by IDC recommends just that, purposeful action against piracy.
But experiences from elsewhere point to the contrary, for instances tax evasion are higher when the level of taxation is high. When the cost of being on the right side of law is higher than dodging the law, many choose to dodge it. In the end you have a situation that is rife with corruption. The long-term impact of all this is terrible.
Right now software users in India have to pay a very high price for being on the right side of law (own legal software) especially when you compare it against their earnings. So many resort to pirating software. Does it help? Not so. There is no support for such software and while it might be easy to manage consumer software, things aren't quite that simple when it comes to enterprise software. In fact acquiring and running pirated enterprise software is difficult. So most enterprises either delay buying software (in turn delaying productivity improvements) or experiment with downloadable versions of free open source software (that their IT departments are ill equipped to handle, besides the IT departments at the enterprises should be looking into the application of IT and not working at writing code to configure the basic IT infrastructure).
Software solutions at roughly 1/3rd the cost of what currently users pay for legal software with an assurance of quality and support can enable more people to use legal software. The important driver is the match between the costs and the ability of the customer to pay for it. The software companies must find a ways to do this profitably. Because if software companies don't make money they will loose interest in the customers and both would end up as losers.

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