Piracy crackdown in Asia helps Microsoft in the bank

Efforts to curb software piracy in Asia are beginning to pay off, according to software industry associations battling the problem. For software vendors like Microsoft Corp., that pay off comes in the form of revenue.

In its earnings announcement Thursday, Microsoft executives said that sales in the Asia region increased more than 15 per cent from the year prior, in part due to efforts combating software piracy in Korea and Hong Kong.

“It appears like we have made some progress in certain areas with anti-piracy efforts,” Microsoft chief financial officer John Connors said Thursday in a conference call to discuss the earnings.

Revenue from Asia across all of Microsoft’s business units totaled $836 million, compared to $737 million the previous quarter and $709 million in the third quarter of fiscal 2000. Meanwhile Europe, the Middle East and Africa regions saw a decline in sales from the same quarter a year ago.

“Revenue growth was strong in Asia where relatively healthy PC growth led to strong sales of the Office suite,” said Scott Boggs, Microsoft’s vice-president and corporate controller. “The region also initiated successful anti-piracy campaigns in Korea and Hong Kong, which also contributed to the strong revenue growth.”

With the help of the Business Software Alliance (BSA), an industry trade group that works closely with a number of leading software vendors including Sybase Inc. and Novell Inc., Microsoft has begun partnering with governments and law enforcement agencies to combat piracy. The problem pulls an estimated $12 billion from software industry coffers every year, according to the BSA.

“We’ve had particular success in Korea and Hong Kong,” Tim Cranton, a corporate attorney for Microsoft, said in an interview “The greatest strides have been made with their governments to strengthen intellectual property laws.”

One such legal measure, passed by Hong Kong’s government on April 1, targets one of the major outlets for intellectual property piracy – corporations that run their software without an adequate number of licenses. Hong Kong made an amendment to its Copyright Ordinance that makes it an offense to possess infringing copies of copyright works.

Progress around the world continues to lower the impact of piracy on the software industry. The global piracy rate for PC business software applications dropped to 36 per cent in 1999, the latest year for which figures are available, according to the BSA. While that figure has declined from 49 per cent in 1994, more than one out of every three software applications installed in the world is pirated.

By far, the US accounted for the largest percentage of that piracy, about 30 per cent or $3.19 billion, according to the BSA. The Asia Pacific region accounted for 23 per cent of the losses – about $2.8 billion – led by Japan and China.

In two areas Microsoft focused its efforts on, Korea and Hong Kong, more than half of the software in use is counterfeit. In fact, while Hong Kong’s piracy rate declined between 1994 and 1999, the dollar value actually increased from $64 million to $110 million, according to the BSA.

“What that means though is you have a much larger market for legitimate software,” said Bob Kruger, vice president of enforcement for the BSA. “That also means you’re getting larger sales of legitimate products. The losses are greater, but the gains are greater as well.”

Ed Morin, who manages Novell Inc.’s anti-piracy efforts worldwide, contends that there is still a problem to address. “Perhaps in some regions the percentage of piracy is going down, but a lower percentage of a higher number of computer users is still a lot of money,” he said.

Novell, which is due to release its earnings in May, would not comment on any impact piracy reduction has had on sales in the Asia Pacific region. In its first quarter 2001 earnings report, the company reported revenue from Asia declined 22 per cent from the prior quarter, to $21 million.

Microsoft could not put a dollar value on the financial impact anti-piracy efforts have had in specific regions, a spokeswoman said Friday. In April, Microsoft released its latest figures stating that more than five million units of Microsoft software and hardware were seized in the past year, a dramatic increase from 1999. The company has also said it has taken legal action against software counterfeiters in 22 countries.

One of Microsoft’s most aggressive campaigns began in February 2000 when it released its new Windows 2000 products with holograms on the surface of its CD-ROM software to prove authenticity. The company also implemented an Internet Scanning Tool, which identifies potentially counterfeit products being sold on the Internet. Since then, the company said it has taken down 47,000 illegal Web sites and auctions. In the last two years, Microsoft said it has halted as many as 88,000 online distribution channels for counterfeit software.

Online auction sites, from industry giant eBay Inc. to Microsoft’s own MSN Auction, have contributed to the problem of software piracy, according to the Software and Information Industry Association, which has taken legal action against a number of software pirates selling products online. That group estimated in 2000 that about 91 per cent of all software sold through online auctions is illegal, up about 30 per cent from the prior year.

“The piracy problem is worldwide and it’s not a problem that’s going away,” Morin said. “You can’t completely eradicate it.”

The BSA can be reached in Washington, D.C. at http://www.bsa.org. The Software and Information Industry Association can be reached in Washington, D.C. at http://www.siia.net.

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