The Economist last week pointed out that software industry estimates of $33b / year in piracy losses are bogus.

Here’s the industry’s methodology: Take a census of the software installed on a sample of PCs in a country. Use that to estimate the total value of software installed. Back out the estimated value of software actually sold, and the difference — acccording to the industry — must be the lost revenue pirated software.

The International Intellectual Property Association’s description of how this works is here.

Doesn’t this mean that the software industry thinks the it would sell just as many units at full retail price as it ’sells’ for free? This wouldn’t hold up to the scrutiny of someone one month into Econ 101. At full price, unit sales would be what — 25%? 30%? of the pirated unit volume — not 100%.

Guess who else uses the same basic process? Everyone’s favorite, the music industry. Yes, they would have you believe that in a world with no pirated music, every college student with a thousand bootlegged MP3s would instead have spent $1,000 on that same music. Isn’t it more likely they’d have spent a few hundred at the most — so the industry estimates could be off by a factor of three or four?

Not to mention that some piracy is sampling and thus promotes the legitimate sale of product.

We don’t mean to minimize the problem of intellectual property theft. But throwing around bad faith estimates of the size of the problem pretty much eliminates sympathy for the corporate victims.

Technorati Tags: entertainment industry, piracy

This entry was posted on Monday, June 6th, 2005 at 3:00 am by A Senior Administration Official and is filed under I knew I'd use my Econ major, How Not To Succeed In Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.