How Much Is Software Piracy Costing Your Business and How Can You Prevent the Loss?

By Mike Wozniak  |  About Software Piracy, Software Copy Protection System

Posted:  October 7

Laptop computer with pirate coming out of the screen, holding pirate flag.
  • What exactly is software privacy?
  • How does it relate to my business?
  • What can I do to protect against it?

A lot of people think that software piracy is just illegal copying of software but that's far from the truth. Software piracy is defined as someone using a piece of software who didn't pay for that use

Software usually isn’t actually purchased. It’s licensed. The license is what gives a user the right to use it. End-users often use software in violation of this license, such as sharing copies or installing software on multiple computers beyond the scope of the license. 

If you use software outside the given constraints, you are pirating that software. For example, if you get a one-user license for a piece of software, but then install it on five machines for use by five people, which is beyond the scope of the license, that’s piracy.

However, many people don’t understand that it’s piracy. Consumers commonly share their passwords and movie files, for example. They will also search online for a file or “free” piece of software and click on a link without giving any thought to whether it’s from a legitimate source.

The Five Types of Software Piracy

Software pirates and piracy come in different forms.

1. Forgery or Counterfeit Software

This type of piracy is when you take a physical product and replicate it. Forgers will create similar-looking packaging with logos, copy discs, and create inserts that appear to be the original product. They then sell it far below the typical sale price if you were to buy it from the publisher.

Before the delivery of software over the internet, this was a significant problem for major software companies such as Microsoft. That’s why they added a holographic image on their packaging as a certificate of authenticity. That way, customers knew whether the product came from Microsoft or if it was a counterfeit.

2. Online Piracy

In today’s connected world, online piracy is far more common, and it’s difficult to stop.

In the US, the Digital Millennium Copyright Act — written more than 20 years ago — requires software publishers to notify each online platform of each infringement. It’s simply not possible to find, track, and notify every instance. Even if you were to find every occurrence of piracy, 70% of takedown notices do not lead to the removal of materials.

It’s like a game of whack-a-mole. Authorities can shut down one download or peer-to-peer network and another one pops up somewhere else. Links can be shared freely with unauthorized distributors in a variety of ways.

3. End-User Piracy – aka “Soft-Lifting”

Just because users agree to your EULA (End User License Agreement), it doesn’t mean they will abide by its terms. One study showed that 70% of online users said they found nothing wrong with online piracy. Younger consumers who grew up with social media sharing are even more likely to pirate software and content without guilt.

End-user piracy occurs when:

  • software is copied and shared, 
  • software upgrades are claimed despite not having a legal copy of the original version, 
  • or using software outside of the agreed terms 

One example is using a student version or home version of the software for business purposes.

People regularly lend their software to friends, family, or colleagues. According to the Software & Information Industry Association (SIIA), one out of every four copies of business software is used illegally.

4. Excessive Client-Server Usage

In this case, more users on a network are using a central copy of a program than are allowed by the licensing agreement.

5. Pre-installed Copies

Piracy can also happen by users unintentionally.  Unscrupulous computer resellers may install pirated copies of software onto a computer in order to make a sale, and the purchaser would be none the wiser.  

The High Costs of Software Piracy

Software piracy is widespread. The Software Alliance reports that software piracy runs as high as 37% of all software usage

Software vendors and companies lose nearly $46 billion annually to piracy. Using licensing controls inside your software is like putting a lock on the front door of your software. A well-implemented licensing system can generate far more revenue by enforcing license compliance.

The loss of revenue for software companies is high, and goes well beyond just people using pirated copies of their software. For example, there are labor costs for supporting customers. If you don’t know who your licensed users are and how many computers are licensed, you could end up supporting people that have pirated your software.

Without management, software users are anonymous. People using pirated software could have access to download newer versions and updates of the software without paying, costing software companies significantly more.

Another significant cost comes from a poor user experience.

A user could download a very old version of the software that they found online, and many illicit software download sites inject malware inside the software. So, if there's malware or just poor user experience from using an older version of the software, the user will associate that bad experience with your brand.

Malware from unlicensed software is estimated to cost companies nearly $359 billion a year.

Preventing Software Piracy

Once unlicensed software is released, policing and stopping software piracy is impossible. Using a software licensing toolkit that can be incorporated into your software to add product activation and licensing controls will help you maintain control over your software and prevent software piracy.

When the software with licensing controls is run, a license check is performed. Here is a common example:

  1. During first execution of the software, users are shown a prompt to enter a license key or serial number. 
  2. That license key is checked with a central licensing server to make sure that it hasn't been put on more computers than what was originally purchased. 
  3. A fingerprint of that the user’s computer is stored in the license locally. 
  4. The next time the software is launched, it will compare the fingerprint to the computer on which the software is being used. 
  5. If the software was copied or shared, then installed on a different computer, the fingerprint would be would not match and access would be prevented.

Using this process, copying can be detected by checking the fingerprint every single time the software is run. If the user was unaware that they were using an unlicensed copy, they would be provided an opportunity to purchase the necessary license. The Software Alliance reports that organizations implementing a robust software licensing program can achieve as much as a 30% savings in annual costs.

Can I Implement a Licensing System Myself?

Absolutely, but there are a lot of moving parts and it’ll be cheaper and safer for you to use an existing, already proven system. You'll need a tool that: 

  • generates a fingerprint or a unique identifier on each computer, 
  • generates a unique identifier for every instance of your software license running on a computer,
  • connects to a central licensing server to keep a copy of all of your customers and license entitlements.
  • keeps track of all of the above and makes sure that the customer is only installing the licensed number of copies or using the software according to the defined terms.

Licensing is the central point of your company’s revenue strategy. Flaws in the system’s design are costly and can send you down a path of pitfalls. Additionally, with operating system updates, patches, and the myriad other threats to your software as it runs on customer computers, ongoing upkeep of your licensing business logic is required.

What if your central licensing server is down and your customers can't activate or access the software? That can cause irreparable harm to your reputation, and it can actually cost your customers’ business if they can't access the software that they've paid for. You can lose customers and future business because of it.

Using a software licensing company can give you not only the tools you need, but the expertise in how to make those tools work to your advantage and generate the maximum amount of revenue for your business.

You work hard for your software. You deserve to get paid!

If you’d like to learn more about how to stop software piracy, implement copy protection and licensing automation, talk to the experts at SoftwareKey today or sign up for a free trial.

About the Author

Mike Wozniak is the founder of and responsible for marketing, content and product strategy. When he isn't plotting new ways to help customers solve licensing and business automation challenges, he likes to travel and entertain guests who come to visit the Orlando area.

Mike Wozniak


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