Bogus Stats Again: BSA Puts Out Its Yearly Propaganda About Software Piracy

from the aren't-we-done-with-this-yet? dept

For the 9th year in a row, the Business Software Alliance (BSA), an organization that mainly represents Microsoft's interest, has put out its ridiculous "Global Software Piracy Study", which argues that tons and tons of software is being pirated, and if only people paid for it, there would be $63.4 billion more going to software companies. We've been criticizing the ridiculously laughable methodology of the report since it began, and even have seen the company that does the research, IDC, admit that the BSA exaggerates what the report actually says. We've done multiple detailed analyses of how the BSA's stats are misleading (or just flat out bogus). And yet, because there are magical numbers involved, the press just loves to parrot the claims without any skepticism.

This year's report is no different. It's more of the same ridiculousness, with a clueless press reporting (totally inaccurately) that the study says that software piracy "costs" the economy $63.4 billion. That's simply not true. What the report did find was not actually surprising or even very interesting. It's that people in developing countries tend to infringe more often. You probably knew that already, but if you wanted evidence for that, you shouldn't look to the BSA and its bogus stats, but a thorough, comprehensive and independent review of the market, such as the one done by Joe Karaganis and SSRC last year. That report found the reason that there was increased piracy in developing markets was because clueless companies don't realize that people aren't going to pay a month's salary for a single digital good.

Of course, rather than recognize it's their own business model failings at issue, the BSA is once again using this report to call for "tougher penalties" for infringement. This despite the fact that no study has ever shown that such penalties actually drive more people to buy.

Thankfully, at least some people are calling the BSA out on its bogus report, such as by noting that it's political propaganda designed to get legislation like SOPA and PIPA passed. The reality, of course, is that it shows how out of touch the BSA is with the innovation economy today, instead working to lock up and protect the interests of its major funders: Microsoft, Symantec and Intuit. Those companies are threatened by upstarts with better business models, and the best they can do is to support legislation that will lock down the internet, causing more harm than good for true innovation.

The "Bogus Stats Again" report from the BSA isn't about dealing with piracy. It's a way of white washing an agenda of protectionism for some large software companies who don't want to compete or to adapt.

Filed Under: bogus stats, bsa, pipa, software piracy, sopa
Companies: idc, intuit, microsoft, symantec

BSA Again Lies With Stats; IDC Should Be Ashamed To Put Its Name On Pure Nonsense

from the not-again dept

For nearly a decade now, research firm IDC has done research for the Business Software Association (BSA), which BSA has long used to purposely mislead the press and politicians. Back in 2004, at least, the research at IDC was willing to admit that the BSA was being purposely misleading with its report, and yet it's continued to do the research and stand by it year in, year out -- despite the continued efforts to use the stats to flat out lie. As far as I'm concerned, this makes all IDC research totally suspect. Until IDC steps up and admits that the research it has put together does not say what the BSA claims it does, IDC has to be considered a joke.

This year's study, of course, was no different than in past years, so we'll point you once again to the explanation we put together in 2008 of how the BSA blatantly misleads with statistics.

Beyond the basic report, though, the BSA likes to dribble out other ridiculous claims based on the same report from May. The latest, is the blatantly false and simply laughable claim that "reducing software piracy would inject $142 billion into the global economy and create nearly 500,000 new jobs. This is wrong. Not only is it wrong, it's been widely debunked a variety of times. There are two key (but related) problems. The first, is that IDC/BSA count "ripple effects," which they don't seem to realize mean double, triple or quadruple counting the same dollars. But, more importantly, they only count those "ripple effects" in one direction. That is, they look at how they believe software companies would make more money (and then hire more people and pay more taxes) if there was less software piracy, but they don't even pretend to cover how paying for such software would mean tons of others would employ fewer people and pay less in taxes.

And, if you dig into the details, as Glyn Moody recently did (amusingly, after having to dig through many, many different reports to finally discover IDC's questionable methodology), you realize that reducing software piracy actually would probably do more harm than good for jobs and tax revenue in many areas:

One thing that is always omitted in these analyses is the fact that the money *not* paid for software licenses does not disappear, but is almost certainly spent elsewhere in the economy (I doubt whether people are banking all these "savings" that they are not even aware of.) As a result, it too creates jobs, local revenues and taxes.

Put another way, if people had to pay for their unlicensed copies of software, they would need to find the money by reducing their expenditure in other sectors. So in looking at the possible benefit of moving people to licensed copies of software, it is also necessary to take into account the *losses* that would accrue by eliminating these other economic inputs.

One important factor is that proprietary software is mainly produced by US companies. So moving to licensed software will tend to move profits and jobs *out* of local, non-US economies. Taxes may be paid on that licensed software, but remember that Microsoft, for example, minimises its tax bill in most European countries by locating its EU headquarters in Ireland, which has a particularly low corporate tax rate....

So in addition to causing money to be taken out of the country (and hence the local economy), licensed software would probably also bring in far less tax than money previously spent on local goods and services, which would generally pay the full local taxes.

Another factor that would tend to exacerbate these problems is that software has generally had a higher profit margin than most other kinds of goods: this means any switching from buying non-software goods locally to buying licensed copies of software would reduce the amount represented by costs (because the price is fixed and profits are now higher). So even if these were mostly incurred locally, switching from unlicensed to licensed copies would still represent a net loss for the local economy.

Similarly, it is probably the case that those working in the IT industry earn more than those in other sectors of the economy, and so switching a given amount of money from industries with lower pay to IT, with its higher wages, would again *reduce* the overall number of jobs, not increase them, as the report claims.

Of course, a bunch of folks have been pointing out these kinds of problems with IDC's research methods and with the BSA's claims about them for the better part of a decade. At what point do people start actually holding IDC and the BSA accountable for blatantly lying with stats?

Filed Under: jobs, piracy, software, stats
Companies: bsa, idc

BSA's Canadian Piracy Numbers Based On Hunches, Not Actual Surveys

from the bogus-stats-as-always dept

For years, we've been raising questions about the incredibly bogus stats the BSA puts out every year. There are so many problems with them it's incredible that the group continues to release them each year... and much worse that the press and politicians quote them as if they're factual. However, Michael Geist has discovered that they're even worse than originally thought. In digging deeper into the questionable claims of the report by The Conference Board of Canada that was basically a cut and paste from various industry groups, Geist noticed that the report relied on some BSA data. So he asked for more info on how the BSA determined the "piracy" rate of software in Canada. How many people were surveyed? What was the methodology?

In response, Geist found out that no one in Canada was surveyed, and BSA (and IDC who created the report) simply made an educated guess, assuming the piracy rates weren't all that different than they were in past years. Yet this hunch, based on no actual data, is being used as a definitive source of piracy numbers in Canada? Even more noteworthy, both the BSA and The Conference Board report use these numbers to support the silly claim that Canada is somehow one of the worst offenders when it comes to supporting "piracy." But what was the reason for not surveying companies in Canada?

"Countries that are included in the survey portion are chosen to represent the more volatile economies. IDC has found from past research that low piracy countries, generally mature markets, have stable software loads by segment, with yearly variations driven more by segment dynamics (e.g. consumer shipment versus business shipments of PCs) than by load-by-load segment."

So... just to get this straight. IDC doesn't bother to survey Canadians about software piracy, because it considers Canada to be a "low piracy" country. So it just makes up the number... and then the BSA, other lobbyists, research groups, the press and politicians (including the US Trade Representative) use these made up numbers to support the claims that Canada is a high piracy country. Doesn't that seem like fraud?

Filed Under: canada, copyright, piracy, plagiarism, stats
Companies: bsa, idc, the conference board

A Detailed Explanation Of How The BSA Misleads With Piracy Stats

from the and-on-and-on-it-goes dept

A couple months ago, when the Business Software Alliance (BSA) released its latest stats on "piracy," it's VP of anti-piracy, Neil MacBride, gave me a call to discuss my earlier complaints about the organizations methodology. Needless to say, we did not see eye-to-eye, and the phone call did little to resolve our differences. I'm still hopeful that eventually the BSA will recognize that it's doing more damage to its own position by publishing obviously bogus numbers. So, with the organization releasing another bogus stat today, it's time to explain why it's wrong and misleading.

Today's report is an attempt to get the government involved in protecting BSA member companies' business model, by claiming that the US is losing out on $1.7 billion in tax revenue due to "pirated" software. And, of course, it comes with a lovely quote from Mr. MacBride: "The most tragic aspect is that the lost revenues to tech companies and local governments could be supporting thousands of good jobs and much-needed social services in our communities." And the BSA is even so kind as to quantify what that (not really) lost tax revenue could do: "For example, the lost tax revenues to state and local governments -- an estimated $1.7 billion -- would have been enough to build 100 middle schools or 10,831 affordable housing units; hire 24,395 experienced police officers; or purchase 6,335 propane-powered transit buses to reduce greenhouse gas emissions."

Except that this is almost entirely incorrect and it's relatively easy to show why:

1. The report counts every unauthorized piece of software as a lost sale. You have to dig through separate PDFs to find this info, but when you finally get to the methodology it states:

   The software losses are based on the piracy rate and equal the value of software installed not paid for.

   That's a huge, and obviously incorrect assumption. Many of the folks using the software likely would not have paid for it otherwise, or would have used cheaper or open source options instead.
2. The report makes no effort to count the positive impact of unauthorized use of software in leading to future software sales. This is something that even Microsoft has admitted has helped the company grow over time. But according to the BSA's report, this doesn't matter.
3. The report also proudly notes: "Software piracy also has ripple effects in local communities." However, "ripple effects" are easily disproved as double or triple counting the same dollar. Using ripple effects like that inflates the final number by two or three times. In the link here, Tim Lee explains this (in reference to an MPAA study done by IPI, but it applies here to the BSA study done by IDC as well):

   If a foreigner gives me $1, and I turn around and buy an apple from you for a dollar, and then you turn around and buy an orange from another friend for a dollar, we haven't thereby increased our national wealth by $3. At the beginning of the sequence, we have an apple and an orange. At the end, we have an apple, an orange, and a dollar. Difference: one dollar. No matter how many times that dollar changes hands, there's still only one dollar that wasn't there before.
   
   Yet in IPI-land, when a movie studio makes $10 selling a DVD to a Canadian, and then gives $7 to the company that manufactured the DVD and $2 to the guy who shipped it to Canada, society has benefited by $10+$7+$2=$19. Yet some simple math shows that this is nonsense: the studio is $1 richer, the trucker is $2, and the manufacturer is $7. Shockingly enough, that adds up to $10. What each participant cares about is his profits, not his revenues.

   This is a huge fallacy that the BSA an IDC refuse to acknowledge. When I discussed it with them in May, they insisted that they only wanted to talk about piracy rates, not the loss number. I wonder why...
4. Next, if they're going to count ripple effects in one direction, it's only fair to also count them in the other direction. That is, they complain that:

   Lost revenue to technology companies also puts a strain on their ability to invest in new jobs and new technologies. For example, the $11.4 billion in piracy losses to software vendors and service providers in the eight states would have been enough to fund more than 54,000 tech industry jobs.

   But what they don't acknowledge is the ripple effects in the other direction. That is, if (going by their assumption, remember) every company that uses an unauthorized copy of software had to pay for it, that would represent $11.4 billion in money that all of those other companies could not use to fund jobs at those companies. What about all of those jobs?
5. The BSA/IDC stat on lost tax revenue also miscounts on the point above, since it includes the lost income tax revenue from those 54,000 lost jobs, but does not count the equivalent income tax revenue from those other jobs. In fact, in the fine print, the report notes:

   "Employment losses are calculated from revenue losses, and only apply to employment in the IT industry, not IT professionals in end-user organizations. Tax revenue losses are calculated from revenue losses (VAT and corporate income tax) and employment losses (income and social taxes)."

   In other words, the income tax losses only count one side of the equation and totally ignore the lost income tax revenue from the lost jobs on the other side of the equation. Oops.
6. It seems likely that the eventual tax benefits of the unauthorized use of software is most likely to greatly outweigh the lost tax revenue elsewhere. That's because the use of software within industries is a productivity tool that increases overall productivity and output, which would increase taxes beyond just the income taxes of the employees. The study, of course, ignores this point.
7. Worst of all, the report seems to assume that direct software sales are the only business model for the software industry, ignoring plenty of evidence from companies that have adopted business models that embrace free software -- generating billions of dollars for the economy (and in taxes). And that's what this really comes down to. It's a business model issue. If others started adopting these business models as well, there wouldn't be any "losses" at all.

Oh, and just for good measure, the report also falsely claims that: "What many don't realize or don't think about is that when you purchase software, you are actually purchasing a license to use it, not the actual software." That's not exactly true and goes directly against a recent court ruling that said the opposite and goes through a detailed explanation for why a piece of sold software is a sale with restrictions, rather than a license, using previous court precedents.

Most of these points have been made to the BSA and IDC in the past, and both organizations chose not to address them. The fact that they're continuing to use these obviously false numbers and methodology to now push for the government to prop up an obsolete business model should be seen as troubling not just for the dishonesty of it, but for the negative impact it will have on the software industry and our economy as a whole.

Filed Under: bogus stats, bsa, misleading stats, piracy, ripple effects, taxes
Companies: bsa, idc

BSA Releases Latest Stats; Stands By Same Old Story

from the we've-heard-this-before,-haven't-we dept

Every year around this time, the Business Software Alliance (BSA) comes out with a report, put together for the BSA by IDC, about software "piracy" statistics. Every year, since 2004 I call them out on how misleading many of the stats are (or, more specifically, I jokingly refer to the BSA as Bogus Stats as Always). At times, even IDC, who puts the report together for the BSA, has admitted that the BSA has tended to misrepresent the results -- and yet IDC keeps putting together the report every year. The good news, honestly, is that over the past few years, we've seen a changing trend in the coverage of the reports on these numbers, in that more people are calling the BSA out for using the numbers in a misleading way. The BSA, to its credit, has at least tried to be more conscious of how it presents and explains its numbers... sometimes.

Perhaps because of this, in advance of the release of the latest report today, the BSA reached out to me (and I'm sure plenty of others as well) to talk about the report and address any concerns. I spent half an hour on the phone this afternoon with Neil MacBride, the BSA's VP of Anti-Piracy and General Counsel. With him was Marcel Warmerdam an associate VP from IDC. I really appreciate the two spending the time to discuss the latest study with me -- as (this should come as no surprise) we didn't agree on very much.

The report itself seems pretty similar to what's come out in previous years. IDC does a rather credible job in determining the rate of unauthorized use throughout the world. The report this year highlights the fact that the rate of unauthorized use appears to be falling in many countries while rising in a few rapidly developing ones (Brazil, Russia, India and China). This is no surprise, as it's pretty much what anyone watching this market knows happens. I have no problem with the reporting on the rate of unauthorized usage.

Where things get problematic, however, is when the report starts to look at the impact of such things. The report itself shifts back and forth between "retail value of the software" and "losses" as if they are one and the same. By now, it should be quite clear that they are not the same. My second problem is that the report also ties these faux "losses" to a separate IDC report claiming that a drop in unauthorized usage of software would increase jobs, increase revenue in the IT sector and increase taxes. That's inaccurate for a variety of reasons, specifically in that it double-counts the impact of certain things and also only counts the "ripple effects" in one direction.

I raised these questions to both Neil and Marcel, and the summary of the call as Marcel noted at the end is that we'll have to agree to disagree. We didn't discuss the ripple effects issue, because that's actually from a different study than the one released today (though, the one today does reference that report to back up its claims -- which is why I brought it up). However, Neil and Marcel defended the "losses" claim by pointing out that plenty of companies out there (they kept pointing to large companies) would go out and buy the software if they had no other option. Indeed. And, I would probably go out and buy lunch at Pizza Hut if I had no other options, but we don't count it as a "loss" for Pizza Hut when I go eat at McDonalds instead. The fact is that there are other options -- even if some of them break the license agreements. My point is that this is a business model issue that the industry needs to deal with by giving businesses positive reasons to pay, rather than threatening to whack them with a legal stick.

However, what became clear in talking to Neil was that the BSA really does seem to believe that the majority of these unlicensed uses really would be paid for -- which seems like a highly questionable claim. We also very much disagreed over calling unauthorized use of software "theft" (he says it is, and tossed out the old favorite about how it's no different than taking a CD or a pack of chewing gum out of a store). He specifically said "software is a tangible good." The problem is that this is simply not true. I'm sure plenty of software companies and the BSA itself would like it to be a tangible good -- but it is not, and no amount of pretending makes it so.

In the end, Neil suggested that maybe this is a "generational" thing (I guess I'm the young whippersnapper), which I don't think is accurate either. I think it's really more of a business model thing. The companies that make up the BSA have relied on a particular business model for many, many years. That business model depends on government-granted monopolies that allow them to create artificial scarcity. They like that business model and don't want it to go away. However, the market is shifting, and it's shifting due to companies recognizing the fundamental characteristics of software being infinite, which allows them to implement other business models that don't rely on artificial scarcity. We're seeing it all the time, even among some companies who are members of the BSA. IBM, for example, has learned that its real money-maker is in services, and free software helps build that market. Red Hat has shown a similar business model on a smaller scale. And Google, which is a software company (even if people don't realize it), has shown an entirely different model to make its software extremely profitable in a way that "piracy" is of no concern.

The more the BSA talks up fundamentally flawed "losses" the more difficult it makes it for many of its members to recognize that the market is changing, and they need to change their business models with it. The less these companies focused on made up "losses" and the more they focused on creating business models where there are good reasons for companies to pay money, the more they'd realize that unauthorized use isn't the problem at all. With the BSA reports on losses, though, too many of these companies are taught to think that the problem is elsewhere (those darn pirates), rather than in how they view the market themselves. And, that, fundamentally, is dangerous for the BSA's own members. So, I very much appreciate both Neil and Marcel for reaching out and taking the time to talk with me, and responding to my criticisms -- and I hope to continue the conversation with them. But, they did little to change my feelings about the BSA report and its misleading nature.

Filed Under: bsa, losses, piracy, software, unauthorized use
Companies: bsa, idc