54%, 65%, 64% and 78% are the software piracy rates of BRIC (Brazil, Russia, India and China) in 2010. For China, this means only 22% of the installed software is paid for. At the same time in 2010 the ‘PC shipments’ in emerging markets – for the first time in history – surpassed the ‘PC shipments’ in mature markets, 174 million to 173 million (BSA/IDC report May 2011 ). Combined this is good news for hardware manufacturers, but less so for software vendors. Their biggest markets are pirates.

You can buy almost any popular software package on a Chinese market, or download Russian hacked versions from a shadowy server in Siberia. There is no lack of IT skills in emerging markets, especially when it comes to hacking and distributing software illegally. Most vendors tolerate pirated software in the hope that it will lock in customers for future revenue streams, which may or may not happen. Another phenomenon is users buying low cost, low value software to prove legal usage, and then continue using high value pirated software. Some low cost software vendors are doing great business that way, born and bred in emerging markets.

One of the few practices to combat software piracy is when small organizations notify the police or BSA (Business Software Alliance) about their competitor’s use of illegal software. This results in heavy fines or the narrowing of competition. Having relatives or family in the local law enforcement usually helps getting this done.

So why is software piracy so wide-spread? Mainly because of cultural values. Software is not tangible, so why pay for it? And because of licensing prices, which can be out of touch with the business returns of small operations. This is challenging for vendors, because emerging market have two sets of customers; international high value customers who are able to afford software at premium prices and a large low end market where customers cannot afford premium prices, so they pirate software.
And this brings us to the cloud. If packaged licenses can be replaced by a cloud model, could this stop piracy? It will at least help address the issue.

Prices in a cloud model could be fine-tuned according to usage (# users, user type, etc.) and depth of features and functions. But more importantly, if software is only available on tap, you can secure its usage. No pay, no software, like turning on and off electricity or water. So if vendors decide to deliver new versions or updates only though a cloud model, users no longer have a choice. They have to pay.

What about all the pirated software out there already? Apple came up (again) with an ingenious approach. In its iCloud offering, for $25 per year, you can legalize all music on your hard drive in iTunes. To be fair, Android also made this option available in Music Beta Cloud. Strangely enough it is the new kids on the block, Google and Apple, who demonstrate innovation in the consumer market, which could demonstate the possibility of enterprise software vendors in emerging markets. Anybody noticing this in the HQ’s?