A new study reveals that 35% of the software installed in 2006 on personal computers (PCs) worldwide was obtained illegally, amounting to nearly $40 billion in global losses due to software piracy.  Progress was seen in a number of emerging markets, most notably in China, where the piracy rate dropped ten percentage points in three years, and in Russia, where the piracy rate fell seven percentage points over three years. 
 
These are among the findings of the fourth annual global PC software piracy study released on May 15 in 2007 by the Business Software Alliance (BSA), an international association representing the commercial software industry.  The study was conducted independently by IDC, the information technology (IT) industry's leading global market research and forecasting firm.

"The good news is we are making progress, however, we still have a lot of work to do to reduce unacceptable levels of piracy," said BSA President and CEO Robert Holleyman.  "These significant losses translate into negative impacts on IT industry employment, revenues, and financial resources available for future innovation and the development of new technologies." 

Worldwide, for every two dollars of software purchased legitimately, one dollar was obtained illegally.  Global losses increased in 2006 by more than $5 billion (15%) over the previous year.  Of the 102 countries covered in this year's study, piracy rates dropped moderately in 62 countries, while increasing in 13. 

China's piracy rate dropped four percentage points for the second consecutive year and has dropped ten percentage points in the last three years, from 92% in 2003 to 82% in 2006.  By reducing China's piracy rate by ten percentage points over three years, more than 864 million dollars in losses was saved, according to IDC.  The reduction in the piracy rate and the savings are the result of government efforts to increase the use of legitimate software within its own departments, vendor arrangements with PC suppliers to use legitimate software, and increasing industry and government education and enforcement efforts.  The legitimate software market in China grew to nearly $1.2 billion in 2006, an increase of 88% over 2005.  Since 2003, the legitimate software market in China has grown over 358%.  

"Considering the vast PC growth taking place in the Chinese IT market, this continued decline in China's software piracy rate is quite promising," said Holleyman.  "BSA is encouraged by the commitment from the Chinese government to ensure legal software use.  We look forward to continued dialogue between the US and China aimed at addressing issues that affect both economies."

Commenting at the Asia regional launch was Jeffrey Hardee, Vice President and Regional Director for Asia, "Of the 15 individual markets examined in the Asia-Pacific region, the rate of piracy actually dropped in 11 and stayed the same in 4. Despite these results, the average piracy rate for the region increased by 1 point to 55%.  This seems counter intuitive, but China's and India's share of the PC market in the Asia Pacific region grew from 42% in 2005 to 46% in 2006 and this has the mathematical effect of dragging the regional average upward toward the China and India average, even though the piracy rates in both countries came down in 2006." 

Hardee added, "Governments in Asia Pacific have recognized the contribution and vast potential of the IT sector as an economic driver and the corresponding importance of reducing software piracy. Today, more than ever, governments in the region, working together with industry, are strengthening IP policies, educating consumers and businesses on the benefits of using legal software, introducing enterprises to ways to manage their software assets, and conducting concerted enforcement actions against the use of illegal and unlicensed software.  As respect for IP in the Asia-Pacific continues to grow and the region's IT market segments mature, local companies and industries will expand and move up the value chain. In fact we have already seen evidence in the region of an increasing proportion of investment by the private sector being directed towards the development of next-generation technologies and higher-value IT products and services. This reinforces our view that strong protection for intellectual property rights encourages innovation."

When talking about China, Hardee pointed out: "BSA has been working very closely with the government and local industry associations to raise awareness of IPR protection among the general public and enterprises. Since 2005, we have held nearly 40 seminars on software asset management (SAM) in China to help Chinese enterprises reduce risks arising from the illegal use of software and improve their competitiveness. In 2006, BSA held its first BSA Annual Meeting outside the U.S., in Beijing, highlighting the fact that BSA and its members attach great importance to the Chinese market and have a long-term commitment to this market. We are happy to see a significant drop in China's piracy rate over the past three years. We look forward to continued cooperation with related government agencies and local trade associations in the efforts to protect IPR and promote software innovation in China."

In addition, the study indicates that even relatively low piracy rates can amount to huge losses in large markets.  For example, while the US had the lowest piracy rate of all countries studied at 21%, it also had the greatest total losses at $7.3 billion.  China saw the second highest losses at $5.4 billion with a piracy rate of 82%, followed by France with losses of $2.7 billion and a piracy rate of 45%.

The following chart illustrates average piracy rates in 2006 by region: 
 
"A number of factors contribute to regional differences in piracy:  the strength of intellectual property protection, the availability of pirated software, and cultural differences," said John Gantz, chief research officer at IDC.  "Reducing software piracy around the world will take much more work and investment, but those efforts will pay off in the form of stronger local IT industries that drive broader economic growth."

"The critical elements of the global fight against software piracy are education, strong government policy, and enforcement," said Holleyman.  "Expanded access to the Internet in emerging markets is making piracy more convenient, which makes it all the more imperative to keep up anti-piracy efforts." 

The BSA-IDC Global Software Piracy Study covers piracy of all packaged software that runs on personal computers, including desktops, laptops and ultra-portables.  The study does not include other types of software such as server- or mainframe-based software.  IDC used proprietary statistics for software and hardware shipments and enlisted IDC analysts in 50 countries to confirm software piracy trends.