Profits, Not Piracy: Reducing Barriers to Revenue

Piracy is illegal but I’m willing to bet you’ve done it before. Music piracy was all rage during the IRC, Napster and KaZaA days. Then software piracy took over with shady shops in Sim Lim Square and around neighborhoods getting busted regularly for hawking applications and games mainly for the PC.

A decade ago: Remember this?

More than a decade ago: Remember this?

Move forward ten years, piracy is so easy. Bit torrent was once a difficult thing to explain to mainstream users, now nearly everyone has used it before. Of course, P2P is not illegal but most of the content shared bear copyright infringements.

 

The knee jerk reaction is to get ISPs to police their users. But, that is never going to work out.

 

Piracy is becoming more accessible and there’s no barrier to entry. The knee jerk reaction is to get ISPs to police their users. But, that is never going to work out. Anime supplier Odex would tell you of its difficult journey in suing Singaporean pirates. It just isn’t worth it.

Firms should take the initiative and all the more so since they are directly affected by it. The right way to solving piracy is not to pursue but to offer.

 

Who are the pirates?

It is hard to identify the pirates but we can make things easier. People who will pirate whatever the price will always pirate. You can offer them a great piece of software for $1 and they will still take the free route. These are those I label as beyond hope. There’s nothing you can do about them except hope they do not multiply. And there’s plenty you can do to ensure that they don’t.

The majority falls in the group that are willing to pay something as long it is within their means. I fall in that group. I am sure many students and teenagers do as well. When I was a teen, I could have been slightly ahead of the curve for me to need Adobe and Microsoft suites but its now a no brainer for the current and future generations.

Opportunity Lost: Adobe's Creative Suite is one of the most pirated pieces of software.

Opportunity Lost: Adobe’s Creative Suite is one of the most pirated pieces of software.

I was and remain not a very music type of person. I enjoy serene relaxing tunes and occasionally some rock but that’s about it. As such, I was never interesting in pirating music but so many of the age of 13 and up were. Would they have bought music if it was affordable enough? Probably.

There’s a market that wants to pay for products but are not able to do so currently and so, they turn to piracy. Piracy is wrong but the solution should come in form of price model adaptation rather than an unwieldy stern rod.

 

Pragmatic Solutions

When we look at different prices for the same product, the need to be able to segregate the market is paramount. Else, everyone will just buy at the lowest price tier. People will front as students or kids to get the lowest price.

Fixing this is not something entirely new. Software providers have begun linking software to personal IDs. This ensures non transferable rights. Platforms such as Steam, mobile app stores (iOS/Android/WP) and even software like Microsoft Office 365 are now purely tied to a single user.

In order for these foundations to take the next step, software and services must not be tied to only a generic User ID or an email but an online identity. I’ve written previously on why a real identity online is the key to moving the web forward and this builds perfectly on that. These online identities will capture age and educational status, attributes that are generic enough to prevent personally identifiable privacy risks.

In a sense, what we are trying to recapture is how student mobile plans are offered. In Singapore, students enjoy unlimited SMS and free calls when they are within the geographical boundaries of their school. This is done by presenting a student pass on signing the contract.

SingTel's Youth Benefits

SingTel’s Youth Benefits

There’s no reason why the same cannot be done online. We just need the platform to mature. I’ll touch briefly for those who have privacy concerns. A real online identity is not a bad thing. At its worst it’s just as bad as having a NRIC or a SSN. The mindset must be changed so that behavior online is not laissez faire but rather one that is public just like how it is when you step out of your home.

 

Most people do not wear a mask when they leave their homes, do they?

 

When people learn to behave as though they are in public, on the internet, no one is going to bother if they are truly identifiable. Most people do not wear a mask when they leave their homes, do they? The internet is currently a place of lawlessness because everyone is behind a mask and no one has to take responsibility for any action they take. The solution is the exact same one that brought civilized societies and countries together – allow individuals to be held accountable.

Anyways, back to the topic. With proper online identity management, firms will have all the prerequisites needed to tailor to each age group and thus, price accordingly.

 

Current Solutions

Of course, what I’m suggesting is not brand new. Microsoft has certain deals with schools and so does Adobe with their student packages. But these deals are not vary prevalent outside the United States. On top of that, these are dependent on whether the schools make the deals or not. I’m looking to push current solutions to the next level because doing so opens up vast new untapped markets and potentials.

 

I’m looking to push current solutions to the next level because doing so opens up vast new untapped markets and potentials.

 

 

Pricing it Right

An economist will tell you that pricing is everything. For whichever targeted group, a firm should ensure that 80% of that group can afford it. This relies on the famous 80-20 rule. Choose whichever guideline you will, just ensure it is priced right and that piracy is not a real draw.

Here’s an example. Microsoft Office 365 is going at $8.25 per month. For everyone. So, I’m going to take that as the adult pricing. What about offering Office 365 at $4.99/mo for college students. High School students can be bought over by $2.99/mo. A universal pricing based on age will make things significantly easier for schools to adapt to.

The knee jerk reaction would be to look at the above and go ‘Microsoft is losing $3.26/mo on college kids and $5.26/mo on high schoolers’. That’s a false conclusion. These people would have turned to piracy. This is why, pricing things right will bring in more profits. Instead of making $0 from the above, firms now stand to take in larger profits because they indirectly enable the prospective customer to make purchases.

Half Empty or Full? This move will breed new customers not lose imaginary profits.

Half Empty or Full? This move will breed new customers, not lose imaginary profits.

With the above mentioned identity platform in place, such subsidized pricing can be switched off when triggered by a change in educational status or age. Very similar to how one no longer qualifies for a student mobile plan (Singapore) after the age of 26.

 

Win-Win

In battling piracy, the real solutions come from adaptation rather than prosecution. Piracy and, to a larger extent, black markets are signals of market failure. These are situations where consumers resort to the risk of illegal activity because it is worth it to do so.

 

These are situations where consumers resort to the risk of illegal activity because it is worth it to do so.

 

The answer is simple – firms should adapt their price models so that such illegal risks are not worth it. It is within their power and they have the incentive to get this right. The ones quickest to get things sorted will capture the market and turn profits unheard of. Steam’s success in software distribution and Apple’s iTunes pricing changes bear testimony to that. There is so much potential when we are willing to let go of stubborn traditional mindsets.

In the long run, piracy will only cease when the actual equilibrium conditions are met in markets. And, it is purely up to the suppliers to meet them.



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