Back in January, Terry Myerson, head of Microsoft’s operating systems division, made waves in the software world when he told Reuters that “we are upgrading all qualified PCs, genuine and non-genuine, to Windows 10.”
Non-genuine, of course, means pirated. With that statement, Myerson elevated people illegally acquiring Windows to loyalty-club status. But last week, Myerson backtracked, saying only those with legitimate versions of Windows 7 and 8.1 get the free upgrade to Windows 10. It seems like a common-sense move — why reward folks who steal your product? — but it could harm Microsoft in the long run.
Music was the first digital product to be pirated en masse. Thanks to file-sharing services like Napster, Kazaa, and LimeWire, music-industry revenue plummeted during the early- and mid-2000s. According to the Recording Industry Association of America, music sales have dropped 47 percent since Napster debuted in 1999, and only 37 percent of music acquired in 2009 was actually paid for.
If you’ll recall, the music industry freaked out. It lobbied congress (to little avail) and tried to guilt consumers into paying for the work of art that was the latest Outkast CD, only to watch folks download 30 billion tracks from 2004 through 2009.
Only recently has the music industry started making headwind against piracy. Its method is to give consumers what they want: free music. Music-streaming services such as Spotify and Pandora allow consumers to listen to their favorite music for free online, and artists are compensated based on the number of times their songs are streamed.
Compare that with Microsoft’s predicament. Music piracy gets all the ink, but software piracy is rampant as well, particularly in developing nations. According to a Software Alliance report, 74 percent of PC software in China was unlicensed in 2013. The rate was 60 percent in India, 84 percent in Indonesia, and 62 percent in Russia. The U.S. unlicensed rate was only 18 percent, but the value of that unlicensed software was highest in the world: $9.74 billion. China came in second, with the value of its unlicensed software hitting $8.77 billion.
When Microsoft initially said it would allow pirates to upgrade to Windows 10, it largely was a move to court China. The software market in China is currently smaller than in the U.S., but as the nation of 1.36 billion people modernizes, the high rate of piracy could cost companies like Microsoft billions of dollars.
At first, it seemed Microsoft would take a Spotify approach. It would give Windows 10 to those who otherwise would pirate the OS, and then those users would be eligible for upgrades as Windows evolved. Microsoft could have even implemented a freemium model the company is favoring for some of its cloud-based products such as Office 365. Instead, the company will be fighting the same old fight in developing nations, where lower-income consumers will surely opt for the free, if unlicensed, versions of mainstream software.
There was some wiggle room in Myerson’s statement, though. He said Microsoft is “planning very attractive Windows 10 upgrade offers for … customers running one of their older devices in a non-genuine state.” What this means is unclear — perhaps a discount, or some other way to sweeten the pot for those running pirated software? Perhaps Microsoft finally will have a set approach to piracy when Windows 10 rolls out later this summer.