Factors That Influence Software Piracy: A View from Germany

In their sixth annual piracy study, The Business Software Alliance (BSA) provided compelling evidence that software piracy continues to be a global problem.² The BSA estimates that approximately 41% of all PC software worldwide was acquired illegally in 2008 (from 38% in 2007), totalling over $53 billion in lost revenues. Although the overall global piracy rate remains relatively stable, the growing worldwide use of PC’s has contributed to a 84% increase in piracy losses since 2003 (see Figure 1), a number that is expected to continue to rise in the future.

Without question, software piracy has clear and negative economic consequences for manufacturers and distributors striving to compete in a competitive global market space.⁹ In addition to lost revenues attributed to software piracy, it is estimated that a 10% reduction in piracy rates would result in more than 2.4 million jobs globally and an additional $70 billion in taxes. Over the next four years, a reduction in global piracy by a mere one point a year would increase industry revenues by $20 billion.² Software piracy is thus jeopardizing the future growth and development of the IT industry, which in turn disproportionately impacts countries with the highest piracy rates.¹⁰

Much of the popular press and academic attention has focused on the high piracy rates in developing countries such as China (80%), Russia (68%), Vietnam (85%), and others. Unfortunately, as with the multitude of legal, political and sociological problems that developing countries face, solutions for controlling pirated software installations are likely years away. In contrast, the largest dollar losses due to software piracy are in developed countries with high PC usage such as the U.S. ($7.6 billion), France ($2.6 billion) and Germany ($2.2 billion). As a consequence, lowering piracy rates by even a few percentage points in these mega-economies would have a large and positive economic impact.

This study focuses on a comprehensive set of potential determinants of illegal software installations among mid-level business managers in Germany and is important for four reasons. First, Germany suffers from a significant software piracy problem and is ranked seventh globally in terms of dollar losses.² Second, mid-level business managers constitute one of the largest markets for software and a better understanding of this software segment has important strategic ramifications for designing piracy policies and communications. Third, Germany’s piracy rate at 27% is dramatically lower than the 33% averaged by European Union countries and is one of the few developed countries that has produced a substantial reduction in losses due to pirated software. Specifically, software piracy losses in Germany fell from $2.3 billion in 2003 to $1.64 billion in 2006, a drop of 28%. Although the total dollar amount has increased in 2008 due to inflation, the piracy rate is dropping and remains low compared to other countries. Lastly, although piracy rates and loss revenues are high in rapidly developing countries such as China ($6.7 billion) and Russia ($4.2 billion, they have shown dramatic improvements from 2003–2008. A better understanding of the factors that curtail software piracy in low piracy rate countries like Germany may help to further reduce the rates in countries with improving infrastructures and economies.

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Factors Determining the Demand for Pirated Software

Over the past decade a number of studies have started to identify the potential determinants of software piracy. Building on these conceptualizations, the hypothesized relationships we tested are presented in Table 1. As a note, because of its position as an economic power, two factors that have been found to increase software piracy in less developed countries, having underdeveloped economies and poor IT infrastructures,^6,11 were not investigated in the current study. Instead, this study focused on more individual level factors such as attitudes towards piracy and knowledge of the consequences of software piracy.

Knowledge of external consequences of software piracy: We conceptualize the external consequences of software piracy in terms of consequences to the industry and consequences for violators. Consequences to Industry: Although not well researched, there is some support that software piracy is more likely to occur for individuals who lack the sensitivity of how their actions affect others.⁶ In fact, the BSA considers educating consumers about the consequences of software piracy on the economy and software industry as one of its “five concrete steps for reducing software piracy.” Consequences to Violators: There is some evidence that countries with stronger regulatory environments and enforcement policies have lower rates of illegally installed software.² In contrast, Bagchi et al.¹ found no correlation between trade regulation and piracy, noting that it is possible that the wide availability of less expensive software has decreased the need for regulation, and thus enforcement.¹

Fear of personal legal consequences: The perceived threat of punishment, is posited to decrease an individual’s desire to acquire illicit software, particularly as it relates to having to accept personal responsibility for piracy violations.^7,8 We thus distinguish the fear of personal legal consequences (internal orientation) from consequences to violators (external orientation) based on one’s own fears of being caught with pirated software. Few research studies have differentiated the impact that these two consequence orientations have on software piracy.

Access to illegal software: Greater availability of illicit software and the ease of which it can be used without technology support have been found to increase illegal acquisition.^4,8 Because the Internet has made it easier than ever before to download illegal software, access and piracy are expected to grow more pronounced in the years ahead.¹² Of interest, and consistent with recent research,¹ questions remain whether the downward trend in software prices will counteract the piracy effect due to increased access to illegal software via the Internet.

Attitudes toward software piracy: Many consumers perceive no wrongdoing in the acquisition of pirated software from ccompanies that they believe charge too much for software.⁸ For example, the BSA found that although 95% of parents felt that shoplifting is a crime, 30% felt it was acceptable to download files on the Internet without permission.¹ In many ways, software piracy is accompanied by the view that it is stealing from the rich and giving to the poor and seems to be more pronounced in developing countries.³ Combined, ethical and moral judgements are expected to play an important role in the decision to illegally install software.⁴

Social Norms: The relationship between collectivism and piracy has been well studied^1,11 and Germany is not typically characterized as a collectivist country.⁵ Therefore, we focused on peer-oriented social norms emanating from an individual’s perspective of “if many people do it, it isn’t really wrong.” For example, everyone knows that speeding is illegal; however, it is considered to be an acceptable behaviour, particularly in Germany, where high driving speeds are common as long as it doesn’t jeopardize the safety of others. This “social norms approach” (me-too orientation) has not been well studied in the piracy literature.

Demographics: While many studies show a gender difference, with more males acquiring illicit software with a higher frequency than females,^4,8 the results are somewhat contradictory with respect to age. In general, however, younger consumers have been found to have higher piracy rates than older consumers.⁴

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The Study and Key Findings

A survey was conducted involving 108 mid-level managers attending an MBA level executive education seminar at a German University. Nearly all of the participants received their undergraduate training in Western Germany. Data were collected regarding the amount of illegal software currently installed on respondents’ computers, along with Knowledge of External Consequences of Software Piracy, Fear of Personal Legal Consequences, Access to Illegal Software, Attitudes Toward Software Piracy, and Social Norms. Respondents provided their level of agreement with each of 29 piracy related statements on a 5-point scale ranging from strongly disagree to strongly agree. Table 2 provides sample questions for each dimension. Although respondents provided their age (49% < 30 years old, 51% 30 +) and gender (60% male, 40% female), neither was found to be a significant predictor of reported software piracy behaviour in our model.

Prior to testing our model, a factor analysis was conducted to determine whether the proposed piracy dimensions were present in the data. The results provided clear support for the existence of each of the dimensions. Using a regression analysis, four of the five factors studied significantly impacted the amount of pirated software installed by German managers (R-Square = 69.1%), all in the expected direction. As shown in Table 3, the strongest predictor in our model was the respondents’ personal attitude toward piracy, with more negative perceptions leading to lower illegal usage. The second greatest deterrent was the fear of personal legal consequences one would face if they were caught with illegal software; greater fear leads to lower software piracy. Knowledge of the external consequences of software piracy was also a significant predictor of piracy; greater knowledge leads to lower illicit usage. Lastly, access had a positive impact on piracy, with greater availability leading to higher illegal usage; a significant finding even with downward trending software prices. Importantly, each of the above factors explained a different part of the variance in software pirating and impacts piracy activities by German managers in a different way.

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Conclusion and Strategic Implications

In this exploratory study, we investigated the relationship between a comprehensive set of factors and software piracy in Germany. One of our goals was to study software piracy in a country with large expenditures in IT software, yet low and improving piracy loss rates. Understanding piracy in countries with lower piracy rates offers a means to lower illegal software installation behaviors in developing and/or high rate countries. Four dimensions were found to be significant predictors of software piracy: one’s personal attitude toward piracy, personal legal consequences, knowledge of the external consequences of software piracy, and amount of access to illegal software. The fact that our sample was made up of practicing managers and that nearly 70% of the variation in software piracy was accounted for in the model increases confidence in our results. In this regard, we have contributed to the literature by offering insight into how our research can be extended into other global environments.

Our findings differ from those obtained in other studies in a number of important ways. First, unlike research conducted in less developed countries, economic and infrastructure issues were not included in our software piracy study. Instead, we focused on more “psychological” drivers of software piracy that could be addressed via communication programs rather than slower-to-change economic infrastructures. Our findings support a more “internal” rather than the “cultural” orientation for reducing software piracy that was found in other studies.¹ Specifically, our study found that personal attitudes, knowledge of consequences of software piracy and the fear of personal legal consequences had significant impacts on piracy, while peer-orientated social norms did not. Combined, these differences highlight the need for greater cross-cultural studies on software piracy, especially those incorporating more comprehensive frameworks.

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Strategic Implications

While the BSA has developed five recommendations for reducing software piracy, (1) implement the WIPO copyright treaty, (2) create strong and workable enforcement mechanisms, (3) dedicated resources, (4) increase public education, and (5) lead by example, most are long term solutions requiring a cooperative effort between the software industry and country governments. A key question is what can thus be done to reduce the amount of illegal software installations in developed countries?

The findings from this study lead to specific short- and mid-term strategic recommendations that can influence illegal software installations among business managers in developed countries like Germany, and longer-term strategies for developing countries.

1. According to the study, managers more knowledgeable about the negative ramifications of software piracy are less likely to install illegal software. Strategically, trade associations, individual companies and governments need to partner to develop integrated marketing communication (IMC) campaigns to educate consumers about negative consequences of software piracy. While these groups have paid only lip service in the past, very little has actually been done in this regard.
2. We also recommend that more research on a global scale be done to assist in the development of effective communication campaigns. Specifically, research is needed to address the best ways to educate the consumers about the harmful aspects of software piracy. From a traditional IMC perspective, the most logical target audiences in terms of both piracy potential and likelihood of influencing their behaviors has yet to be identified. In addition, message content, structure, format and source need to be investigated to determine those that work best across varied usage scenarios and target audiences. For example, although as yet untested, it seems likely that those messages that emphasize facts pertaining to the negative social and economic (jobs) consequences will be more effective than those pertaining to negative impacts on software companies. Finally, more work needs to be done regarding appropriate media for getting this message out to target audiences.
3. Increasing awareness about the negative aspects of software piracy is only the first step in changing beliefs and attitudes.² Unfortunately, it is much easier to increase awareness and educate individuals about software piracy than it is to change their attitudes. As such, changing attitudes is a long term process and a multi-year program with metrics is needed to impact opinions, beliefs, and ultimately attitudes.
4. Our research shows that legal ramifications influence software piracy behavior. It supports the BSA’s² recommendation that calls for strong enforcement mechanisms and the commitment of dedicated enforcement resources. However, to make this activity more effective it seems that a multi-step procedure is needed. First, software piracy laws must have serious penalties. Second consumers need to be aware of the penalties. Third, the threat of enforcement must be credible. In closing the loop, these prosecutions must be publicized so that others may see the potential consequences of their actions.
5. The study also demonstrates the direct connection between the availability of pirated software to the amount of piracy. Although circuitous, one of the reasons why people install illegal copies is that they have easy access to this software. Though easier said than done, the software industry and governments must work together to limit the availability of illegal software. The BSA noted that one needed activity is the enforcement of the WIPO copyright treaty. However, more work also needs to be done by individual firms at the product level, through technological methods, to reduce the availability of illegal copies of software.

While we all know that software piracy has evolved into a truly global business with ever-increasing levels of sophistication and technological expertise,¹¹ these security measures do provide some deterrent for the average consumer as does making it difficult to successfully operate pirated software.

While this study represents a starting point for the development of cooperative programs between the software industry and governments to begin to curb this illegal and economically harmful activity, much more work needs to done in this area. We strongly encourage researchers, practitioners, sponsoring agencies, and governments to prioritize efforts in this area.

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