Channel Praises Microsoft Plan To 'Stigmatize' Software Pirates

On Wednesday, the Redmond, Wash., software giant said it will expand its Windows Genuine Advantage program to reward users of legal copies of Windows XP, but also limit if not restrict access to security fixes, downloads and other updates to users of pirated or illegitimate copies of Windows.

Windows Genuine Advantage, an online authentication program that went into pilot testing in the United States in September, verifies the authenticity of Windows XP. Microsoft this week expanded the program to include 20 more language versions. While the program is currently an opt-in, Microsoft said this week it will require users of Norwegian, Czech and Simplified Chinese language versions of Windows XP to participate in the program if they use the Microsoft Download Center. The expansion of Windows Genuine Advantage comes less than a month after President Bush signed into law the Anti-Counterfeiting Amendments Act of 2003, which aims to protect the intellectual property rights of companies and enables Microsoft and law enforcement to pursue those who "knowingly misuse genuine authentication documents" to make counterfeit products appear to be legitimate, Microsoft said.

System builders said the steady rise in illegal hard-disk loading of pirated Windows and illegal trafficking of Microsoft's Certificate of Authenticity labels is making it tougher to close deals with small- and midsize business customers.

It's not a big problem among enterprise customers that purchase site licenses but it is rampant in the SMB market, despite Microsoft's highly publicized litigation against resellers and global efforts with law enforcement institutions to slow the spread of illegal use of software. "The problem is more pervasive than people take notice of. We compete against technicians that are hard-disk loading, and that's where companies like ours gets hurt," said Joe Stopski, director of sales and marketing at Fusion Microsystems, an OEM Gold System Builder in Centennial, Colo. "We don't sell software as a line item, but as part of an overall solution. If my competitor is hard-disk loading then my solution quote is $2,000 higher and we lose. We're the ones who spec the solutions, put in the engineering effort, and then lose the deal over a line item."

According to the Business Software Alliance, software piracy costs nearly $30 billion annually. Kurt Kolb, general manager of Microsoft's worldwide system builder business and license compliance, said piracy and counterfeiting in the United States costs $7 billion.

Another system builder said he doesn't worry so much about the margins on software sales but that he loses deals worth anywhere between $5,000 and $50,000 and potentially lucrative long-term customer relationships. He said he is pleased that users of pirated and unauthorized versions of Windows that attempt verification through the Windows Genuine Advantage site will be notified that they have a bad copy and advise them to contact their reseller.

"Microsoft isn't going after the installed base but the resellers. Many people who mislicense software are aware of it, but if you want to improve or reduce illegal drug use, and want to cut the chain of selling, the wrong way to do it is to just take enforcement action," said David June, director of development and business relations at Northwest Computer Supplies, Bellingham, Wash., a Microsoft system builder. "You create a culture in which it is stigmatized. This is part of program; they're stigmatizing it."

During the second half of 2005, Microsoft will make the program a requirement for Windows users to get most updates, including security fixes, the company confirmed.

To fend off concerns about a potential virus outbreak among unauthorized users, those who use pirated copies of Windows will be able to get security fixes if they sign up to automatically download security updates, the company also said.

As growth levels have matured in the high-tech industry, and Microsoft looks to new opportunities to bolster its revenue, the cost of piracy to the company, the channel and the overall U.S. economy is being more acutely felt.

Microsoft filed lawsuits against eight resellers nationwide last month for allegedly buying and selling counterfeit and used Certificate of Authenticity labels, and filed hundreds of individual anti-piracy lawsuits over the past 12 months.

During a globetrotting expedition over the past year to assess the scope of the problem, Kolb visited numerous countries, including Japan, India, Singapore, France, Germany, England, Ireland and Spain. All channels in those countries have also been negatively impacted by piracy and counterfeiting, Kolb said, noting that markets in Vietnam and China are the most affected.

Kolb said users are "accidental victims" of unscrupulous dealers, but added that legitimate system builders and service partners also suffer lost revenue in sales, support and installation contracts.

To entice better behavior, Microsoft is offering small rebates to encourage system builders to purchase authorized versions of Windows through distribution.

Microsoft will also offer new software incentives to consumers and business customers who pass the Windows Genuine Advantage program, including access to Microsoft Photo Story 3 for Windows, Winter Fun Pack 2004, a 50 percent discount on MSN Games by Zone.com, a six-month trial of Microsoft Office OneNote 2003, a 50 percent discount off hosted Windows SharePoint Services, a 50 percent discount on Microsoft List Builder service and a 30 percent discount on Microsoft Office Outlook Live service, Microsoft said.

The Microsoft executive offered no comment when asked if Microsoft is concerned about cracking down in emerging markets, where Windows is competing heavily against open-source offerings such as Linux. He said his job is to clean up the channel.

"Were working to shut off sources of illegitimate keys, and we're stepping up action against those who illegally distribute Windows," Kolb said. "I don't focus on open source as much as delivering value to channel."