Software sinners

Viewed by software developers as an unrelenting affliction that eats into the revenues of authorised channels, the pervasiveness of piracy in the Middle East is, to put it bluntly, beyond farcical. Channel Middle East investigates whether the contemporary strategies used to thwart unscrupulous traders from making a mockery out of the region’s software industry will really make a difference.
Software sinners
By Andrew Seymour
Thu 02 Aug 2007 12:00 AM

There are two aspects to the software piracy story in the Middle East. Both are intrinsically linked and both depend on the other to prevail, but ultimately they are two very separate issues. The first involves end-users who knowingly purchase copied software or, more commonly, breach licensing agreements by installing software on more machines than they have paid for. The other - and the point with which this article is specifically concerned - centres on the replication and distribution of pirated software by IT dealers.

At the end of the day, copied software has to travel through a channel and that often tempts resellers into a world that software vendors urge them to resist. Latest figures from the Business Software Alliance (BSA) and IDC reveal the piracy rate in the Middle East and Africa reached 60% last year, almost twice the global average.

Some markets, such as the UAE, fall significantly below the 60% regional aggregate, while others, such as Egypt and Yemen, find themselves with plenty more work to do.

In Africa, where piracy rates in many countries exceed the 80% mark, the problem is clearly even more pronounced.

All software vendors will, at the very least, acknowledge that piracy is a burden on their activities, but for Microsoft it has virtually become a way of life. The ubiquity of its applications, coupled with the high level of demand its products command, pitches the Redmond-based goliath into a daily battle with resellers, traders and dealers trying to make a quick buck from producing or distributing copied versions of its software.

In the same vein as the majority of its industry counterparts, Microsoft's approach to addressing software piracy has largely been one of education and counseling.

Widespread campaigns enlightening channel partners on the benefits associated with using genuine software - and urging them to share these with their customers - have left resellers in little doubt that dealing in pirated software is strictly against the rules. But with more than US$2 billion in potential revenues disappearing from the Middle East and Africa market each year, the question of whether the message will ever sink in continues to be asked.

While those educational campaigns remain a vital tool in stressing the importance of using genuine software in the Middle East, there is a growing view that it will take a lot more than a few well-chosen words of advice to convince a reseller involved in piracy to curb their criminal behaviour.

Microsoft's decision to publicly reveal the conclusion of recent raids it has carried out on Middle East resellers trading copied software, therefore, is understandably attracting acclaim from legitimate resellers desiring greater protection. Whether it proves to be nothing more than just a classic use of scare tactics or not, the view from some Microsoft resellers is that illegitimate traders will be far less inclined to deal in pirated software if they see fellow lawbreakers exposed for their sins. Inside the last few months, operations initiated by Microsoft and the BSA have culminated in 10 arrests and the seizure of hundreds of disks loaded with pirated software. Earlier this month in Sharjah, three illegal traders were arrested after being caught with 100 assorted pirated CDs and PCs containing illegally downloaded software following a surprise raid carried out by anti-piracy operatives and the UAE authorities.

Following that raid, Jawad Al Redha, co-chairman of the BSA in the Middle East, claimed it was important for tactical initiatives to be sustained in an effort to stamp out crime syndicates. "Our collaborative efforts with local authorities and private organisations have yielded excellent results and have even encouraged other business establishments to join our campaign by providing valuable information about illegal traders in their area," he said. In a region where the market for copied software is larger than for genuine software, it could be argued that these busts barely scratch the surface. But they do succeed in sending out a powerful statement that the authorities will come down hard on perpetrators if necessary, argues Juma Al Leem, director of the censorship department at Dubai Government.

"The only way to deter the proliferation of these unlawful elements is through a compelling show of force," he reasoned. "Our efforts are also a way of encouraging consumers to deal only with resellers offering genuine software as doing otherwise would be tantamount to supporting these criminals. By keeping the industry free of illegal software distribution, we are encouraging more foreign investments and consequently generating new wealth for the economy."

Talal Ahmed Al Zaabi, chairman at UAE-based reseller Grandsys Group, believes the situation could be better resolved by efforts to strengthen relations between Microsoft and the local dealer community. He claims the soon-to-be-formed Dubai Computer Trader Group plans to issue a document to members that will set out clear guidelines towards promoting original software. "There has to be somebody in place within Microsoft to handle these problems before they go to court and open a case," he also added. "Maybe instead of US$15,000 fines, they could make [guilty resellers] buy US$15,000 worth of Microsoft products to sell instead."

Rajesh Keshwani, director at another UAE reseller, Tiger General Trading, feels Microsoft must be careful that it doesn't end up shooting itself in the foot with its aggressive stance on piracy. He suggests there is a danger that the company might end up losing relationships with parties that it could potentially transform into partners.

"Microsoft raids a few resellers, catches them, and the Ministry fines them US$3,000 or US$15,000 based on whichever law they were encroaching," said Keshwani. "They'll go out of business for some time because they can't afford to pay it and survive, but it doesn't actually improve the situation for Microsoft."

The legitimate channel is vital to policing the software reseller market in the Middle East and it is common for vendors to look upon authorised partners as their eyes and ears in the field. "Small and mid-sized business customers rely on our partners' recommendations in nearly 80% of sales interactions; it's important that we're doing all we can to make sure customers and partners are getting what they pay for," asserted Altinordu at Microsoft.

Security vendor McAfee admits that as well as receiving reports about customers who have not renewed their licenses, it also gets routine notifications from partners who spot other resellers illegitimately selling OEM versions off the shelf. Samer Malak, regional channel manager at the firm, believes an education-led approach is still the most effective strategy for tackling the problem.

"We try to provide a lot of awareness for the partners as well as getting end-users to have better asset management in terms of IT budgeting and educating them on where to get their software and not to buy from unknown sources," he said. "We are also trying to make it easy for people to report piracy."

CAD software vendor Autodesk cites the channel as one of its primary weapons in countering software piracy too. "I would actually term our authorised partners as ambassadors for legitimate software because they discuss the benefits of using software and provide customers with support when they have invested in legal software," explained Middle East programs manager Neethu Paul. "Moreover, they are a sort of channel through which we come to know about unethical behaviour in the market because as Autodesk we cannot be in the streets finding out who's doing what," she added.
Autodesk doesn't offer partners any financial incentive for exposing resellers suspected of transacting pirated software, but says there is still a monetary advantage to be gained from flagging up any foul play. "The reward might not be direct, but it influences their business," argued Paul. "If they approach a customer with legal software costing US$4,000 and another reseller gives the same customer a pirated version for US$1,500 then the customer tendency is to go for the pirated version. It influences the resellers' business, which is why they are quite serious when it comes to this matter."

Rewards for "shopping" software pirates tend to come from anti-piracy authorities rather than the vendors directly and although this is considered a common practice around the globe, some resellers privately raise concerns that this mechanism for defeating piracy is vulnerable to abuse.

"One shop owner told me that somebody came to them 10 times, begging them to load Office onto his PC and saying he didn't have much money," confided one UAE channel source. "After all his begging, the shop owner decided to install the software onto his PC and then the authorities came round and imposed a US$15,000 fine. Those guys who catch the people copying software get a big reward so they use all kinds of tricks to make the shop load the software for them."

Meanwhile, in a further move that has divided channel opinion in the market, Microsoft Gulf has this year taken the unconventional measure of naming resellers found to be distributing copied software. Royal Focus Trading and Sun Rose Computer are two Dubai-based resellers that have been exposed by the software vendor following settlements made out of court. While Microsoft stresses that both parties have now abandoned their illicit practices in favour of promoting genuine software, the step of publicly ‘naming and shaming' these traders suggests its mood towards dealing with Middle East resellers ignorant of intellectual property rights has dramatically changed.

Tolga Altinordu, OEM director at Microsoft Gulf, told Channel Middle East: "Although legal action is a last resort, Microsoft is prepared to follow this path and works very closely with government officials and law enforcement agencies in order to protect its customers, partners and intellectual property. Legal action can result in illegal traders being fined, forced to pay damages, and sent to jail. Microsoft will continue to take whatever steps are necessary to protect its honest channel partners and customers."

Other software developers have so far resisted following Microsoft's lead to go public on offenders, although that's not to say its actions haven't been welcomed.

"Publicising the companies' names helps reduce the number of companies involved in piracy," agreed Jacob Alex, channel manager at publishing software vendor Adobe.

"Obviously nobody would want to feature on the ‘shame list' - companies against whom enforcement agencies have taken action."

Autodesk's Paul also believes it is an "effective" way of communicating the penalties that confront resellers who may be considering breaking the rules, but she says it is a policy the CAD specialist is unlikely to follow. "We are still dealing with customers directly, we haven't yet really gone after resellers in such a big way. If we do realise there are resellers selling pirated software then we contact them directly and speak to them. It is addressed on a case-by-case basis," she explained.

A source at Microsoft Gulf involved with driving the vendor's anti-piracy initiatives told Channel Middle East the practice of "naming and nailing" resellers selling pirated software was more than just a knee-jerk reaction to rising piracy rates, but clearly the challenge lies in finding a middle ground between showing it will come down hard on lawbreakers and at the same time making sure that legitimate partners do not feel alienated. Its ability to manage this situation will ostensibly boil down to whether its actions are simply a short-term offensive or belong to a wider long-term strategy.

The other nagging question is whether Microsoft - and other software vendors for that matter - can replicate these tactics in markets such as Egypt and Saudi Arabia, particularly if they don't attract the same level of support demonstrated by authorities in the UAE. What's more, would such tactics be tolerated in other markets or would they merely have the opposite effect? "Vendors usually need to adopt different strategies for each market depending on that market's strength of IP protection, availability of pirated products and even cultural differences," warned Alex at Adobe.

There is also another point to consider and that is while it is all well and good evaluating the ways in which resellers can be punished, the factors that drive a trader to sell pirated software need considering too. Al Zaabi at Grandsys supports Microsoft's step of naming resellers caught pirating software, but also argues that the vendor must explore the reasons why it might be happening. "Nobody has the right to misuse their license but I think the prices for their products are very high," he asserted. "Office can cost up to US$550, which is more expensive than the whole machine now that you can buy a PC for US$400."

Quite whether a reduction in prices would suddenly persuade software pirates to change their habits is debatable, although it is a method that vendors are taking seriously. Adobe, for instance, is running a special pricing system in the Levant that allows commercial users to source products at a fraction of their full market price. The company claims this is helping to offset the impact of piracy by recovering revenue that it may otherwise have lost.

With PC penetration rates in the region rising, the market for pirated software is likely to increase in tandem. The UAE piracy rate, for instance, rose one percentage point to 35% last year, although in reality it should have been much higher given the volume of new PC users. That suggests vendors and the local authorities are gradually winning the battle, lending credence to those who believe that tackling piracy by a process of education is the most effective strategy.

"We haven't done anything like naming someone for the sake of shaming them," explained Malak at antivirus software developer McAfee. "What we are trying to do is educate resellers about the dangers of selling pirated products, like the legal implications and the reputation damage that they might face. We also try to pinpoint the government regulations in that country."

The work that the BSA and other organisations, such as the Arabian Anti-Piracy Alliance, carry out to address piracy cannot be underestimated and remains vital to the future of genuine software resellers throughout the region. However, the truth of the matter is there will always be a market for pirated software so long as there is somebody willing to pay for it and a channel to provide it. Whether education alone is enough to create a healthier environment for authorised resellers remains a question for debate. There is a mounting argument for vendors and authorities to take further forceful action in a bid to make a real difference, even if that isn't to everyone's liking.

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