Thursday, January 04, 2007

How Software Pricay Helps Microsoft

I just came across an interesting excerpt from Microsoft vs. Open Source: Who Will Win?

...we were also surprised to find that piracy may end up increasing Microsoft's profits. To understand why, notice that there are two types of pirates: those who would not have bought Windows in the first place because it is too expensive, and those who would have bought Windows but now decide to pirate it. The first category increases Windows' installed base without affecting sales. As a consequence, this group increases the value of Windows. And thanks to these pirates, Microsoft is able to set higher prices in the future (because the value of the system goes up). In addition, having these pirates means that Linux's installed base does not grow as much as it would have if piracy weren't there. The second type of pirates (those who in the absence of piracy would have bought Windows) reduces Windows' sales and profit. Thus, if the proportion of first-type pirates is sufficiently large, Microsoft's profits will increase with piracy.

You can bet category one vastly outnumbers category two.

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