An analysis of strategies for protecting digital software products against the Internet piracy using econometric modeling

Transcription

1 An analysis of strategies for protecting digital software products against the Internet piracy using econometric modeling Alexey Laushkin Donetsk National University, Ukraine

2 Structure of presentation 1. An introduction to the problem of digital software piracy 2. An econometric model of digital software market 3. Results of modeling, practical recommendations

3 Hi-tech generation Rating of the most common skills of modern children in Europe and the USA of the 2-5 years age group, % of positive answers from their parents polled Know how to operate a computer mouse Turn a computer on and off Play a basic computer game Know how to open a web browser Know how to navigate between websites Know how to complete a jigsaw Know how to ride a bicycle Can write a name and surname Know how to make their own breakfast Know at least one webaddress 15 Can swim unaided 20 Know at least one address 5 Can tie own shoelaces Source: AVG Digital Skills Study [Electronic resource] // Web address: PAGE 1

4 An information product that can be copied Key characteristics of an information product that can be copied Can be copied Little chance of exclusion from consumption Digital downloadable software Indestructibility Reproduction with close to zero expenses Changeability PAGE 2

5 Worldwide scale and losses of digital software piracy % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Share of unlicensed software in the total volume of downloaded and installed computer programs, % Direct losses from software piracy, mln. U.S. $ Software revenue in 2010, mln. U.S. $ Source: Compiled and calculated by the author based on the data from annual analytical reports of Business Software Alliance [Electronic resource] // Web address: Global Software Top 100 [Electronic resource] // Web address: PAGE 3

6 Correlation between the rate of digital piracy and the share of malicious software installed on PCs in , Russia Ukraine USA China France Great Britain Brazil South Africa Rate of digital piracy, % Share of malicious software, installed on PCs, % Source: Compiled and calculated by the author based on the data from annual analytical reports of BSA Business Software Alliance [Electronic resource] // Web address: and PandaLabs Report 2009 [Electronic resource] // Web address: PAGE 4

7 Stages of modeling Object, subject and purpose of research Stages of econometric modeling: 1) Purpose formulation and development of the model; 2) Analysis of the basic model; 3) Test of the model and conclusions; 4) Recommendations based on the modeling results Object and subject of research. The object of research is the market of digital downloadable software. The subject of research is economic instruments of prevention of unauthorized digital software distribution. Purpose of research. Purpose of the research is to develop efficient micro- and macroeconomic instruments of diminishing the scale of piracy in the monopolized digital software market. PAGE 5

8 Basic conditions of the model Consumers. Consumers differ in their income (willingness to purchase digital software), and they are evenly distributed on the interval [0, I], where I the maximum possible income. By i [0, I] we denote the income of a particular consumer. Value of digital software. The value of digital software with network effects can be expressed in the following way: U net = μd n in which D n denotes the total demand for a digital product, and μ [0, I/2] coefficient, which measures the importance of a network size for a consumer i. Price. Price of licensed software is denoted by p. Expenses on obtaining a pirated program are denoted by c. Additional parameters of the model. Let α (0, 1) be the probability of prosecution for intellectual property rights violation and F (0, I) a respective penalty (sum of money subtracted from a violator s income). PAGE 6

9 Consumption plan for the customers, making decision in favor of one of the alternatives Different groups of consumers have different expected expenses from piracy. This fact has a considerable effect on their willingness to violate the law: for those, whose income is i [c, F + c], expected expenses from piracy will be equal to c + α(i c), which corresponds to the principle of income limitation of liability stipulated by the legislation; for those, with the income i [F + c, I], the total expected expenses from piracy will be equal to c + αf. Therefore, distribution of customers by their financial liability can be represented in the following way: c + α(i-c) c + αf 0 c p F + c I Consumption plan for the customers, making decision in favor of one of the following alternatives: 0 - if buys none U = i + μd n p - if buys licensed software i + μd n (c + αmin F, i c ) - if obtains a pirated copy PAGE 7

10 Analysis of the model Demand function for the licensed digital software: p c + αc D p = I α Profit function of an official producer (with zero production costs): p c + αc π(p) = p I α p* - the price of a digital product, which maximizes the profit of an official producer: αi αc + c p = 2 q* - equilibrium quantity: αi αc + c q = 2α π* - the profit in equilibrium: 2 αi αc + c π = 4α PAGE 8

11 Results of the econometric modeling The conducted analysis of the digital software market econometric model resulted in the following conclusions: CONCLUSION 1 When the value of network effects (the value of digital software) exceeds the value of total expected expenses from piracy (μd n > c + αf), the quantity of pirated digital software declines in line with the growth of expenses on its obtaining. With the increase in the variable c in the demand function, function D(p) is growing: с I p c αc α CONCLUSION 2 Any change in the sum of penalty, connected with the violation of digital product owner s rights, does not affect the rate of digital software piracy: Taking into account the fact that in the demand function D(p) (for the licensed content) the variable F is absent, the function with respect to F cannot be differentiated: F > 0 p c αc (I ) α PAGE 9

12 Results of the econometric modeling CONCLUSION 3 Growth of the expected probability of prosecution for intellectual property rights violation leads not to the decrease but to the increase in the quantity of pirated digital software sold. Despite the growth in the function D(p) with the increase of the variable α : α p c αc (I ) > 0, α q* (the equilibrium quantity of licensed digital software), with the growth of the variable α, decreases: α αi αc + c 2α < 0 PAGE 10

13 Practical recommendations based on the results of the econometric modeling Stimuli for purchasing licensed digital software Additional after-sales service Low cost upgrades to newer versions Developed versioning Free test periods Indexing of web sites, promoting and selling licensed software, in the leading search engines (Google, Yahoo, MSN etc.) Creation of efficient marketing channels in the Internet Factors of pirated digital software utility reduction Increase in the time needed to find and crack pirated software Expenses on software protection from various virus attacks Costs (time and resources) connected with the search of functional analogs of pirated software Campaigns, aimed at informing the prospective consumers obtaining pirated software, of all the risks connected with its use. PAGE 11

14 Practical recommendations with regard to digital products of Kaspersky Lab The controlled Internet piracy stimulates the sales of Kaspersky Lab s digital products It is recommended that only soft (preventative) instruments of influence on users of pirated copies of Kaspersky Lab s digital products should be used as the way to stimulate consumers to purchase licensed copies of the software solutions for information security It is crucial to intensify marketing efforts, aimed at increasing consumer confidence in online purchasing of Kaspersky Lab s antivirus programs PAGE 12

15 Thank You An analysis of strategies for protecting digital software products against Internet piracy using econometric modeling Alexey Laushkin Donetsk National University, Ukraine