Global software piracy losses: US$3 or $34 billion?

The Business Software Alliance (BSA) has just released their annual report on software piracy around the globe. This year, they're claiming US$34 billion in worldwide losses—a claim worth investigating in a bit more detail.

One obvious issue is the fact that the US$34 billion in "losses" isn't actually "losses" at all; it's simply the estimated retail value of the pirated software. It's obvious, however, that not every pirated piece of software would be purchased at the full retail price, making any talk of "losses" suspect. IDC estimates, in fact, that only 1 out of every 10 pieces of pirated software should be counted as an actual loss. US$3 billion in worldwide piracy losses? That doesn't actually sound like a major crisis.

The other glaring problem is methodological. There is obviously no way to actually count the number of pirated pieces of software in existence. So how do come up with US$34 billion in losses? Simple—you estimate. IDC's formula is to take the amount of installed software around the world and then to subtract out the amount that was actually sold, which tells them how much software was pirated. Of course, no one actually knows how much software is installed around the world, so IDC uses another formula to figure it out. They take the worldwide number of hardware shipments and multiply it by the average amount of the installed software. How do they know the average amount of installed software? Through surveys and local analyst research.