Unmasking the hidden market

Nov 26, 2012

Michala Wardell of the BSA l The Software Alliance says the channel is being undermined by opportunistic partners

The exchequer secretary David Gauke opened up a hornet's nest when he accused homeowners who pay tradesmen in cash as “morally wrong”. The ensuing debate demonstrated the breadth of the domestic ‘hidden market’.  However, the practice of bending the rules without any real sense of impunity isn’t limited to homeowners. This mentality is also eroding business purchasing decisions throughout numerous industries – the buying and selling of software being no exception.

BSA l The Software Alliance’s most recent study into global software piracy found that in the UK more than one in four pieces of software is unlicensed and therefore illegal. The severity of this particular problem within the industry is bewildering given business’ utter dependence on technology. Although companies must accept responsibility for these kinds of shortcomings and their repercussions, the reasons they may be at fault do vary; from simply and naively cutting corners to save time and money to wilfully disregarding copyright law by knowingly buying too few licences to match their software assets.

However, in many cases software resellers, who have had to make a number of adjustments to their software strategy to keep up with modern businesses’ demands, have become complicit by offering their customers cheaper but inappropriate volume licences, in order to appear ‘helpful’ and secure the deal. An example of this type of practice would be offering a non-education organisation an education licence or a business a Home licence rather than a Professional license. 

Suggesting a cheaper deal to relieve the financial burden on the company and curry favour with the reseller may appear on the face of it, a well-intentioned act rather than an improper contravention of copyright law. However, it’s this kind of activity that is undermining the evolution of a channel which has received plaudits over recent years for striving to make the transition from providing a limited sales function to a legitimate and influential business advisory role.

It also amounts to software piracy and inadvertently exposes companies to onerous enforcement activity by the BSA, often resulting in companies being forced to pay out considerable sums of money to become legally compliant. Indeed the cost to UK businesses caught using unlicensed software was in excess of £3.6m for the last three years alone (2009-2011). In light of these consequences, resellers should be using their position of authority and knowledge to advise companies on how they can achieve compliancy with the law, not the opposite.

This misguided practice is not helping the Treasury’s coffers either. Following the Treasury accusation of homeowners paying for services with cash, it was reported that the Government loses about £2bn each year to the black economy as tradesmen fail to pay VAT or income tax by not declaring payments and keeping them “off the books”. Similarly software piracy is costing the UK economy £1.2bn. Nor is this practice helping the wider reseller community. Previous studies have shown that for every dollar spent on pirated software, in the region of $3-4 are lost on local distribution and services.

This is not to say that the majority of resellers are using such tactics. However, it only takes one to over-promise and mis-sell, and in the process steal business from more honest resellers, for the practice to snowball and the lines between right and wrong to blur. This sort of behaviour could undermine the overall positive movements resellers have made in the past few years to establish themselves as credible, strategic business advisors. It also can seriously damage future profitability through a loss of trust between the business – which unintentionally finds itself under the BSA’s scrutiny – the reseller and the software vendor. Ultimately, this can lead to a withdrawal of benefits endowed by the vendor to its loyal partners.

In the spirit of fair competition, we would encourage honest resellers to report underhand practices to the BSA; bearing in mind that it only takes a couple of rotten apples to infect the bunch and erode values of professionalism and trust.

Everyone benefits in the long term by prioritising the sale of correct licences. By implementing licensed software, customers receive best practice counsel, the latest updates and upgrades, and the assurance that they are compliant. Software resellers compete from a level playing field, enabling them to win business by merit rather than subterfuge. And best of all, the channel is saved from a messy price war with its reputation intact.

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