So, you got a bargain. You got Windows software for a song. What difference does a little piracy make? Microsoft has plenty of money, right?

Maybe so, but every piece of pirated software makes a lot of difference to the little guys—to channel players like Joe Stopski.

“[The] perception in the past was it’s strictly a Microsoft-centric problem,” Stopski said. “But what happens with companies such as ours, it’s not just the Microsoft part [of the sale] that you lose. You go in and are working with other competitive partners out there, and all it takes is one using pirated software. It’s not just one piece of software you lose—you end up losing the total deal, the $150,000 deal.”

Stopski is the vice president of business development at Fusion Microsystems, an OEM. He’s been sitting on Microsoft’s Partner Advisory Council to address some of the piracy pain that eventually culminated in the WGA (Windows Genuine Advantage) program, a non-piracy program that now requires customers to download an ActiveX control that checks the authenticity of their Windows software before allowing them to upgrade.

Microsoft made the WGA, which was once voluntary, mandatory last year.

Since then, the company has made it clear it wasn’t joking. Most recently, Microsoft in December filed charges against 10 parties who allegedly violated its MAPS (Microsoft Action Pack Subscriptions).

MAPS is a means for partners to obtain heavily discounted Microsoft software, but the software must only be used for internal testing and development and may not be deployed on product systems or resold.

Even with the WGA in place and charges being filed against alleged MAPS misuse, however, the going is rough for channel players.

Microsoft Director of License Compliance Cori Hartje refers to estimates from the Business Software Alliance that 35 percent of all software bought today is counterfeit.

In plain paycheck-speak, that means that anybody in the industry who comes to work five days a week is only getting paid for three.

“We want to make sure we protect and help OEM system builders and partners, because it’s hard to compete,” Hartje said.

“There’s a small margin in systems. If somebody down the street is selling a counterfeit Windows system and you’re selling legitimate software, it’s very hard to compete.”

Analysts back Microsoft up on this one.

“Piracy is a huge problem, and it’s certainly much more prevalent in some parts of the world than it is in others,” said Julie Giera, an analyst for Forrester Research.

“As companies expand globally, especially into Asia-Pacific, any of the OEMs and resellers are finding it very difficult to compete, because this issue of piracy, or lack of IP protection or lax IP protection, is really significant.”

Not only does piracy undercut OEM and reseller revenue, Giera pointed out; it also affects the entire supply chain, since most OEMs and resellers provide a set of value-added services, from support to consulting to tools, not to mention relationships with other resellers and partners.

According to a study done by IDC, counterfeit software made up 53 percent of software installed in Asia-Pacific in 2003; in Eastern Europe, the piracy rate was 71 percent; and in Latin American countries the rate averaged 63 percent. Indeed, throughout the world, piracy rates are high.

That’s not to say it’s not going on in the United States—IDC estimated a 23 percent piracy rate for installed software for the same time frame.

But whereas in the past anybody could make copies of Microsoft with a CD duplicator for just pennies for the disk, enhanced keycodes and the WGA program have made it much harder to activate counterfeit products.

That’s a good thing. Still, there are issues to iron out.

Hartje said that as technology has grown more sophisticated, so too has counterfeiting.

“As we’ve gotten more sophisticated, with holograms and packaging, with things to help identify counterfeits, with the ‘How to tell’ site on Microsoft.com, people have migrated piracy to being very sophisticated,” she said.

That means spam e-mail offering cheap Microsoft software. Some spam even claims it’s OEM.

But since the spammers are transmitting bits and not shipping boxes, it could well be an OEM counterfeit, Hartje said.

At other times, systems builders will claim to have Windows hard-disk loaded, she said. But that can lead to another major source of channel revenue loss: namely, the sale of software that’s not fully licensed.

Next Page: Microsoft could do better.