Software Sweeney

Stop thief! Software theft is a headache, but attempts to curb it have met with strong criticism. David Gregory, Microsoft's piracy policeman, remains unfazed.

David Gregory is the long arm of the Microsoft law. He's the softwaree met with strong criticism. David Gregory, Microsoft's piracy policeman, remains unfazed. giant's anti-piracy manager and he is responsible for fighting software theft. This doesn't mean he goes around kicking in doors and talking to snouts - Gregory has a more cerebral, desk-bound approach to the problem.

It's a formidable job too, but one he is rather diffident about. 'I wouldn't say that it was difficult,' he says modestly. But then he is the messenger rather than the organ grinder. He's not a malicious or devious man either and seems to have genuine regard for the channel. When he says he doesn't like piracy because 'it hurts the legitimate dealers', you believe him.

But one thing is for certain - he has his work cut out.

Software piracy has been on the rampage for the past couple of years, culminating last year in a massive break-in at Microsoft's replication plant in Scotland. That led to huge numbers of CDs, packaging and certificates of authenticity flooding the channel. Gregory points out that the perpetrators have now been caught and charged and most of the goods recovered.

A small victory in a massive battle? Gregory nods and points out the scale of the task facing Microsoft's anti-piracy unit. 'Worldwide, we estimate that we're losing $11 billion a year, and that makes piracy Microsoft's number one competitor,' he says. 'In the UK, we are running at a piracy rate of 35 per cent and that equates to about #250 million in lost revenue.

With Office 97, we're losing #57 million. But that's not just us - the legitimate channel is losing, too.'

Microsoft is the Manchester United of the IT industry and for that reason it rarely receives any sympathy - even from the most neutral of bystanders.

Yet concern for dealers that may be losing money as a result of illegal software on the market changes the tack.

Gregory has a point. Why should dealers that have paid for legitimate copies of software suffer? The unscrupulous minority in the channel that do trade in pirated software are the targets for his sights and he intends to try and rid the channel of them through a mixture of education and crime enforcement. The threat of legal action has to be there for people to take any information about piracy seriously.

But will this really stem the tide of piracy, let alone eradicate it?

'We are winning,' he says. 'I doubt we will ever eradicate it. We estimate a four to five per cent drop in piracy this year and that can mean tens of millions of pounds for the channel and Microsoft.'

While most people would applaud this kind of drop in piracy, questions have been raised as to the real causes of the crime. Microsoft could hardly echo Tony Blair's sentiment of being tough on crime, tough on the causes of crime. Tough on crime perhaps, given recent enforcement tactics, but tough on the causes?

Recently, Gregory has had to answer questions relating to Microsoft's pricing policies. The problem is that many people see Microsoft as the very cause of piracy, and certainly the cause of parallel or grey importing.

A recent flier put out by the company claimed grey importing is illegal and contravenes a whole list of UK laws.

Personal Computer Association (PCA) director Keith Warburton checked out Microsoft's legality over this issue with the Office of Fair Trading (OFT). Warburton had a justifiable bee in his bonnet. His gripe is not with Gregory or Gregory's work, it is with the whole essence of Microsoft's pricing structure.

'Legally, Microsoft is on strong ground,' says Warburton. 'Morally, it is an entirely different matter. It is Microsoft's duty to protect its own copyright. It would be derelict in its duty if it didn't. But there are two ways to do this - treat the symptoms or cure the illness.

'The anti-piracy unit is addressing the symptoms, which are caused by an inequable distribution policy. Sure, Microsoft has the right to be partisan if it wishes, but don't be surprised if the trade reacts. It's not the trade out to get Microsoft. That's not the issue. The issue is that because of pricing differentials in its products, a grey market has opened up.'

Warburton cites Microsoft's agreement last year with Gateway 2000 over an OEM edition of Microsoft Office 97. Gateway was understood to have enjoyed an Office 97 price below #50, while virtually everyone else in the market paid #180. Microsoft followed this with a #120 small office edition of the product for OEMs.

Gregory welcomes the scrutiny from the PCA, but says he cannot comment on the pricing policy. However, he does add that Microsoft has a volume-dependent pricing structure, which is something it has a right to do.

It is this 'right' to do so that is the bone of contention. Warburton accepts that Microsoft is entitled to set its own prices, but believes that as the number one software vendor, and with MS Office now effectively an OEM component, the pricing differential between the highest volume and lowest volume buyers should not be so vast.

'For most other components, the differential is 20 per cent tops, whether you're buying 50,000 or 50 pieces,' says Warburton. 'The price differential on Windows is much closer to the norm, so what's the problem with Office 97?' Warburton adds that this is probably a result of a lack of understanding in the channel - possibly greed, but more likely a case of trying to have your cake and eat it.

Gregory is unfazed. If he is just treating symptoms, he's a good doctor.

But he's not about to slag off his company's pricing structure, at least not in public.

What he has done and will continue to do is feed the channel with reams of information about how to avoid buying illegal Microsoft products. He is also dismissive of the grey market for one particular reason. 'Most of the grey imports are counterfeit,' he says. 'This stuff has some incredibly virulent viruses as well. It is often poorly copied and therefore loses functionality and ultimately we get to pick up the pieces.'

Finding these products is an on-going battle, but Gregory says his anti-piracy investigators have 'a pretty good handle' on the illegal channel in the UK. The hotline numbers the unit uses have been useful - warm, but not hot. The hotline receives on average about 100 calls a month, of which 50 per cent are from customers reporting dealers. Dealers reporting other dealers account for 45 per cent of the calls while the remaining five per cent is people requesting anti-piracy information.

Microsoft is currently pressing charges against a number of dealers which, the company alleges, knowingly sold counterfeit Microsoft software. More often than not, though, these companies are not caught through the snout network. The anti-piracy unit has put in place an increasingly active chain of informants and investigators that can help the company track down illegal batches of software sold through the channel.

The biggest recent success has been the recovery of most of the software, boxes and certificates of authenticity stolen from its replication plant in Scotland. Gregory confirms that arrests have been made and more details will invariably follow when the police are ready to release names.

But from Gregory's point of view, it is not all about slapping wrists and charging fines. It's about increasing awareness of the problem and letting people know that if they are caught knowingly trading or using illegal software, they will be prosecuted. 'What I don't want is for anyone to suffer from ignorance,' he says.

Gregory is responsible for putting large amounts of information on the Web relating to software piracy, and has recently added information about parallel importing. He is constantly setting up ways of getting information to dealers quickly to warn them about the latest batches of stolen software and what to look out for.

'I've a duty to make sure our dealers are well informed. It's hard to know when dealers are caught whether or not they are telling the truth.

Everyone has an excuse. No one stands up and says: "Fair cop, I'm a hardcore illegal dealer and do it just to make profit and I don't care about the customers."'

Gregory's point is that it is his job to tell people about pirated products and how to avoid them. He cannot be held responsible for those that offend, but ensuring they are well informed should cut down on the numbers that plead ignorance.

While this is alright for medium to large sized businesses, it is not always the case for the small companies. Gregory accepts that small businesses pose a different problem, especially as they don't often get the time to trawl the Web, read magazines or sift through direct mail. He is currently looking at the best ways to reach this audience effectively and efficiently.

Last year's Business Software Alliance (BSA) initiative, Crackdown '97, highlighted the problem of user piracy - especially for smaller firms.

It surprised many and produced some startling results. 'The direct mail campaign was extremely successful on two counts. First, we succeeded in dragging the subject out of the IT ghetto, and second, there have been some extraordinary sales increases,' says Clare O'Brien of the BSA.

Gregory confirms this: 'All of a sudden, smaller customers came around wanting licensing solutions. We had to respond, so we came up with the open drive campaign to sell the Microsoft open licensing agreement. It covers them for annual maintenance and against upgrades.'

This may go some way to protect the unsuspecting from a raid, but the BSA in particular is clamping down on companies without proper licensing and Gregory doesn't want legitimate Microsoft customers to be roped into investigations unnecessarily.

'I understand I've a key role to play not just for Microsoft but for the whole industry. A lot of software developers are small businesses and do not have the resources to tackle the problem. We're viewed as a big revenue earner for the channel but I've a role to play for other companies too.'

But then Microsoft has the most to lose, doesn't it? 'I'm thinking from a channel point of view,' Gregory responds. 'It's what the channel stands to lose from those customers who are buying illegal software. I'm here to educate and make sure customers know which are the legal products and which are counterfeit.'

Gregory's conversation always returns to the dealers or the channel, as if he is obsessed by the very words. He mentions the fact that his job is rewarding, particularly when a dealer tells him the information he has provided has saved his business from a large order of illegal Microsoft goods.

The issue of grey imports, however, has raised the bar a little. Gregory admits that Microsoft is currently taking a number of dealers to court, but this is definitely not the final word on the issue.

Although any court ruling would set a precedent in the IT industry over the issue of parallel imports, the feeling that Microsoft's pricing policies are still to blame still niggles in the back of the mind.

Gregory is not bothered in the slightest with lingering notions of blame.

Black and white, software theft is illegal, he says, whatever the reason.

That's Gregory's bottom line. Take it or leave it.

YOU'RE NICKED, SON

The Business Software Alliance (BSA) and Microsoft have collared a number of dealers and businesses over the past year. Here are just some of the names that have had their knuckles rapped.

GamesWorld 2000: Paid damages and costs to Electro-Wide Ltd, trading as Atlantic Computers. Settled, paying #120,000.

Adelphi Group Ltd: Settled, paying damages, and agreed to purchase legal copies of software from the legitimate channel to replace its counterfeit software.

Strategic Asset Management Solutions Ltd: Settled on #4,000 for unlicensed software.

Stuart-Buchanan Guages Ltd: Settled, paying #3,000 damages and costs.

Euro Environmental Group: Settled, paying damages and costs of #5,250 and replacing software with legal copies.