Robert Holleyman, head of the Business Software Alliance, has a job to do. He is a lobbyist entrusted by the group’s members to enlist as much support from the U.S. government as possible. That means that whatever comes out of his mouth, or is written by his team in D.C., is advocacy.

I get that, I really do. I understand that when you need the help of the U.S. government, which has limited resources, you need to be as persuasive as possible in explaining that your particular problem is quite dire and in need of immediate attention.

Take that as a preface or a disclaimer as I now turn to Holleyman’s latest bit of advocacy, an Op/Ed in Monday’s Washington Post, which of course is the lobbyist’s newspaper of choice. If you want to influence a public official in D.C., an Op/Ed in the Post is the way to go.

Given this advocacy platform, Holleyman of course proceeds to paint a bleak picture of the China market for software. This is not difficult to do, of course, since the piracy rate here for software is extremely high. Holleyman opens with this salvo:

Nearly four out of five software applications running on PCs in China have been stolen instead of paid for, the market research firm IDC has found.

That’s less than 80%, which is fairly high compared to developed nations. Note that “four out of five” is better advocacy writing than “less than 80%.” The first sounds like “nearly all,” while the second option makes it feel like there is still a significant piece of the market still open. Good writing.

China has made commitments to the U.S. government to reverse this trend by enforcing intellectual property rights, but IDC data show no discernable [sic] progress.

Before we get into some numbers, note that Holleyman appears to be raising the bar pretty high here. That word “discernible” thrown in there is superfluous and really adds nothing to the meaning — could have also used “significant” or “measurable,” I suppose. I think it’s probably used to make the author sound more intelligent, so maybe whoever did the drafting thought it sounded good. My point is that the standard now set by Holleyman really is “no progress,” as in there has been no progress on IP protection of software. Bold statement, so how does he back this up?

Indeed, between 2005 and 2009, the commercial value of stolen personal computer software in China doubled, to $7.6 billion. Roughly half that amount should have been paid to U.S. companies, which could have used the money to hire more U.S. workers and invest in research and development for new products.

Once again, I admire the writing. Whenever you can say that something has doubled, that’s excellent. Even a Congressional staffer whose math education ended with Plane Geometry in High School knows what “doubled” means. Wrapping the whole thing up in “American jobs” language is also straight out of the lobbyist’s handbook. A bit transparent, but subtlety is actually frowned upon in that line of work.

This is where my admiration ends, however, for it’s not very difficult to refute that “no discernible progress” statement. Indeed, all one needs to do is look at the very study cited by Holleyman, the BSA/IDC Global Software Piracy Study (2009).

Page 14 of that study includes a very interesting figure; on the left, it lists piracy rates in different countries from 2005 to 2009, and on the right, the commercial value of that pirated software for those same years. Now we already know from Holleyman’s article that the commercial value of pirated software in China doubled during those years. Here is the year-to-year breakdown, expressed in millions of dollars:

2005 — $3,884

2006 — $5,429

2007 — $6,664

2008 — $6,677

2009 — $7,583

As it turns out, “doubled” was quite a good word to use, for that is exactly what happened during that period of time, using the IDC numbers.

If we stopped here, Holleyman’s argument looks very strong, but there is still the left side of that figure on page 14 of BSA’s very own report. That’s problematic, because those piracy rates for China reveal this trend:

2005 — 86%

2006 — 82%

2007 — 82%

2008 — 80%

2009 — 79%

Well, that’s odd, isn’t it? Yes, those numbers are actually going down over time. I don’t have a PhD in statistical analysis, but I’d say that is a bona fide trend that is quite discernible, and it makes Holleyman’s earlier statement about no progress appear most disingenuous. We are left with something rather puzzling, though. How could the value of pirated software double during the same period of time that saw a decrease in the rate of piracy?

There are several possible reasons for this, but the most obvious is reflected in this last set of numbers:¹

2005 — 10.4%

2006 — 11.6%

2007 — 13%

2008 — 9.6%

2009 — 8.7

This table is a list of China’s growth rate (expressed as real GDP) for the period in question. It’s quite clear that China was growing, and by the way continues to grow, at a remarkably fast pace. Why does this matter? If the piracy rate was going down, but the value of pirated software was going up, there are only two explanations.

First, the total software market grew. Judging by those GDP numbers, it is safe to say that economic growth played a part here. Moreover, China’s emerging software industry is growing even more rapidly than the overall economy, so you would have to bump up those GDP numbers considerably to approach recent figures. In short, growth means more people using software, both legal and illegal.

Second, the price of software in China went up. Even if growth was flat, the rise in commercial value could still have accounted for Holleyman’s claimed piracy explosion if the price had doubled — or a combination of the two, of course. It’s difficult to determine this piece of the puzzle however, because the BSA and Holleyman are very clever when they put together their data.

Instead of referring to piracy rates, they refer to the value of the software, and instead of using the amount actually paid, they use the market value of a legal copy of the application. Therefore they multiply the number of estimated copies of pirated software by the legal price to get their aggregate “commercial value.”

What’s the problem with this calculation? Think of it this way: the pirated price is either the cost of the CD it is sold on (maybe RMB 5, or less than US $1) or, if downloaded from the Internet, the cost is zero. Compare those prices to a legal market price of, say, RMB 300, or higher, depending on the application. Huge differential here.

The BSA says that commercial value represents their revenue losses, but this only works if one assumes that every person who purchased or downloaded an illegal copy of the software would be willing to pay for a legal copy as opposed to finding another legal alternative, or simply foregoing it altogether.

As an advocate, Holleyman would be crazy to include in his Op/Ed those declining piracy rates or any discussion of either the role played by China’s rapid economic growth or the questionable usefulness of referencing aggregate “commercial value.” Although I’ll give him credit for being an effective advocate, in my mind the BSA has crossed the line from persuasion to outright falsehood.

I’ll wrap this up in a separate post later today.
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1. These are World Bank statistics. See also revised WB numbers for 2008 and 2009.[↩]

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