Pirates Are Consumers, Too!

With anti-piracy and copyright infringement bills SOPA and PIPA indefinitely shelved after the wave of online protests earlier this month, the general consensus around the interwebs is we won!  Sure, illegal IP distribution is still running rampant, and there is not much IP owners can do about it, but we do not have to worry about the government treading on our internets!  Okay, so I admit—after a nice, long debate with a well-informed friend—I am actually glad these bills did not pass in their current forms.  While I still believe their ultimate goals are worthwhile, there were some issues with being a little too broad which could lead to trouble.  I am not yet ready to admit they would lead us to government censorship of the internet on a ridiculous scale like they have in China, but I can see the concern of some clever lawyers using the “slippery” wording to shut down undeserving sites.

 It is bad enough they already have the Chewbacca Defense!

(Warning:  Clip of said defense contains a wee bit of profanity; hence

the look of shock on Chewy’s face as it sullies his good, nonsensical name.)

Nevertheless, the issue still stands.  Companies lose millions to piracy every year, and they spend millions try to fight it.  I am sure we all have had to deal with ill-conceived (or, worse yet, poorly implemented) digital rights management (DRM) software on our legally purchases products.  As an avid gamer, I have seen some of the worst policies and software first hand.  Some have been so bad they actually stopped legitimate users from using the products.  I have to admit, all the hassles of these devices to thwart piracy have actually made me want to pirate IP just to spite some of these companies for making me work so hard just to use something I paid for.  Judging from online conversations I have seen or participated in, I am not the only consumer who is fed up with all this nonsense, even though we agree IP owners deserve to get paid for what they create and sell.  It just does not seem right to punish those of us who pay for the products when the pirates are just going to pirate anyway.

So, what is the real solution to the issue of piracy?  Everyone loves getting things for free, but there must be something identifiable which leads people who would never shoplift a physical item in a brick-and-mortar store to justify stealing thousands of songs, movies, games, software, etc. online.  Is it because it is easier and less public?  There is an illusion of anonymity online (truthfully, if someone wanted to find you, they could with minimum knowledge, tools, and effort), there is no need to hide the items you are taking, and there are no security guards to dodge.  That might be a factor, but it cannot be the determining one or else we would all be pirates.  I think the one thing the majority online pirates have in common is the fact they feel there is not enough value in what they are pirating to pay what the manufacturers/retailers are asking for it.  It is not they do not have interest in the products (or else they would not bother to even steal them), or they are not willing to pay anything at it; it is the fact these products are overpriced, underserviced, and/or a hassle to use (likely due to DRM).  On top of that, the vast majority of digital IP products have a “no refunds” policy.  Entertainment products, ironically enough, also happen to have a highly subjective level of value to consumers, so the risk seems dauntingly high when one cannot return an unwanted piece of IP.  All of these factors push consumers to piracy if only as a means to mitigate the risk of buyer’s remorse.

 It’s probably more shame than remorse for N-Gage owners.  All 4 of them.

It would seem apparent then the solution to the problem is to raise perceived value.  The most obvious way to do this is to lower the price of the product.  How do you compete with free, though?  As it turns out, one way is to fight fire with fire, and give away some of your product offerings for free.  This might sound counterproductive or downright crazy, but Valve Corp. co-found Gabe Newell does not think so.  In fact, he and his company have been experimenting with pricing via their digital game distribution service, Steam, for years now, and have seen incredible revenue increases (40 fold) both by heavily marking down products (75% off) and by giving away some for free.  The free-to-play games keep users online longer (which has shown to make them more prone to buy more often), and also adds to the overall value of Steam as a whole, in turn increasing the perceived value of all the games sold through it.  Just to make it perfectly clear, they did not see a 40% increase in revenue on the marked down games; they saw an increase by a factor of 40, or 4000%.  While these methods are indeed nontraditional, the results make Mr. Newell seem not so crazy after all.

 The face of crazy…like a fox.

Of course, it cannot be that simple, can it?  Even Newell concedes there is a lot going on with these experiments we do not understand as these results simply do not fit into traditional pricing models.  However, he realizes his customers are trying to tell him something, so Valve will keep working on getting the message right.  What is really interesting, though, is these experiments have shown what Newell has been saying for years:  piracy is not the real issue.  It is merely the result of poor service and value.  Pirates do not just pirate for the sake of pirating; they are underserved customers who can be won back.  They key is to give them a better experience (service) than they can get through piracy.  Personally, I would start with removing all the intrusive, frustrating, and overbearing DRM software from digital media.  Newell even noted DRM tends to increase piracy because it diminished the value of the service.  That is what digital content really is, after all:  a service.  As a service, the focus needs to be on continual value, and DRM often removes most, if not all, lasting value.

Another interesting way to win pirates back purchasing is by implementing a “pay what you want” system.  It is exactly what it sounds like:  you let consumers pick the price they pay for your service.  I would venture to say it is probably the best way to gauge the actual, unadulterated value consumers place on your products.  That said, there are ways to influence the price points people are willing to pay.  You definitely do not want to give the option of paying nothing, as—like I said before—we love free stuff, and will jump on the opportunity to get something for nothing.  However, while people may not be inherently generous, appealing to their sense of charity along with allowing them to freely choose how generous they want to be is an effective way to increase revenue.  One study showed flat rates had the lowest value, an adding the stipulation half would go to charity did little to increase the perceived value.  Allowing customers to pay what they want significantly increased total purchases, but the low purchase prices negated any increase in revenue.  Finally, when people were told half of their chosen price would go to charity the increase in purchases was only half as much, but the price per purchase was significantly increased to the point where overall revenue was triple that of the non-charity pay what you want option.  It turns out customers can be quite generous when they feel the value is high.

A great example of the pay what you want system with charity can be seen with the Humble Indie Bundle (Tweet @humble).  These guys there have done an incredible job raising money for charity as well as contributing to high sales and recognition for many small-time (indie) game developers who have an excessively hard time competing with all the large game companies out there.  Once again, we can see social responsibility saving the day for modern business!