Tuesday, March 30, 2010

One Class of Software that Piracy Can't Kill

Most software is meeting the same unfortunate fate as music (at least from the perspective of those who are paid to produce it).

Software can be easily copied, and piracy runs rampant in many major developing markets, such as China. Even for legal uses, as discussed in Chris Anderson's "Free," the cost of transmitting bits instead of atoms is near zero. Sooner or later, the price of digital information has to plummet accordingly.

However, some software companies can make substantial profits from their programs aside from charging for each copy. The most obvious is advertising, which supports many Web games. Additionally, consider a program like SAS, which is used to perform complicated data manipulation and statistical analysis.

Even today, SAS has a large base of paying customers for its software. But even if the program were widely pirated, SAS differs from other software in an important way: it's complicated and difficult to learn, but once mastered, it has incredible potential. So SAS can profit by holding training sessions throughout the country and online.

Of course, a software company cannot be a monopolist on support for its product. While it's illegal to copy and independently distribute SAS's training material, it's not illegal to sell original guidance about how to use SAS. Rival SAS reference books exist, and even SAS instructors will tell you that one of the best sources for help comes free: Google. So while people may be willing to pay a slight premium for guides published by the SAS company itself, SAS cannot charge exorbitant prices for its training sessions or materials.

Even if the licensing and training profit centers eventually dry up, SAS still has one more avenue for profit. When a company is trying to hire a statistical programmer to run SAS, it's going to have a hard time ranking the skills of hundreds of applicants. Analysts can pay SAS to take a certification test, and a passing score serves as a credible signal of programming ability. It's possible to imagine a rival certification program forming to undercut SAS's test proctoring fees, but it's doubtful that companies that hire SAS programmers would put much faith in a startup certifier when SAS's certification is already familiar and predictable. Job applicants would be willing to pay a premium to earn SAS's certification if it means putting them in the running for a higher-paying job.


Josh Hattersley said...

I'd be willing to best that the vast majority of companies willing to invest time and money in SAS training are also legitimately purchasing SAS software. (Assuming they're working in SAS during training, it'd be pretty cheeky of a company to attempt to use pirated software whilst receiving training.) If, as I predict, training purchases track pretty evenly with legitimate purchases, then piracy could still be a big problem assuming it reached high enough levels, especially given the mentioned availability of free alternatives to learn the software.

I also wonder, if some other software company were to break the "it's complicated" paradigm that seems to surround many software titles in this class and come up with something truly unique, intuitive, and more usable, whether SAS and its ilk would survive? Training is only necessitated because the software is complicated, and while this serves the profit motive of the SAS developers (who get to sell training) it could be counter-productive when it comes to designing better software.

Perhaps there's a sort of perverse inventive to keep things complicated, however. I'm reminded of an article on the complexity of the Bloomberg Terminal, which is apparently a sort of status symbol for those who've taken the time to understand it. The desire to conquer bad UI might override the desire for better design.

Greg said...

I can see what you're saying about the incentive to keep things complicated, but I don't think such a strategy would be viable for most software niches, as a competitor can offer a better GUI or whathaveyou and start building market share.

As far as SAS goes, I've actually found it very intuitive and useful. Statistical programming is just difficult by nature, as there are a million different tasks you could ask the program to do but it's just a matter of learning the appropriate syntax.