Why Isn't Microsoft Clamping Down on Widespread Windows Piracy?

Microsoft's business model has shifted significantly over the years. Far from focusing on individual retail customers or students, their primary source of income now comes from enterprise and government contracts. This shift is because chasing public and student users over pirated software is actually more costly than the revenue they generate from legitimate licenses.

The Economics of Software Piracy

When you purchase a new PC with Windows 11 pre-installed, the Windows license typically accounts for only a small portion of the overall price, around ￡25. On tablets, the cost is often free. In the early 2010s, Microsoft realized that pursuing public and student users over pirated software was a losing battle, costing them more than they made. They now focus on enterprise and educational volume licensing deals.

For instance, a medium-sized private school I previously worked at spent ￡750,000 annually on software licenses. This expenditure was widely distributed, including Microsoft, Adobe, Google, and various educational software vendors. Imagine the scale of such spending across all schools, corporate businesses, and government departments in the UK and around the world.

Windows and the Cost of Switching

Why does Microsoft tolerate widespread piracy? Because having a large user base incurs significant costs or inconvenience to switch away from Windows. Additionally, all Microsoft software and applications are tightly integrated. Once users are accustomed to the ecosystem, the cost and effort to switch to alternatives become prohibitive. The same principle applies to Disneyland; the allure of a complete experience often dissuades users from seeking alternatives.

Back in the 1990s, Bill Gates published a book where he explicitly outlined Microsoft's strategy: profits have never been derived primarily from individual OS and home user licenses. Instead, the main income has originated from large government and enterprise contracts. By making Windows and software easy for piracy, they keep users engaged with the Microsoft ecosystem.

The Role of Piracy in Market Control

Piracy serves as a mechanism to prevent competition. If a business user decides to use Windows, they are compelled to use Microsoft's software. Conversely, if they choose Microsoft software, their employer is then required to purchase it. Piracy ensures that even in impoverished countries, governments become reliant on Microsoft products.

Consider sysadmins who have been trained exclusively on Windows. They may argue that, despite the availability of free open-source alternatives, they cannot adopt them due to a lack of expertise. Open-source solutions with corporate support are not truly free, as corporate use often incurs additional costs. Thus, whether the price is low or high, the dependency on Windows remains in place.

The Need for Development Companies to Support Microsoft

Today, tech giants like Microsoft pay development companies to avoid competing platforms and dependencies. For instance, if you create banking software and integrate it with Windows and MS SQL, your development profits may double or triple. Conversely, developing on Linux with open-source software will result in smaller profits as customers demand lower prices and may not use the additional Microsoft products.

Without piracy, stricter measures to combat illegal software would likely be implemented. A simple verification process where the license is checked for validity, IP, and online usage statistics could identify pirated instances and pass them on to authorities. However, because piracy exists, the blame is placed on the pirates, and penalties are mitigated. If Microsoft truly wanted to stop piracy, it could be enforced, but the shift towards open-source alternatives would likely impact their business significantly.