Thursday, April 21, 2011

piracy as yield management

It seems more and more likely to me that corporations are intentionally allowing their digital products to be pirated with some amount of effort, as a form of yield management.

Yield management (often referred to as price discrimination, but that phrase has a bad and inaccurate connotation) is the idea that businesses would like to charge different prices to different groups of people. The classic example is airline pricing. If airlines didn't have first class prices, they would have a hard time making enough money to fly the plane at all. And if they didn't have coach pricess, they wouldn't attract enough passengers. Having multiple price classes is extremely helpful in this case and everyone benefits.

The problem of yield management is that a business can't ask a person "how much are you willing to pay?" and then charge them that. They have to use some observable characteristic of their customer (that isn't illegal to use to determine prices, like race or religion...) to guess at their willingness to pay. For airlines, they use the time of purchase. People who purchase in advance tend to be planning vacations and are price sensitive, so tickets cost less then. At the last minute, most people booking flights are business executives charging the company credit card. So prices are higher then.

And there are tons of other examples that more obviously use the customer's characteristics to decide how much to charge them. Students and seniors get discounts all over the place. Some utilities goes straight to the source and give discounts if your tax returns reveal low enough income.

Anyway, back to software piracy. Obviously, if software companies gave their products away, they wouldn't be able to stay in business. But almost as obviously, if they charged the corporate price for their product to every person who used it (and piracy was impossible) they would have hardly any customers. Very few people would use Photoshop; they'd get by with open-source Gimp instead. Djvu might've become the standard over Adobe's pdf. Grad students would certainly never pay full price for Matlab or Stata; they'd be using R as much as possible.

That's a pretty crippling loss of market share. Those companies would probably rather charge a low price to people who can't afford it so that they get used to using it and pay full price years down the line when they can pay. Instead they seem to be making piracy just barely possible enough to keep that market share without losing their revenue from corporations and old rich people who don't know how to use bittorrent. Those "leaks" of new, pre-validated operating systems seem suspiciously intentional to me. The "register manually without using the internet" option in some software packages is just so convenient for hackers. And those little utilities that have dozens of free competitors are as easy to pirate as googling "[product name] serial".*

*So I hear. I would never try these things myself of course...

1 comment:

JohnRaymond said...

Yes, you would be the expert witness in this case, ahem...