Fighting piracy always hurts your most loyal customers

My mom built a small software empire in Denmark, starting in 1983, and building it to market leading 50-person company in 1993 when she sold it.

She got started right as the IBM PC was being invented. At the time they wrote for both the IBM PC running DOS, and the Texas Instruments computer running CP/M. Soon, though, it was clear the IBM PC was winning.

Ever since Bill Gates wrote his famous open letter to hobbyists, piracy has been an issue in this industry.

Back then, my mom's programmer, Thomas Hejlsberg (whose brother went on to create .NET), figured out how to write to a hidden sector on the floppy disk, which wouldn't get copied when you copied a floppy the regular way. Some software makers came out with physical dongles that you had to insert into a serial port in order to run the software. Later on came activation by internet.

Whatever the means, though, these mechanisms are always fickle, and they always end up hurting the loyal customers more.

While this was going on, there were plenty hackers out there who would crack the copy protection code and distribute versions of the software without the copy protection. Some of my friends were subscribed to these pirated software packs that would come out with a monthly 8-10 CD-ROM set full of pirated software with no copy protection. You paid some small fee for the whole thing, and that was it. None of that money went to the software makers, of course.

We see the same thing with music and film. Region coded DVDs are the invention of the devil. I've lived on several different continents. Do these CEOs really expect me to repurchase the same movies in 3 different copies with different region codes? That's such an arrogant idea. Plus the DVDs force me to watch a bunch of annoying self-congratulating content and a bunch of "let's assume our customers are criminals"-type content, all of which add up to making it a much more appealing proposition to download the stuff illegally on Bittorrent.

And that's the tragedy of copy protection schemes: They invariable end up making an adversary of your customer, insulting the ones who want to do the right thing, making them feel like a sucker for it, and thereby inspiring them to go out and become pirates - "heck, if you're going to treat me like one, anyway, might as well become one".

Here's what I suggest instead: Base your business on some sound assumptions, and work with your basic business model.

First of all, assume that your customers generally want to do the right thing and pay you a fair price for your products and services. Let's make life easy for them, let's respect them, be grateful for them, and, if we can, let's give them something that you can't pirate - real connection and interaction, or some software as a service component, for example.

Second, there are going to be some people that aren't ever going to pay you, or they'd only be willing to pay so little that it's not terribly interesting for you economically. If these people end up pirating your stuff, it's not going to hurt your business. They wouldn't have given you a meaningful amount of money anyway.

But if they do pirate your content, what might happen is that they learn how great your content is. You gain their trust. And they may end up recommending you to a friend, who then goes and becomes a paying customer. Or they might end up in a position later on where they can afford to pay you, and now they go buy that product they originally pirated, or they buy something else. None of that could've happened if they hadn't pirated your content.

Business model is a huge part of this. Moving software off of the local hard drive and into the browser pretty much completely eliminates piracy. Sure, there may be some account-sharing and other things at the fringes, but overall, it's a done deal.

Apple's model is to primarily make the money off of the hardware, so they didn't need to worry too much about people pirating a new version of the OS. With the Mac App Store, they've made piracy near impossible, but at the same time, they've made the process of buying and installing apps much much easier, and at the same time dropped the prices  significantly. So if you can find a solution that does that - makes it cheaper and easier and prevents privacy, that's fantastic. But you can't do that with something like music and video.

Adding live interaction, either online or in the real world, or an online members forum, where you simply won't get access unless you've paid - or at the very least where it's easy to spot any illegitimate "outsiders" - is another great way to limit piracy.

Hardware, obviously, is hard to pirate, as is a hair cut or a meal. The more hard-to-pirate pieces you include, the less interesting piracy is.

For easily piratable content, there can be no copy protection without hurting your loyal paying customers. It can't be done.

So when you're considering your choices, make sure you understand the trade-offs involved. Is it really worth it to alienate your loyal paying customers in order to try and get at the ones who aren't going to pay you money anyway?

I say if you're in business for the long haul, the answer is overwhelmingly no.