Microsoft's antipiracy effort brings in US$77M

Cites Vista, tougher enforcement, for bringing millions into coffers for the quarter

Microsoft credited antipiracy efforts for contributing to the record-breaking revenues it reported Thursday, saying that Windows Vista's more aggressive anticopying technology and a string of lawsuits have borne fruit.

The bounce to Microsoft's bottom line, calculated by Allan Krans, an analyst at Technology Business Review, was US$77 million (AU$87.4 million).

"Since the Windows market is so saturated, they're looking for any niches to increase their revenue line beyond PC growth, and antipiracy is one of those areas," said Krans. "The opportunity isn't substantial, but it's still revenue. If they can tweak an extra US$100 million or so a quarter, they'll take it."

On Thursday Microsoft executives touted antipiracy efforts for bringing home the bacon. Chris Liddell, chief financial officer, said Thursday afternoon that the sales growth of Windows was several percentage points higher than the increase in sales of PCs, which account for the vast majority of all copies of the operating system that the company ships. The difference between the two numbers, he said, was the boost provided by the company's antipiracy efforts. "Our sales [typically] grow 1% to 2% faster than the market as a result of taking piracy away," said Liddell. "Over the last couple of quarters, that has picked up. It was around 5% in the first quarter and around 3% in the second quarter."

Liddell listed several reasons for the uptick, including more arm-twisting of late. "We've had a significant enforcement activity over the last few quarters, something like 74 legal actions in 22 countries," he said. In filings submitted to the U.S. Securities and Exchange Commission, the company highlighted antipiracy efforts in Russia and China, and "other emerging markets."

Windows Vista's tougher anti-counterfeit technology also got some of the credit. "We've seen some of the technology advances in Vista helping us, relative to previous editions of Windows," Liddell added.

Vista, unlike its Windows XP predecessor, repeatedly checks itself for signs of piracy, a technique that then lets Microsoft blacklist copies activated with stolen volume license keys. And until it backtracked last month and announced it was killing the Vista "kill switch," its policy was to lock down bogus copies of that operating system so that they were essentially unusable. (The demise of "reduced functionality mode" actually doesn't take place until the final version of Vista Service Pack 1 appears sometime this quarter.)

Liddell also attributed the boost to a shift in PC sales. "We've seen a shift to laptops and, in particular, sales through multinational OEMs who typically have a lower piracy rate," Liddell noted.

"This is finite; it's not unlimited," said Krans, referring to the pool of pirated copies that can potentially be sold as a legitimate version of Windows. "But if they get a handle on it now, you're talking substantial amounts of money. What they're doing is setting themselves up for some strong growth in this area for the next decade or so.

"So it's not just about this quarter, but about putting the checks in place to make sure that they're fully capitalized here," he said.

A tougher line on piracy may warm the hearts of shareholders, but the reception from users hasn't always been as accepting. In July 2006, for example, users cried foul when they found out Windows XP was "phoning home" daily to Microsoft's servers; a little over a year later, they blasted the company when thousands of Vista and XP owners were pegged as pirates because of a server outage at Microsoft.

"Microsoft's trying a mixture of both [technology and enforcement]," said Krans. "And it's making progress in setting the bar that software piracy is not to be accepted."

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