Software piracy is a multibillion dollar problem which can be difficult to protect against. A new company, SmartFlow Compliance Solutions is helping to solve this problem and the following is an interview with CEO Ted Miracco (pictured below).
1) How did your company decide to get into fighting piracy business?
Ted Miracco was the co-founder of AWR Corporation, an EDA Company that specializes in high-frequency analog circuit design software. AWR discovered wide spread piracy, in both developed and emerging economic areas, and was the first EDA company to develop technology and a process for recovering revenues that would have been lost to piracy. Chris Luijten was the founder of ITCA, a services company that helped software companies with revenue recovery. After the sale of AWR to National Instruments, Ted and Chris launched SmartFlow Compliance Solutions as a cyber security firm with a mission to help companies protect their intellectual property from piracy. Ted has been an outspoken proponent of IP compliance programs in EDA, mechanical CAD and other high value software areas. He has also been involved in some high profile litigation involving copyright and IP issues.
2) How big of a problem is piracy?
According to the Business Software Alliance, it is approximately a $63B a year problem, and it has the potential to get worse with the emergence of China and other countries with poor enforcement of intellectual property laws. Moreover, it is not an issue that just affects software companies. Mercedes Benz was recently involved in a case where pirates were convicted of selling illegal copies of its proprietary software for servicing automobiles.
3) Are there benefits to some piracy versus “excessive” amounts?
No. The notion that piracy was perhaps a form of marketing to customers that couldn’t afford products today and would buy in the future is a completely failed premise. Many believed in the 80s and 90s that tolerating piracy in China, would lead to sales when their economy grew, but instead it has just led to widespread neglect for other countries IP. The economic advantage that China has garnered through the use of stolen software, has adversely affected jobs in many industries from manufacturing to the design of semiconductors. These jobs may never return, as many of the companies that played fairly are no longer around.
Piracy even in education is inappropriate, as most software companies already provide deeply discounted licenses for educational use.
4) How does managing US piracy compare to dealing with it elsewhere?
There are many cultural and regional differences that affect how one manages a compliance program. Generally it is easier to resolve things in the EU and US, however we have clients that are generating significant revenue recovery from Russia and eastern Europe, the middle east and all parts of Asia including India as well. Even South America is a good market for anti-piracy efforts. The approach is different in different territories, but the right approach will lead to positive results. Compliance programs can typically generate about 10% incremental revenues or more in most industries.
5) Tell me about SmartFlow… How does it work? What does it do?
SmartFlow provides technology that backs up and complements the license management system. While license managers help, they are not fool proof and eventually broken or cracked versions of the software reach the internet and get widely distributed. Applications that are protected with SmartFlow technology stealthily gather evidence on the infringer and this information eventually gets back to the manufacturer through methods that we would prefer not to fully disclose (for obvious reasons). Data accumulates quickly and SmartFlow has a purpose-built database for aggravating and managing cases and profiling the trends and characteristics of the piracy. Using the case management system one can send cease & desist and demand letters or disable the application remotely.
6) How do you monetize your solution?
We license our technology on a subscription basis (SaaS). Our pricing is based on the annual sales volume of the protected applications. We have a sister organization, called ITCA, that will actually work on the revenue recovery process for clients that want to outsource the follow-up work
7) How is ROI measured?
ROI can be measured based on the value of the revenue recovered through the compliance program based on the evidence collected using the SmartFlow technology. Typically the compliance program can generate substantial incremental revenue (>10% of total sales), and surprisingly many of the newly found customers become very good repeat customers over time. Often legitimate companies aren’t aware of the piracy taking place within their own organizations.
8) Does the move to cloud slow your business down?
Not really…. today very few software developers are taking full advantage of the technology like SmartFlow’s, so there is a great deal of opportunity. Also, with cloud based applications there is still widespread fraud and commercial overuse that SmartFlow can detect and monetize. We have not focused on the cloud opportunity yet, but we are prepared to address it along with mobile and other emerging platforms. Today, most of the high value applications like CAD/CAM/EDA are dedicated applications that run on high-end PCs and workstations.
9) What can we expect in the future?
SmartFlow is a cyber-security company focused on copyright infringement and anti-piracy technology. Today we address the PC, MAC and Linux platforms, but we are planning new products that will touch mobile devices and cloud connected applications. Piracy isn’t going away, and we plan to try and stay a couple steps ahead of the pirates as they continue to come up with innovative ways of not paying for other people’s products. It’s a bit of an arms race, and its race we plan on winning.