The effect of piracy on the market penetration of subscription software

Software piracy is not necessarily harmful to a software firm seeking to launch a new product. When strategically managed through the use of price and protection measures, piracy establishes the initial adopters of the software, who in turn influence other users to buy the product. We examine the role of piracy in affecting the adoption of subscription software products. We present an individual-level model in an adaptive population setting intended to determine the price-protection mix that maximizes the discounted profit stream over the life of the software. An extension for nonsubscription software is also discussed.