China software piracy: Does your company already have paying customers you don’t know about?

Written by Chad Catacchio

11/16/2020

As China’s professional workforce has continued to grow, professional users have become more sophisticated and are very interested in using world-class software for their needs. However, especially for more vertical solutions, many global software companies do not yet offer their software legally in China. Customers are then left with a few suboptimal choices to get the software they want: use a VPN and internationally accepted credit card (still not very common) to download the software from overseas; work with a distributor that may or may not have the legal rights to the software; or use a pirated version (oftentimes without even knowing that China software piracy is happening). This kind of activity could easily lead to thousands (maybe tens or hundreds of thousands) of professionals using your software with no revenue benefit for your company.

In fact, we have run into cases where a pirated software version has been selling in China at the full, legal price! A Chinese company saw the value of the product, hacked the software, and sold it to customers at the global price.

Why would customers pay for a hacked version, when they could buy the real product at the same price? This is where it gets interesting. In one case involving one of our clients, a distributor applied for and was granted a local trademark, which gave them access to software development tax breaks, and then built a Chinese language pack, which wasn’t available in the legal version. It was this Chinese language pack addition that was worth the (pirated) price for end users (English versions also “sold”). Remarkably, the distributor was also policing ecommerce sites and actually taking action against other pirated versions as if the distributor was the real software provider. This was definitely a shock to our client.

Before we tell you how we resolved this situation, let’s look at some reasons that Chinese customers, if given the opportunity, prefer to purchase locally, even if it means paying over the global price!

Chinese users want licensed products

While some global companies are aware of these users through anecdotal evidence or “call home” logs, many software providers are completely unaware that they may have a large, existing userbase waiting for them in China. What is especially important to understand is that most Chinese professionals would much rather be using a fully licensed version of the software on their computers. Among other positives, they understand that licensed versions get updates, offer support and training, and are inline with the Chinese government’s push to reduce piracy. Get them onboard, and you will have a near instant group of brand champions. With all this said, what are some of your options to capture this pre-existing userbase to build a large opportunity?

Fight China software piracy by getting active in the market

First of all, to make any kind of significant progress, you need to be active in the China market. While your level of engagement can vary, at a minimum you need to be able to: offer an easy way for users to download your product; offer payment options that are widely used in China; offer official receipts (this requires either your own entity or a partner’s entity); and offer documentation, training and support in Chinese (and easily accessible with the Great Firewall of China). All of this can be offered without having to go through a full China market entry process if you have the right partner to assist you.

Documentation, training and support will be especially attractive to get existing users of non-licensed software to switch to paying your company, even if your price for a legal version is significantly higher. These users have likely had to figure out how to use your software on their own, either by trying to understand English documentation, or through poor translations. While this doesn’t necessarily have to be hosted on a website within China, we always recommend it. Regardless, an active community of users – and timely responses from your support team – will also be welcome by Chinese professionals, and will benefit your brand as well as your sales through word-of-mouth.

For both existing China software piracy users that you’re trying to bring over, and for new legitimate users, putting your software download locations inside of the Great Firewall will also help with sales, as hosting outside of China can result in excessively slow downloads or even timing out. Additionally, by offering local payment methods and official receipts, it will be much easier for professional users to expense their purchases.

Legal means have strengthened in China

So what happened in the case above? We are pleased to say it ended well, but it’s important to note that not all piracy situations in China end favorably for the legitimate provider. In this specific case, ADG approached the distributor, and after numerous discussions we convinced them of our seriousness in pursuing legal action to nullify their trademark, as well as other further actions. After several months of negotiations we were able to convince them to work with our client. In exchange for covering some costs towards protecting our client’s trademark (and to continue to ferret out other pirated versions), the one-time pirate agreed to transfer over the intellectual property it had stolen, to shut down its website, and to let our client us the Chinese language pack it had developed. Today, company is a legal distributor for our client and continues to sell the solution.

So, if you are seeing some sales from China, or know that your products are being hacked and pirated there, this might indicate a real market opportunity for you. Additionally, with the significant inroads the Chinese government has made towards cracking down on piracy in recent years, if you commit to entering the market, you may have a strong likelihood to reclaim that lost revenue, and generate new legal users.

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