"China is a country where piracy has won. Years of halfhearted crackdowns under diplomatic pressure from the West have had no apparent effect on the street vendors or countless sites that host MP3s for downloads."
-- Chris Anderson <Free - the Future of Radical Price>
That is really true. In China, people seldom buy CDs or an iTunes music just for listening a piece of song because they can download it easily from websites. Neither do to software or e-books. At first, some people stand out arguing for their copyrights. But as more and more people share their initial works online voluntarily, which develops the consumers' habit to get information goods for free, these voices almost disappear. Instead, they begin to think, how can I survive in a kingdom of "piracy"?
In the book <Free>, Anderson the author enumerates several business models of information industry. He describes the economics model of music industry in China and Google in US. Here I want to discuss the situation in software industry in China. Software, same as music, can be downloaded free just with a claim "Please delete it within 24 hours" which is ignored by most users. On the one hand, this piracy forces the market price of software to its marginal cost 0, which impels firms to think of other ways for profit. Yet on the other hand, piracy becomes the best marketing of high quality software. However, fame and attention are just a small part of the consumers' repayment for 'free'. The big bonus is their behavior's data.
In China, most software firms choose to use consumers' data or attention to gain revenue from another part of their consumer, mainly advertisers, to cover their research cost, depreciation cost (fixed cost) and marketing cost, administration cost (variable cost). As long as the coverage is successful, the company can survive. It seems that this business model has the same nature with Google's. But actually there is a huge difference: Google still has a chance to set a price, while IT firms in China have no choice when facing the crazy pirates. And this difference is extremely thorny for small firms. This two-side market has a required condition: big data. Big data is necessary for analyzing consumer behavior. And the required large number of users also collects attention. These are the most charming part for consumer on the "profit" side. Obviously, small firms is hard to get big data in a short time. That means they will lose the chance to gain profit until their database is set and their product for "profit" market is ready. So, just as we see in the information technology industry in China, Angel Investment for a certain period of time is mandatory for small firms.
Since the direct consumer to the software won't gain a penny for firms, firms must turn their attention to servicing profitable consumers as well as the price strategy on them. Service cannot be pirate. That is the only way to survive in a kingdom of piracy.