An interesting article at Wired News about the, er, 'improvements' crackers make to MS Windows installation CDs. What is so surprising is that the company has taken this long to freeze those using cracked versions of Windows out of "Windows Update".

It is often said that software companies deliberately encourage unauthorized copying of their products in the early stages of development because it quickly creates a market through 'network effects'. The more people that use a product, the more value it has to that network of users, and, of course, to the company. This is how 'standards' emerge. Once such standards are embedded, they are difficult to dislodge. Not everyone wants to use cracked software, so a company's sales will gradually increase. Putting up with a minority of people unwilling to pay for their software is a small price to pay for creating lock-in effects in the overall picture.

Much the same argument can be made about file sharing: those who download music illegally tend to buy more CDs because they are exposed to a greater diversity of artists and styles. File sharers share information across a network. This information is socially valuable for the listeners, because it gives them knowledge of new artists. It is simultaneously commercially valuable for the record companies, because it is free marketing based on networks. You download an mp3, you like it, you tell your friends, your friends get to like it, buy the album, the t-shirt, the poster, and the tour tickets. All of a sudden you find yourself buying the artist's second album and so it goes on... In a sphere driven by short-term fashion and peer pressure, the socially useful information gleaned from a peer-to-peer network creates network effects that benefit you, your friends, the record company and the artist.