A new white paper by IDC released today at the Microsoft Worldwide Partner Conference 2008 highlights the collateral damage that software piracy is causing to companies across the technology industry.

Sponsored by Microsoft and the International Association of Microsoft Certified Partners (IAMCP), the white paper shows that every dollar Microsoft loses to software piracy translates to $5.50 in lost opportunity for other companies in the partner ecosystem. The white paper points to a stark reality not often highlighted in industry discussions: Software piracy is a wide-ranging problem that deeply affects small companies as well as large software vendors.

“Even in a healthy ecosystem, illegal software causes hidden costs and friction in the sales and deployment processes,” said Michael Beare, director of License Compliance for Microsoft. “At its worst, rampant piracy in some economies is tearing down the opportunity for legitimate businesses to exist and thrive.”

According to the white paper, the hidden costs of piracy may occur in several ways. The velocity of sales, the life cycle of a project and the ability to fulfill contracts as negotiated can all be affected. During the course of a deployment project, for instance, consultants and solution providers may have to stop work when illegal software is discovered, or may be unable to sell their product at all upon learning that the customer’s underlying architecture is illegitimate. Worse, in many emerging markets where legally licensed software is difficult even to obtain, it can be next to impossible for a legitimate partner to operate.

According to IDC’s white paper, by working together to curb the problem of piracy, partners can realize broad returns. The white paper estimates that for every dollar Microsoft gains from a reduction in piracy in 2008, the ecosystem that sells, services and develops products on the Microsoft platform could gain $4.37 from faster delivery and sales cycles, enhanced cross-selling and upselling, and the natural market expansion of having more legally licensed customers. In addition, the ecosystem could also realize another $1.13 in efficiencies from each of those dollars, primarily from a lower cost of goods sold, as well as lower development and testing, sales and marketing, research and development, and training costs.