Nobody here is going to like this, but...
I've seen the following policy make a significant impact on piracy and it did so in a revenue positive way.
The licensing scheme was changed to one that was not so easily cloned. A simple MAC address or DISKID won't cut it. Hash a few factors and put some work into the hash so it makes sense after users do basic things that users do. Where the hash will fail, offer new licenses under update contract or something, and they just deal. That stuff costs a little, and they need to respect the license, and you need to service them when things happen.
From there, you know it will get cracked right? So let that happen!
When the system operates normally, all is good. That's a paying customer, entitled to their use rights, privacy and all that jazz. They have a maintenance contract that gets them license service too, accounting for dead machines and what not. In practice, setup and licensing isn't typically onerous, and the problems with that hash have been few.
So, if it's crackable, what's the deal?
For somebody who has cracked the software, it works just great! But, it also collects use info, and the data needed to identify the machine, and it sends it home, in the form of a running log, and it's done in a sporadic way too. The user isn't going to know, unless they are really looking. That's the twist. A paying user is entitled to their use and privacy, information security, etc... no worries. The infringing user? There are no expectations of any kind. Leverage that.
This monitor capability is built into the software on various levels, and it watches for various license use cases and stays silent to respect the users who bought in and are getting their stuff done, seeing the value. Where the software is operating on an unknown use case, it phones it in.
What has been the impact?
For paying users, none really. Everybody was informed, and we had a few folks call in wanting to know details. We provided them, and they have no worries.
For the infringers, it's been quite interesting. I've been involved with this kind of software for years, and casual piracy has always been at issue, but it's not really a revenue problem. People get up to speed in various ways, and one of those is running some stuff to get experience for a job. Education versions are out there, as are trials, and they are not hard to get, and they are basically full featured too. That was a nice balance, because...
Some of the infringers are a revenue problem. The people running stuff for hobby, learning, etc... weren't prospects because the economics are not there. However, we have found that a pretty fair number of prospects do choose to run stuff to profit, and they often do so without the owner of the business even aware!
Over time, instances of piracy that were resolved were few, and those were often done by local sales who were in the know, and deals got done. Last year alone, the instances of infringers who stepped up to buy a license after being tagged hard were very high.
Typical response is to analyze the log, research the entity infringing, have legal draft it up, then send out the letter. That can very easily be cookie cutter, based on a few use cases derived from the logs. From there, the people infringing are made aware of the problem, and the assumption is some kind of error, or management issue at first. That's easy. Buy a license, or licenses depending, and from there, become a customer, no worries, no discussion. Easy.
If it needs to escalate, various things are done, always offering the simple out of a license at list, with full contract rights, and renewals, etc... no penalties.
The vast majority of people will get the letter, phone up sales, and just buy in as if nothing happened. I think that's the key there. They have the out, and when they take it, it's a good experience, the same good experience everybody gets. They need to know the remedy is complete. Just get on the bus, and the ride will be fine, just like it is for everybody else.
The asses go the hard road, and it's really as ugly as they choose to make it, and as much as you are willing to spend;.
If I were you guys, I would implement something very similar, and release it in a version, and the service patches for the last couple versions. Include the policy change somewhere, so it's fair and square, and then get the logs. From there, one single person can just do the work to get more folks paying, and do the work to keep the experience clean as possible. Collect 'em, and have somebody start the work.
In the letter, frame it as a clear act of infringement and let them know what that means legally. That's necessary. Then, just put the offer out there. A license is X, your sales person is Y, and here are the steps to get compliant, and here are the benefits of doing that. All you need to do is Z, and you will not even see a downtime beyond just loading up the proper license credentials, supplied upon payment, etc...
The person authoring the letter, just refers to sales, who can call in on a "lead" same as any other lead, and nothing really needs to be said, unless they want to talk about it. In that case, let them know how the business is structured, development costs, benefits of a license, and your sincere desire to add value to what they are doing, and by adding that value, earn the license fair and square, just as they are doing. That message works very well, because it's often seen that software isn't like manufacturing, or some other physical good. When they understand that families need to eat for software the same as what they are doing, and that the value they realize from the software isn't any different from what they are doing, it's really hard for them to just say, "no"
Spend some time on that approach, giving them the outs, education, and a path to valid use that isn't anything different, no stigma attached, nothing other than anyone else, welcome to the family, how can we help, kind of thing.
You won't get 'em all. The smarter ones will use virtual hardware, or will operate the software off-line, etc... They likely wouldn't pay anyway, and you can always queue the log, looking for a net connection on startup, too. They could log a year of use, and connect, and... there you go. And hey, we are all family here right? Who hasn't gotten a kick start in this way?
Most importantly, insure the use cases for compliant use are rock solid. You don't even want ONE instance of somebody running it on a valid use license getting out there. Encode the software identifier, and their customer ID, so that records can be checked and focus on the ones that matter.
Basically, I'm saying to get the data, then do the sales work. This is better than an escalation of DRM forces that won't really be productive anyway. Those that really want to crack it and run it are going to. But, those paying for them to do that likely don't know, or do know, and when tagged on it, will take the out given and continue business with few worries.
The rest? Court is expensive... Up to you guys.
I suppose some education version, with limits that make sense, or with ADS, or something makes sense. You have to balance that with your existing and loyal customers, and future revenue. It's not good to offer up something really viable for use cases where you've got people seeing enough value to pay what you guys feel it's worth. Be very careful about that. It doesn't take much to deflate that, costing you far more than the effort is worth. So if you do put something out there, make sure it's strongly differentiated from the commercial offering. Same with discount or limited feature packages. A solid analysis of your current customer base, feature sets, options, etc... should be the very first thing you do.
The second thing you should do is examine the data on the deals you lost, if you have that data. I don't know how you sell. Where those losses were due to cost, it's extremely likely your pricing isn't at issue. REMEMBER THAT. What is at issue is your failure to demonstrate the full value the software brings to their operations. The better you communicate that, the more solid your pricing can be, and in general, the higher that pricing can be.
Deviating from that, when your business is selling software licenses and or annual contracts is a race to the bottom. Once you step down that path, it is very, very difficult to raise the bar again. Think it over from multiple angles before doing anything like releasing free to use versions.
Clearly this is a commercial software oriented post. I do that for a living and have for a while. Having software be open frees people of this stuff, but there are a lot of niches where the development effort and potential user base just aren't of scale needed to justify ongoing open efforts. I'm posting with that dynamic in mind.
Where closed makes sense, good pricing and licensing policy is very important, as is annual service and support contracts. From there, roping in users that should be paying is where your revenue potential is, which is the intent of the process I just outlined.