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12/17/2004
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China Doesn't Need Chairman Bill

Could Microsoft be on the verge of 'losing' China as a major market? Could China's open-source developers play an important role in this turn of events, leaving Microsoft with no room to grow in the world's largest country?

Could Microsoft be on the verge of 'losing' China as a major market? Could China's open-source developers play an important role in this turn of events, leaving Microsoft with no room to grow in the world's largest country?

For several years now, the Chinese government has promoted a policy that requires agencies to buy technology products from local vendors whenever possible. Although authorities have enforced the "buy local" rule sporadically, many local and regional governments have ignored the rule to work with foreign firms--including Microsoft.

A few weeks ago, the tables turned again. Senior leaders in China's national government reportedly demanded that the Beijing municipal government cancel a proposed deal with Microsoft. In real financial terms, the blown deal won't equal a rounding error on Redmond's balance sheet. As a symbolic gesture and a sign of things to come, however, it could spell serious long-term problems for Microsoft's China strategy.

Microsoft clearly needs the Chinese government. With software piracy rates running over 90 percent among both consumers and businesses, government customers are among the few likely to buy licenses for Microsoft products.

China, however, doesn't need Microsoft, thanks in part to the country's flourishing open-source industry.

For a few years now, groups such as Red Flag have delivered Linux distros with Chinese language support and other changes for local use. Recent joint development efforts, including the PalmSource-China MobileSoft deal to produce a Linux-based version of the Palm OS, reflect the growing skill and international prominence of China's open-source developers. In addition, both Intel and IBM recently got into the act, launching recent efforts to promote, service and support their respective hardware platforms among Chinese open-source users.

The most insidious problem for Microsoft , however, is one that has plagued the company for years: allegations that Windows code hides U.S. government-designed "back door" software. Whether or not Windows serves as a Trojan horse for the CIA, enough Chinese government officials believe the tale to give it the weight of truth. Plus Microsoft's only real option for answering the claim--open the entire Windows source code base--just isn't going to happen.

Where does all of this leave Microsoft? In a corner, for once. And this time it's the open-source developers who, for once, have the rest of the room to work.

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