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Despite recent success for Microsoft in getting China's big PC makers to bundle legitimate copies of the Windows operating system, the software giant remains cautious on how long it will take for China to stamp out rampant piracy.

Mike Clendenin

April 25, 2006

3 Min Read

BEIJING — Despite recent success for Microsoft Corp. in getting China’s big PC makers to bundle legitimate copies of the Windows operating system, the software giant remains cautious on how long it will take for China to stamp out rampant piracy.

And amid that caution the company has been attacked for operating an alleged “double-standard” in being apparently satisfied with piracy rates of 90 percent in China, something that the company would not tolerate elsewhere in the world. In other parts of Asia, such as Thailand, Microsoft has seen piracy drop from the 95 percent level 10 years ago to about 30 percent to 40 percent today. Some of the gains are credited to Microsoft offering stripped down versions of the operating system at steep discounts to spur sales. However, Nigel Burton, general manager of Greater China for Microsoft, said it’s difficult to judge whether China is already a few years into that decade-long transition. “I’m not sure whether the world has changed a little because of P2P and open source and the Napster revolution. I suspect that maybe young people everywhere, including the U.S., have a slightly different point of view [on paying for software and intellectual property] than they did 10 years ago — a more liberal point of view,” he said. Last month, Microsoft finally started to see some significant return on the investments it’s made in China. It signed deals worth more than $1.5 billion with a handful of China’s largest PC makers. Those deals are big when one considers that Microsoft has earned less than $200 million in China over the whole of the last decade. But it also seems small in comparison to the company’s overall revenue of more than $40 billion in its fiscal year 2005—despite China being the world’s second largest market for PCs with 19 million units sold last year. “We have spent more than we have made” in China, Burton said. Still, Burton defended Microsoft’s optimistic view of last month’s deals, calling them a “turning point” and describing the last two years as “very positive.” Microsoft is working at the provincial level in China to persuade governments to use legal software, and is making measurable progress, he said. “Now that has not yet spread to state-owned enterprise and for sure it has not yet spread to the consumer, but the decision by OEMs to provide legal, attached Windows will clearly impact consumers. So I do feel by Chinese terms it has recently got a lot better,” he said. Pessimists—or maybe realists—would say the tea cup is still 90 percent empty. That’s IDC’s recent assessment regarding the extent of software piracy in China. Burton acknowledged that Chinese businesses spend about one-third the amount that similar sized American businesses spend on hardware and about one-sixth as much on software. Burton was speaking at the Asia Technology Roundtable Exhibition in Beijing, hosted by Red Herring. The magazine’s well-known publisher, Alex Vieux, challenged that Burton was being an apologist for China by making excuses for a double standard. “I am shocked that a Microsoft official would tell me that what is not OK in France, or in England or America is OK in China. You feel good that only 90 percent of your market here gets stolen, and you would not feel good about that in France,” Vieux said, interrupting Burton’s speech. “I don’t say that standards should be lower. But I do accept that China was an isolated country for 30 to 40 years,” Burton said. “Therefore we have to be willing to accept things that we would not accept in the Western world. Sometimes that includes recognizing that the perception of how bad piracy is relative to some other evil that people may commit may be different. So I try to be more pragmatic here then if I was working in France.”

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