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April 9, 2006

Third World piracy actually good for Microsoft?

Posted by David Hunter at 6:11 PM ET.

Charles Piller of the Los Angeles Times reports the novel theory that software piracy in developing nations may actually be good for Microsoft:

Microsoft Corp. estimates it lost about $14 billion last year to software piracy — and those may prove to be the most lucrative sales never made.

Although the world’s largest software maker spends millions of dollars annually to combat illegal copying and distribution of its products, critics allege — and Microsoft acknowledges — that piracy sometimes helps the company establish itself in emerging markets and fend off threats from free open-source programs.

The gist of the beneficial piracy argument is that the retail price Microsoft charges for signature products such as Windows and Office — as much as $669, depending on the version — can rival the average annual household income in some developing countries. So the vast majority of those users opt for pirated versions.

The proliferation of pirated copies nevertheless establishes Microsoft products — particularly Windows and Office — as the software standard. As economies mature and flourish and people and companies begin buying legitimate versions, they usually buy Microsoft because most others already use it. It’s called the network effect.

A variety of folks of the academic persuasion and even Bill Gates (referring to the Peoples Republic of China) are quoted in support of the theory as well as a few statistics:

Even Vietnam, which at more than 90% has the highest piracy rate in the world, has improved from 100% in 1994. The No. 1 software firm in Vietnam: Microsoft.

Actually the No. 1 software firm in Vietnam must be the pirates, but I digress. There’s much more to the article, but the implication is that Microsoft, unlike the music industry, isn’t doing all it could to eliminate piracy for fear of open source software and because they are intentionally pushing a more nuanced approach in hopes that the Third World locals eventually get converted into paying customers. I’m not sure how well that works with confirmed anticapitalists like Venezuela’s Hugo Chavez, but maybe there’s a play with the state sponsored capitalists in China. It sure gives a different perspective to the announcements from last week:

TCL and Microsoft Join Hands to Promote Intellectual Property Protection in China

TCL Group, one of the leading PC manufacturers in China, today signed a genuine Windows® cooperative engagement agreement with Microsoft Corp. According to the agreement, the two companies are committed to working together to promote the use of validly licensed versions of Microsoft® software products on TCL-branded personal computer products for the Chinese market through joint marketing and other engagement. The agreement will help enhance the use of genuine software, and the respect for and protection of intellectual property in China.

“Starting in June, TCL will pre-install genuine Windows software on all its PC product lines and plans to purchase licenses of Windows worth $60 million for the coming three years,” said Yang Weiqiang, vice president of TCL Group. “TCL is committed to intellectual property rights protection because we understand our customers can benefit from higher quality, security, reliability, product support and a better user experience by using genuine software.”

Tongfang and Microsoft Agree to Enhance Cooperation in Promoting Genuine Software Use in China

Tsinghua Tongfang Co. Ltd., China’s third largest PC manufacturer, today signed a genuine Windows® cooperative engagement agreement with Microsoft Corp. According to the agreement, the two companies are committed to working together to promote the use of validly licensed versions of Microsoft® software products on Tongfang-branded personal computer products for the Chinese market through joint marketing and other engagement. The agreement will help enhance the use of genuine software, and the respect for and protection of intellectual property.

“Tongfang intends to purchase licenses of Windows worth $120 million in the next three years for the Chinese market,” Rong said. “The pre-installation of Windows genuine software is not only good for Microsoft’s business, but for Tongfang’s as well by enhancing our branding and overall business development.”

I suppose it’s impolite to ask what the business relationship was before these agreements were signed.



Filed under Bill Gates, Executives, Financial, General Business, Governmental Relations, Legal, Licensing, Microsoft, Open Source, Piracy, Public Relations

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4 Responses to “Third World piracy actually good for Microsoft?”

  1. China to require operating system on all new PCs -- Microsoft News Tracker Says:

    [...] People’s Republic of China President Hu Jintao is coming to the United States next week to meet with President Bush and there have been a variety of public signings of big money Chinese purchasing deals to illustrate what a good trading partner the PRC is for the United States. Part of the public relations push is to provide the impression that the PRC is now serious about intellectual property protection and Microsoft played its own part in that last week. Now comes word that the PRC will be requiring operating systems to be installed on all new PCs: China’s computer manufacturers must install operating software before their goods leave the factory gates, the latest effort to address the thorny issue of piracy before President Hu Jintao visits the United States. [...]

  2. Another Chinese OEM takes the pledge with Microsoft -- Microsoft News Tracker Says:

    [...] As we mentioned previously, there’s a big dog and pony show going on preceding the visit of People’s Republic of China President Hu Jintao to the USA next week and Microsoft is doing its part by signing agreements with big Chinese OEM’s. Today there was yet another one: Founder Technology Group Corp., one of China’s largest PC makers, today signed a genuine Windows® cooperative engagement agreement with Microsoft Corp. According to the agreement, the two companies will collaborate on joint marketing, sales and training programs to promote the use of genuine versions of Microsoft® software on Founder-branded personal computer products for the Chinese market. This agreement further demonstrates the strong commitment and significant progress the two companies have made toward protecting intellectual property rights (IPR) and delivering a more secure, stable computing environment for their customers. [...]

  3. Looking for the money in Vista -- Microsoft News Tracker Says:

    [...] The piracy reduction effort is a long hard slog, but Microsoft keeps working at it and in the difficult area of relationships with developing countries made progress in just the last few weeks with China ([1], [2], [3]). Specific to Vista, Ina Fried reported at CNET that without authentication of a genuine license, Vista won’t display the fancy new Aero Glass graphical user experience, arguably the biggest new feature. So there’s hope there and perhaps a gain of a few percent in Windows revenues from all of the anti-piracy efforts including Vista features. [...]

  4. Good news and bad news on Asian piracy of Microsoft products -- Microsoft News Tracker Says:

    [...] As I’ve mentioned before, this seems to be part of Microsoft’s “gentle” strategy in dealing with governments of countries where piracy is rampant. I wouldn’t be surprised if the Vietnamese government got quite a break on the deals. [...]

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