Does Microsoft Need China?

← Back to Stories (view on slashdot.org)

Posted by michael on Tuesday September 7, 2004 @06:56AM from the great-wall dept.

angkor writes "Does Microsoft Need China? Interesting article from CFO.com's perspective on MS pricing strategies in the developing world: 'Put another way, Microsoft is relying on current pricing and a goodly portion of the world's tech growth to sustain its 31 percent net profit margins. But an increasing portion of global tech growth will come from Asia's burgeoning economies. And it's precisely in Asia--with China in the lead--that pressure to alter the uniform pricing structure for its software is the strongest in the world...'"

32 of 226 comments (clear)

It's Not Just The Price by ackthpt · 2004-09-07 06:56 · Score: 5, Insightful

One of the most compelling reasons Microsoft has difficulty making inroads with the PRC goverment is because he central plan is not the have China beholden to foreign interests. The central government has invested strongly in developing a native CPU and education in computer sciences. Why make something for the rest of the world work for China, when they could develop something that works for China and not care what the rest of the world does?
I think Microsoft has some of the right ideas, trying to develop an infrastructure which has a need for their products, but they'll need businesses to buy into it more than government.
Connors responded that the total cost of ownership of Microsoft Windows and Office products which account for 80 percent of its revenue is in fact less than that of cheaper, open-source software, because Microsoft can offer the entire weight of the 'eco-system' that supports its products. This eco-system can be described as the support, customization, integration services, and software that evolve around the Windows product. Connors cited studies that have endorsed this view from Forrester Research and Merrill Lynch
And at that point the conference center's FUD alarm went off and people fled into the streets.

--

A feeling of having made the same mistake before: Deja Foobar
1. Re:It's Not Just The Price by strictfoo · 2004-09-07 06:58 · Score: 4, Funny
  
  Microsoft has difficulty making inroads with the PRC goverment is because he central plan is not the have China beholden to foreign interests
  
  I think it's Microsoft's silly belief that Taiwan is a country.
  
  --
  I've just signed legislation that'll outlaw Russia forever. We'll begin bombing in five minutes.
2. Re:It's Not Just The Price by echeslack · 2004-09-07 07:00 · Score: 3, Insightful
  
  "Why make something for the rest of the world work for China, when they could develop something that works for China and not care what the rest of the world does?"
  
  Because they might actually need to interact with the rest of the world at some point?
  
  I'm not saying its impossible to come up with their own solution, but it may not necessarily make sense.
  
  --
  GMail invites for completed freeipods.com of
3. Re:It's Not Just The Price by Anonymous Coward · 2004-09-07 07:08 · Score: 3, Insightful
  
  Because they might actually need to interact with the rest of the world at some point?
  If you're big enough, the rest of the world will happily come interact with you (as all the US companies are eager to prove through outsourcing relationships).
4. Re:It's Not Just The Price by Anonymous Coward · 2004-09-07 07:10 · Score: 3, Funny
  
  Yeah, everyone knows that it's One China, and it's merely a matter of education that prevents that 1.6 billion people on the mainland from realizing that the One True Government is sitting off on that little island.
  Once the masses are informed, they'll happily be reunited under Taiwanese rule.
5. Re:It's Not Just The Price by ahfoo · 2004-09-07 07:40 · Score: 3, Insightful
  
  I follow it fairly regularly. Their web site is in Chinese only but I'll give you a quick run down of what has happend over the last year with the much hyped Dragon Chip.
  Basically, with commodity chips like Celerons and the various entry level priced AMD chips being so cheap the market for their chip/board combo got knocked out.
  From a business perspective, and this is a business rather than a governmental agency although they've had help from academia and some grants, the original idea was to get away from the royalty costs and thereby produce a super cheap chip. But the reality of the market has been that chip royalties have become insignificant so you can't get ahead in the market by cutting royalties. There's essentially nothing left to cut at the low end.
  But they're still at it.
  The big thing this year was a joint venture with AMD. AMD is partnering with them on some of their chip designs that were considered industrial PC grade but are actually even better than what Haier was offering with the Dragon Chip.
  And as you're probably most interested in this part, I could be recalling incorrectly, but I'm pretty sure the specs were something like a 266Mhz with 64K RAM on board and the cost was US$150 but only in units of several thousand.
  You see the problem here? You can get a Via Epia 800 for less than that and those are not cheap. You can get an older Celeron or AMD chip with a motherboard for almost half that if you really shop around.
  So, they're still in business, but the facts of the overall market have made their story a bit less newsworthy.
  The bottom line is this: if the price is right then foreign products will be just fine.
  The same is true for Microsoft. But this is where it gets interesting. Microsoft's market position is already in serious trouble when the guts of a PC go below a hundred bucks.
6. Re:It's Not Just The Price by Anonymous Coward · 2004-09-07 19:25 · Score: 3, Informative
  Taiwan province WAS, IS, and WILL ALWAYS BE part of China.
  That's seems wrong.
  
  From 300AD to 1600AD, it was mostly a Malay-Polynesian colony (the Taiwanese Aborigines)
  
  From about 1590 to 1600 it was almost portuguese, and then dutch
  
  The Dutch were expelled by Cheng Ch'eng-kung in 1661.
  
  In 1895 Taiwan was ceded to the Japanese Empire.
  
  For a couple years after WW2 and before it had its own government it was part of china.
  
  So if you go back a little into history, you'll see that Taiwan is Malay, or if you look more recently it's either Japanese or independant.
  Please tell what history you see that tells otherwise.
7. Re:It's Not Just The Price by mrbnsn · 2004-09-07 21:08 · Score: 3, Insightful
  
  "And, as you've mentioned: non-democratic and illegitimate. Would you agree that sometimes these words are not so easy to be defined clearly?"
  Consider this. You claim that the people of Taiwan are Chinese people. The current Communist Party government already has an agreement with the Chinese people in the form of the Constitution of the People's Republic of China. This agreement guarantees free speech, freedom of assembly, freedom to organize labor unions, etc.
  Can you tell me why the Chinese people of Taiwan should trust the Communist Party to respect the terms of a new unification agreement while the Communist Party has no shame about breaking its current agreement with the Chinese people on the mainland?
Rather... Does China need Microsoft? by addie · 2004-09-07 07:00 · Score: 4, Interesting

I predict that in 20 years, a Chinese OS is dominating market share in eastern countries. There's no way that a workforce of that size, with increasing technological skill, won't be able to compete with a floundering US economy. China is not about to bind itself to a major western corporation, at least not in a way that involves shipping product IN to the country, rather than the traditional OUT.

But I'm only a history major...
1. Re:Rather... Does China need Microsoft? by e9th · 2004-09-07 07:05 · Score: 3, Insightful
  
  Yes. And China tends to look towards the long term. The question is, what direction will their software enterprise take? Will they go the FOSS road, or keep their stuff proprietary.
  My guess is that they'll try to capitalize (heh) on it.
2. Re:Rather... Does China need Microsoft? by Strudelkugel · 2004-09-07 07:35 · Score: 3, Interesting
  
  I predict within the same 20 year time span, there will be massive civil unrest, possibly a civil war in China. The country just isn't that stable, according to Chinese visitors I know and things I have read here and there.
  Scary stuff. hopefully I am wrong.
  China has yet to develop the necessary social infrastructure to have an economy has large as that in the US. Whether they can do it is an open question.
  
  --
  Imagine how much harder physics would be if electrons had feelings! -Feynman, maybe
"Does Microsoft Need China?" by JeanBaptiste · 2004-09-07 07:00 · Score: 5, Insightful

A better question would be: "Does China need Microsoft?" No, I dont think so.
1. Re:"Does Microsoft Need China?" by Mateito · 2004-09-07 07:09 · Score: 5, Interesting
  
  A better question would be: "Does China need Microsoft?"
  I think the answer to that question is an undisputed "no", and that's why the reversed was asked.
  As you stated, China doesn't need Microsoft, as they have shown again and again that they are able to produce/reverse engineer (depending on your point of view) something a comparable or better (as in more suited to their needs) product than the west.
  Thus the original question, "Does Microsoft Need China?" is the true discussion point. IE: Asking the reverse: "Can Microsoft continue to grow the marketshare at the rate expected by its executives and investors if it loses the billion and a half potential consumers found in China". I think the answer is probably "Yes, they can, but not under their current business model", so the longer answer to the original question is:
  "No, Microsoft doesn't need China, but they need to come up with a refreshed business model that reflects this".
  All business models have cycles, and Microsoft's has lasted a lot longer that it should have.
  
  --
  Norman Cook's Ode to Sl
Does China want Microsoft? by evangellydonut · 2004-09-07 07:00 · Score: 3, Insightful

with the government pushing for Linux, how much impact will Microsoft really have on the Chinese market? That's a more relevant question.
1. Re:Does China want Microsoft? by razmaspaz · 2004-09-07 07:33 · Score: 5, Interesting
  
  Hmm...Here's an interesting (maybe) thought. If China begins to use Linux as an alternative to windows, will they contribute their changes back to the community? China has no real incentives for doing so other than to keep on a standard. Other arguments suggest that China does not want to be dependant on a US corporation, so I can imagine a "Western" standard is no better. If China does not contribute back its changes is there any way to enforce the GPL? Somehow I don't think the WTO will be interested in defending the GPL. My guess is that the WTO is not a big fan of the GPL as it threatens IP and profitability of software trade.
  
  --
  I tried for 5 years to come up with a clever sig...only to realize that I am not clever.
2. Re:Does China want Microsoft? by grcumb · 2004-09-07 16:28 · Score: 3, Interesting
  
  Remember that China is not signatory to the international copyright agreements. There is absolutely nothing compelling them to play nice in this regard, or any other.
  
  They may *choose* to do so because it behooves them, but they simply cannot be bullied.
  
  China has historically referred to itself as 'The Middle Kingdom', implying that they're at the centre of the earth. For any other nation, this might be seen as hubris. For China, it's axiomatic.
  
  --
  Crumb's Corollary: Never bring a knife to a bun fight.
Depends on IP laws. by Anonymous Coward · 2004-09-07 07:01 · Score: 3, Insightful

Microsoft may not need China if they can monopolize SW intellectual property in the West. If they can pull that off, they can happily increase revenues by doubling the prices of software domestically.
On the other hand, if Linux is allowed to compete in a free market both here and in China, Microsoft will need to find a new strateghy anyway.
Perhaps they'll have to start innovating instead of charging large amounts for commodity components like filesystems and operating systems.
"Does Microsoft Need China?" by nuclear305 · 2004-09-07 07:02 · Score: 3, Funny

In a word: no.

What they need is to rethink their current strategy and figure out how to make it more efficient in their current market.

If they rely on a new populous for their future plans...well, I hate to be the bringer of bad news, but eventually they're going to run out of new blood...unless ET visits us, but, I doubt a lifeform capable of extra-solar travel is going to be interested in licesensing MS software.
Doomed! by BalorTFL · 2004-09-07 07:03 · Score: 5, Insightful

I think MicroSoft's efforts at a tiered pricing scheme are doomed. The "Broken-Windows" effort (only 3 apps can run at a time, only low resolutions, etc.) will do little to nothing to curb piracy, no matter how cheaply it is available. On the other hand, if the full version is released at a greatly reduced price, then why would anyone pay the the higher one? It's only a matter of time before people realize that spending $400 for their OS is a ripoff, and M$ is forced to lower prices in China, the U.S., and everywhere else to maintain its market share.
Of course they need China... by IronMagnus · 2004-09-07 07:04 · Score: 5, Funny

What would M$ do without China to produce all of the CDs on which windows is distributed.
1. Re:Of course they need China... by irokitt · 2004-09-07 07:09 · Score: 3, Funny
  
  Someone just confused Microsoft with AOL;)
  
  It's okay, honest mistake.
  
  --
  If my answers frighten you, stop asking scary questions.
And besides by spellraiser · 2004-09-07 07:06 · Score: 3, Funny

China is a communist country, right? They'd never go for Microsoft; they're strictly open source.
Because like everyone knows, Open Source = Communism :-)

--
I hear there's rumors on the Slashdots
Due to the mess that Microsoft constantly makes by teamhasnoi · 2004-09-07 07:08 · Score: 4, Funny

I would avoid China, and instead give Microsoft paper plates and a sippy cup.
Mirror, Mirror on the wall by MikeMacK · 2004-09-07 07:10 · Score: 5, Funny

If you looked in the mirror one morning and discovered you were Bill Gates, how would you regard China?
Probably not the first question I'd ask, probably more like, what the hell am I going to buy today?
It's not the Need but by Mr+Europe · 2004-09-07 07:14 · Score: 3, Interesting

The question is not if MS *needs* PRC, but how does it get the maximum amount of money of it.
Because of the piracy and other situation, the optimum pricing strategy in China might well be different from of other countries.
Wrong Approach by d2_m_viant · 2004-09-07 07:15 · Score: 4, Insightful

The only way that Microsoft can successfully market their Windows OS in China is to stop piracy first. The only way to stop piracy is to strategically align themselves with the government of China.

Microsoft can't defeat the 90% piracy by themselves, that's insane. They have to encourage (or entice) government enforcement if they want to successful transform a nation that only knows theft into a nation that is a legal consumer.

A restrictive operating system is a pitiful attempt at making in-roads into China. Microsoft's approach is completely misguided.
It's the government by Pranjal · 2004-09-07 07:24 · Score: 5, Interesting

Microsoft knows that the market in the developing countries in Asia is not in the home segment but in the corporate and government segment.

The home segment will continue to pirate software as there is little enforcement of law, if they exist, and primarily because it is so much cheaper to buy pirated copies.
For example here in India the cost of a pirated copy of windows is 1/10th of the cost of a legit copy. Nobody cares about support anyways.

The government offices are the next target. In Asia and specially in countries like communist China the biggest employer is the government. So you can easily guess that more people=more desktops=more sales. But Microsoft is frustrated that it cannot use it's traditional tactics of getting people to resist change by not switching from windows as in most cases people are starting out from scratch and if they latch on to Linux as a desktop OS they will resist changing from that as that is what they have been used to. An example is how the Chinese goverment is developing it's own version of Linux to counter dependence on Microsoft.

It will turn out to be an interesting fight.
Yes, they need China by bokmann · 2004-09-07 07:24 · Score: 5, Insightful

China is too large a market to leave to 'alternative' operating systems.

1) Most other multi-national corporations need the emerging market of China in order to keep their growing revenue.

2) Microsoft needs the business of those multi-mational corporations in order to keep their marketshare and revenue.

3) Those multi-national corporations are opening offices and hiring employees in China.

If Microsoft doesn't have China as a market, then these new offices and new employees will be able to introduce 'alternative' operating systems within the corporate infrastructure.

This will probably be happening anyway - but Microsoft can't afford to let it happen without a fight. In fact, it is arguable that piracy in China is actually in Microsoft's best interest at this point.
It's not about the revenue by JimDabell · 2004-09-07 07:51 · Score: 4, Insightful

Microsoft has plenty of money, it's not going to run out any time soon.

The real issue is what China will do instead of using Microsoft software. They have to use something. That's an incredible amount of resources the Chinese government and businesses have that will go to Microsoft's competitors.

When the German government decided to shift its employees to Linux, they provided resources that greatly improved the KDE groupware infrastructure. Imagine what the whole of China could give us. Now see why it's important for Microsoft to dominate the Chinese market?
MS needs Asia by baggins2002 · 2004-09-07 08:18 · Score: 3, Insightful

If an alternative OS takes root in Asia, it could very easily become the defacto standard for business and commerce. This would hurt the US economy even more.

Because we're going to be sitting around pointing fingers at each other, bitchin' about IP's,while people in Asia are just using there frickin computers to get shit done.

Hey, whatever we can do to keep the lawyers off unemployment.

I'm glad I had poor schooling, if I had a proper education, this would drive me insane.
Re:The other question... by alexborges · 2004-09-07 08:24 · Score: 4, Interesting

Wonderful question with an obvious answer:

No. Not a chance in hell.

The chinnesse gvmnt will need their ugly spyware to remain out of the hands of smart chinnesse citizens.

So, what are we going to do about it?

I think we cannot do much. But it might be leveraged by Microsoft to single out linux as something that the Pinkos use to opress the chinnesse people, which will be true, although slightly out of context.

--
NO SIG
It's all about out-sourcing by JPyObjC+Dude · 2004-09-07 08:25 · Score: 3, Interesting

M$ knows that outsourcing of IT projects will not go away. As such, getting into china ahead of Open-Source offerings will help to strengthen their hold in the higher level IT market.

This strategy has worked with India as they pump out so much M$ crap that it scares me.