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  • Microsoft’s marketing strategy in China is just plain stupid

    Posted on June 1st, 2011 at 21:56 woody 14 comments

    An open letter to Steve Ballmer…

    Dear Mr. Ballmer:

    Late last week you spoke to Microsoft employees in Beijing about the effect of software piracy on Microsoft revenues.

    China is about to overtake the US in the total number of PCs sold. But, according to the Wall Street Journal, you said, “our revenue in China will be about a twentieth of our revenue in the United States… I’m not saying everybody in China could afford to buy a PC… but if you can, you could afford the software.” 5% of US sales translates into $2 billion a year or so in Chinese sales. The missing 95% presumably got swallowed by the Chinese pirating dragon.

    Many people in China – indeed, many people throughout Asia – listened to your words, Steve, but heard a recounting of the old Chinese parable about the emperor who, being told that his subjects didn’t have enough rice to eat, replied, “Why don’t they eat meat?”

    Here’s what you don’t understand, Steve. Microsoft’s approach to the Chinese market is utterly wrong, and doomed to failure.

    Prodding Asian markets with bluster about “The Law,” jackbooted Software Police, and threats of lawsuits and imprisonment won’t get you or Microsoft anywhere. Many Chinese ‘Softies who praise your actions in public are embarrassed in private. Many Chinese officials who nod their heads and run your raids would much rather find a decent, honorable way to make a living. Like many big foreign companies in China, Microsoft is tolerated, but only barely. The good things your company brings are appreciated – jobs, new technologies, an opportunity for learning and advancement. But all of this gibberish about “if you can afford a PC you should pay Microsoft for the privelege” is so much foreign, alien, condescending hokum.

    Steve, permit me to introduce you to someone you should get to know. His name’s Andrew McBean. You may recognize the name. Andrew used to work for you: he was Microsoft’s Managing Director in Thailand from 2003 to 2007. I don’t know Andrew – never spoken to him – but I watched what he did in Thailand, and came away impressed. Andrew knows how to do business in Asia. Microsoft could learn a lot from his example.

    Back in 2003, the Thai government announced a plan to finance low-cost PCs for working class families. The government wrangled with several PC manufacturers and came up with designs for functional PCs that would sell for $250 to $450. With government-backed financing, that was a price working families could afford. The main sticking point? That price didn’t include an operating system or any applications. The government initially decided to ship the PCs with a Linux variant, fully expecting customers to install pirate copies of Windows and Office the minute the machines got out of the box.

    McBean fought hard and finally convinced Microsoft to bundle Windows XP Home Edition with Office XP Standard Edition, and ship the pair pre-installed on these government sponsored PCs for the princely sum of $35. It was a revolutionary approach, and it worked. The project itself didn’t fare all that well – supply and distribution problems, and other woes. But Microsoft showed it was willing and able to step up to the plate and fend off piracy by competing mano-a-mano in a tough consumer market.

    That’s what Microsoft is missing in China, Steve. In most of the world, Microsoft can argue – rightfully – about the superiority of legal software, the inherent unfairness in big-business pirating, the legal consequences of getting caught with “ungenuine” Windows and Office. But in many parts of the world – most definitely in most of Asia – that marketing approach just doesn’t work. Individuals and organizations see that pirated software works; the best cracks even fool Microsoft’s genuine checkers. Many people don’t understand how supporting $2 billion-in-China-sales Microsoft brings any benefits to them at all. And legal consequences are very different in other parts of the world: just ask the people who worked with NGOs in Russia that were targeted for Microsoft software piracy raids in retaliation for their political views.

    Microsoft looks at pirate copies of Windows and Office as being inherently bad: by educating customers and enforcing intellectual property laws, the reasoning goes, Microsoft should be able to reclaim more of that 95% being swallowed by the piracy dragon.

    As far as I’m concerned, that’s just not the right way to tackle the problem. Microsoft needs to look at pirate copies of Windows and Office as being “the competition.” The ‘Softies would get a lot more traction in their potentially-largest-market if they’d get down ‘n dirty, just like McBean did in Thailand, and offer competitive products with compelling advantages.

    An example. Anybody in the States can walk into a mass merchandiser or hop onto Amazon and buy three licenses of Windows 7 Home Premium for about $120. At $40 apiece that’s, oh, roughly the price of a good-but-not-lavish dinner and a movie. For a programmer with a college degree, that’s, say, 1% of their $4,000 monthly salary.

    In Asia, the cheapest “genuine” Windows 7 Home Premium sells for about $110 – the price for a single-license OEM version, which may or may not be completely legal on a new PC, depending on the country. That’s about twenty times as much as a good-but-not-lavish dinner and a movie. For a programmer with a college degree, that’s about 30% to 40% of their monthly salary.

    There’s just no comparison. Not even close.

    If Microsoft were willing to get competitive in Asia, it could shave 25% off the current best price of Windows 7 Home Premium in the West, and there’d be a real contest: genuine Win7 Home Premium for $30, vs. a pirate version for $2. Microsoft might actually start selling software at that rate.

    Windows 7 Home Basic – the hobbled version of Win7 available pre-installed on new PCs sold in “emerging markets” including China – isn’t a competitor. It’s an insult. An invitation to piracy.

    As things stand, Microsoft’s only compelling sales tactic is the threat of legal action. Microsoft’s only significant customers in China – indeed, in much of Asia – are international firms that won’t tolerate pirate software. That said, many international firms are shocked to see the results of software audits in their Asian operating units. The claim “everybody out here does it” may not sit well with IT management, but it’s not far from the truth.

    Steve, your comment, “I’m not saying everybody in China could afford to buy a PC… but if you can, you could afford the software” belies both a fabulous arrogance, and a complete lack of Asian marketing savvy. To borrow BillG’s favorite multi-purpose phrase, it’s stupid.

    The incremental cost of creating a new shrinkwrapped box of Windows 7 runs less than a dollar. (Tellingly, the box is probably made in China.) Microsoft has to decide if it wants to compete in Asian markets, or if it’ll insist on applying its phenomenal profit margins, uniformly, all over the globe.

    I suggest you ask Andrew what he would do.

     

    14 responses to “Microsoft’s marketing strategy in China is just plain stupid”

    1. Over the years I have always put the blame on the creation of the pirate industry in Thailand on the large software companies. I bought my first PC in Hat Yai in 1988, but nowhere could I buy software. Even trips to Bangkok found nothing, and any attempt to buy internationally (over the phone then of course) were rebuffed as soon as I mentioned where I was based.

      On rare trips home (UK) I bought programs like games and brought them back for my own use, but there was no legal software here. If people buy computers they also need software. No software, what happens?

      (Greetings from BKK, Woody)

    2. Not that they need my 2cents worth on the topic; but, Woody is 100% right on this.

      What sort of idiot marketer tells his customers about his needs rather than the needs of the customer? The focus is all wrong. This is just one of the reasons Microsoft will continue to lose market share and some day will be relegated to the list of “oh, they were big once” companies.

      LarryP

    3. Angus Mckendrick

      Woody.

      Never a truer word written.
      The thing is.
      Will Mr Ballmer take his head out of the sand long enough [or the other place]to read or even understand the point you are making?

    4. @Graham -

      You’re absolutely right. If anybody at Microsoft actually reads my original post, I’ll follow up with an explanation of how it’s damn near impossible to buy “genuine” software with a new PC in Thailand – even a brand new, out-of-the-box PC from Dell or HP or Lenovo, fer heaven’s sake, bought at a big-name store. None of the clerks at the stores understand “genuine” because there’s zero demand for it. Contrariwise, every store has a hush-hush “give me 500 baht and I’ll get you a disk full of software” offer.

      I bet it’s just the same in China.

      Microsoft isn’t competing. They aren’t even trying. Their prices on the full versions are way out of whack for the international market, and their hobbled versions are laughable. No, insulting.

    5. @Angus –

      Amen. Best I can do is mimic a cackling goose, while Rome burns. With China about to surpass the US in PC unit sales (now there’s a sobering statistic), Microsoft is throwing away one of its great opportunities.

      Ballmer knows how to compete. But he doesn’t understand the culture. And the people advising him don’t have the guts to tell him their approach is all wrong.

    6. Woody.
      He doesn’t understand the culture.
      That sums it up.
      What people also tend to forget is that to them we [That is all the rest of the world]are just “barbarians”
      There are some things even communism can’t change.

    7. [...] else not happy with Microsoft is Woody from Phuket who is furious with Redmond for their attitude to the Chinese market and compares what was done in [...]

    8. @Angus -

      Sad. At the heart of it, I think you’re right…. although I bristle at using the term “we,” because Asians are as diverse as any other group of people.

    9. I don’t know what you’re talking about. A three user license UPGRADE package is $160.00, not 120.00 and those are NOT full version licenses. Get your numbers straight. It changes your math quite a bit.

    10. @BA –

      At the time I wrote the article, the three license family pack was $120 just about everywhere.

      They were upgrade licenses, but could be applied on any PC.

    11. Are there any statistics on OS use in China? Curious.

    12. @ Col Panek –

      I haven’t seen any that are reliable. Gartner publishes some, but I wouldn’t hang my hat on them. The only thing that seems reliable is Microsoft’s own statements about income from China.

      Anecdotally, every time I’ve been to China (which isn’t all that frequently), I rarely see PCs for sale with genuine software.

    13. >> Are there any statistics on OS use in >> China? Curious
      ****

      I think 70% Chinese are using XP Professional (pirated version with valid Volume License Key) and the rest are Vista & 7. Most Windows 7 in China are pirated Ultimate Edition (with OEM hack / BIOS modified). A lot of laptops preinstalled with Windows7 Home Basic have the OS deleted and a pirated Ultimate edition installed.

      Most Chinese IT forums provide links to Windows 7 image download (the intact original MSDN file as well as ISO CD image), and website such as http://www.bios.la provides modified BIOS download for activate Windows 7.

      Microsoft was running a promotion to Chinese students since last year, 248 yuan ($40) for windows 7 Professional + Office student edition, but according to a survey, only 20% of students willing to buy. majority not willing to pay… “it just a disc, how much a disc worth? 50 cents?”, “pay 248? i rather go for a nice dinner with my girl friend, software is just a disc worth no more than 5 yuan”

    14. @TKO -

      I haven’t seen any reliable statistics on OS usage in China.

      I hadn’t heard about the student offer. But the response is a whole lot like what I hear in Thailand (where I live), Singapore and Hong Kong…

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