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

    Posted on June 1st, 2011 at 21:56 woody Comment on the AskWoody Lounge

    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.

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