Microsoft faces China challenge

30 May 2011

BEIJING: Microsoft is struggling to overcome piracy problems in China, costing the IT specialist "billions of dollars" in revenue each year.

At present, the American operator's turnover in the world's most populous nation only equate to around 5% of that generated by the US, even though PC sales levels in the two countries are increasingly similar.

Observers thus estimate Microsoft currently yields a relatively modest $2bn annually from China.

"We're literally talking about an opportunity that is billions of dollars today," Steve Ballmer, Microsoft's chief executive, told a company meeting, according to the Wall Street Journal.

The primary factor fuelling this trend is piracy, with copies of the firm's Office and Windows software available at a small percentage of the price required to acquire official versions.

As such, although PC purchasing rates in the rising Asian powerhouse should be "as big as the US market this year ... our revenue in China will be about a twentieth of our revenue in the United States," Ballmer said.

It has been argued many Chinese shoppers opt against buying software from legitimate sources because cost levels are prohibitive, but Ballmer suggested this was not an accurate representation of the situation.

"I'm not saying everybody in China could afford to buy a PC ... but if you can, you could afford the software," he said.

Despite considerable efforts made by the American multinational, and the Chinese government, as yet it has proved extremely difficult to limit the thriving black market.

As a result, Microsoft's returns from the country are not just one sixth of the size of the equivalent total in India, but also lag behind the Netherlands, which houses 17m citizens, compared with over 1bn in China.

Research group IDC has predicted 71m million PCs will be shipped in China in 2011, a 12% improvement on 2010, while the US remains flat on 75m.

Trade body the Business Software Alliance has reported 78% of PC software installed in China during 2010 constituted pirated material, a decline from 86% in 2005.

Data sourced from the Wall Street Journal; additional content by Warc staff