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Does Microsoft Need China?
Microsoft, the US$36 billion software company co-founded by Gates, famously got off on the wrong foot in the PRC, and the troubles afflicting its presence still abound. It owns the desktop market there, yet earns little money because 97 percent of its software is illegally copied. Prominently among Asian governments, China's state planners support Linux, the open-source—read non-proprietary and low-cost—operating system that competes with Microsoft's Windows. Every time Microsoft pressures the government to crack down on the pirates, the government makes a move to support the rival system.
... in the long run, China could pose dangers to Microsoft. If Linux flourishes there, it could spawn formidable low-cost rivals to the American company. "The real value of open source to a country like China," says Kevin MacIsaac, an analyst with the MetaGroup in Sydney, "is developing a public infrastructure for a software industry. It's a reasonable and cost-efficient way for China to compete globally."
... But while Connors' [Total Cost of Ownership] arguments hold true in the Western world, they don't stand up so well in emerging markets. That's because Microsoft has a one-size-fits-all pricing policy for the world. And while it offers discounts in various sectors—such as to governments and universities—it remains inflexible on the cost of its software. Critics say that the total cost of ownership argument does not apply in markets like China, where labor costs are cheap and the real cost of Microsoft products is extraordinarily high. It's partly for this reason that Microsoft has such serious piracy issues in Asia.
... Bill Gates also told Fortune magazine in 1998 that eventually Chinese users would become "addicted" to computers and become paying customers. The phrase is used by Pogo Linux, an open-source software company based, like Microsoft, in Redmond, Washington, in its Chinese marketing materials. "Chinese executives don't miss the parallel with the Opium Wars and China's victimization at the hands of the colonial powers," says Tim Lee, president of Pogo Linux.
Read the extensive article about Microsoft and China at CFO.com.
