Open Source and the real thing: Windows in China

Thanks to those MS-fans at TechRepublic, I’ve found a quite interesting piece by Fortune writer David Kirkpatrick, who went with Gates on a business diplomacy tour a few weeks ago. Below layers of gossipy adulation there is real journalism and a good analysis, put with Gate’s own words:

Today Gates openly concedes that tolerating piracy turned out to be Microsoft’s best long-term strategy. That’s why Windows is used on an estimated 90% of China’s 120 million PCs. «It’s easier for our software to compete with Linux when there’s piracy than when there’s not,» Gates says. «Are you kidding? You can get the real thing, and you get the same price.» Indeed, in China’s back alleys, Linux often costs more than Windows because it requires more disks. And Microsoft’s own prices have dropped so low it now sells a $3 package of Windows and Office to students.

That’s it in a nutshell.

Gates has recently concluded an agreement with the Chinese government and is trumpeting it as a success. And it is, of a sort. Let’s see:

• Microsoft has tolerated for years the stratospheric level of piracy that the Chinese government allowed. The net effect of this was to discourage the spread of alternatives such as Linux (even those sponsored by the Chinese government): you could have «the real thing» for less than Linux.
• If anybody doubts that this is exactly the policy they’ve been pursuing in every other market (allow piracy as a sort of «entry level pricing», so as to keep cheaper competitors out)… you have it from the horse’s mouth now. And I believe the same goes for Adobe’s Photoshop and almost every other «industry standard» used by the general public.
• This sets in stone, as a proven fact, the relationship between copyright enforcement and the price of software. It is not support, it is not cultural fairness: people only buy it when they have no other chance.
• Incidentally, it also gives a quite clear idea of the main drivers of Linux adoption beyond the realms of the geek. Cost, yes, but also the ability to access and modify the code.
• Last but indeed not least is the use that China has done of its copyright enforcement policy: it has got Microsoft to give in in all fronts. It’s got access to the source code of Windows and permission to modify it (thus enabling it to install a different criptography component). And it’s got Microsoft to, in effect, give away copies of its software: 3 dollares for Windows + Office for students and government workers is cheaper that the Linux distros apparently cost on the street.

On the surface it looks like the late Roman policy towards invaders: agree to consider them allies and entrust them with the land they have just grabbed, keeping some wispy rights for the emperor. Evidently Microsoft is betting on charging more over time (and meanwhile, charging something at least). That will depend on two things: the willingness of China to enforce intellectual property, and the existence of viable alternatives to keep out; lacking the second, Microsoft will have no need to cede access to its code, and lacking the first, Microsoft will keep providing subsidised software until it feels the price pressure in the rest of the world.

India’s policy toward intellectual property is very different, but in one arena it is doing the same: medicine patents. But that is another story.