Tuesday, August 16, 2005

What is Piracy to Microsoft?

Piracy or Monopoly?

In Zhongguancun, China's Silicon Valley, piracy of Windows XP is rampant. That is beyong dispute. From the migrants who approach you outside the major electronics markets to the DIY (do-it-yourself) computer assemblers, no one pays for Windows. The reason: cost. It costs over 2000 yuan ($250) to buy Windows. Pirated copies cost 6 yuan (three quarters). But does this subvert or sustain Microsoft's monopoly on operating systems?

"The bird who sticks out its head gets shot," goes a proverb in Chinese. The meaning, for large companies like Baidu, UFIDA, and Lenovo, is that if they use pirated software, they will be "shot" by Microsoft, in court. The fly-by-night migrant, who only make 800 yuan ($100) a month selling pirated software can be arrested, bankrupted by fines, and sent home. But what would that net Microsoft? Nothing, since the fines would go to Beijing city government police. How does piracy help Microsoft?

The answer, from one point of view, is that by continuing piracy, Microsoft is able to sustain its monopoly in China. There are no Chinese operating systems. There are none even in the works. Why? Because they will be pirated as well. Piracy undercuts Microsoft but it also undercuts would-be Chinese entrepreneurs who could (undoubtably) create a Chinese proprietary operating system that could sell for 200 yuan ($25). That is the threshold price that would keep Chinese entrepreneurs profitable and return their investment costs. But why doesn't Kingsoft, the Microsoft of China, attempt it? Piracy.

Piracy, in the case of China, does take profit from Microsoft. But I would argue that Microsoft also benefits, and even profits (as the proverb predicts) from piracy. Without piracy, 100 operating systems, like Chairman Mao's flowers, would bloom. They would undercut and eventually end Microsoft's monopoly on operating systems.

Next time Microsoft complains about piracy, make sure they point out exactly why. 4/5 of the computers in Zhongguancun are name-brand, and come with official Microsoft licenses. 1/5 are DIY, are cheaper, and come with pirated Windows. So where is profit lost with respect to profit gainined?

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