(The author is a Reuters Breakingviews columnist. The
opinions expressed are his own)
By John Foley
BEIJING, May 24 (Reuters Breakingviews) - Microsoft (MSFT.O)
is staging a comeback in China. The world’s biggest software
maker hopes to use the twin technological disruptions of cloud
computing and mobile devices to get a second bite of a market
where profit has proved elusive. Yet the financial benefits may
prove no less hard to grasp the second time round.
China has been a piracy trap for Microsoft: many use its
products, but few pay. Founder Bill Gates famously argued that
he would rather see Chinese users steal his products than
someone else’s, and they took him at his word. Chief executive
Steve Ballmer has complained that Microsoft generates less
revenue in China than in the Netherlands – though that will have
changed since Microsoft started charging smartphone makers like
ZTE patent fees.
Cloud and mobile services may provide an antidote. Windows
Azure, the company’s cloud computing platform, is set to launch
in June, and the hope is that piracy will be less of a problem
in the cloud, where companies and developers store data and
software on third-party servers rather than local PCs. In
mobile, operating systems tend to be pre-installed by handset
manufacturers, which creates tighter control over who's using
Yet competition is fierce. Alibaba, which already handles
over 80 percent of online commerce, has high hopes for its own
cloud computing service. While revenue from "public cloud"
services are set to grow to $3.8 billion by 2020, according to
Forrester, that’s still less than half the Business Software
Alliance’s estimate of the Chinese market for illegal software.
As for mobile, the industry is dominated by versions of Google’s
Android operating system.
Microsoft may also escape the piracy trap only to fall into
a political one. Foreigners aren't allowed to offer “value-added
telecoms” by themselves, so Microsoft must share its cloud
revenue with a local partner. Since cloud computing features in
the Chinese government’s current five-year plan, the market is
likely to develop in ways that favour local players. That makes
Microsoft’s chances of turning China into a big source of
revenue look pretty nebulous.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Microsoft plans to hire thousands of new employees in
China for the launch of its cloud computing services and the
roll-out of smartphones, chief executive Steve Ballmer said on
May 22. The U.S. software maker currently has a workforce in the
country of around 4,000.
- Microsoft is due to launch Windows Azure, its cloud
computing platform, in China in June, in partnership with local
company 21ViaNet. Under the agreement, 21ViaNet would collect
client revenues and pass a percentage on to Microsoft. China
restricts foreign companies’ ability to offer “value added
telecoms” services, leading most to partner with local players.
- In 2011 Ballmer complained that China provided less
revenue for Microsoft than the Netherlands, despite having a
population more than 75 times bigger. According to the Business
Software Alliance, 77 percent of software by value was pirated
in 2011, based on an estimated illegal software market worth $9
- Reuters: 21Vianet Announces the Public Preview of
Microsoft Windows Azure Services in China [ID:nGNXUXVTQa]
Shining chrome [ID:nL1N0BYE7C]
Mozilla versus the antitrust monster [ID:nL1E8HCAF4]
- For previous columns by the author, Reuters customers can
click on [FOLEY/]
(Editing by Peter Thal Larsen and Katrina Hamlin)
Keywords: BREAKINGVIEWS MICROSOFT CHINA
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