Microsoft sets sights on emerging markets

Microsoft sets sights on emerging markets

Grant Peck, Associated Press, Bangkok, Thailand

The long-running legal battles between Microsoft Corp. and
governments in Europe and the United States make the company look
like a partner in a bad marriage, ready to walk out and call the
divorce lawyer.

But in Southeast Asia, the software giant seems more like an
ardent suitor, wooing governments with sweet promises and gifts -
such as unprecedented bargain prices on its Windows operating
system.

Microsoft executives suggest that pricing policies for
government-promoted PC sales pioneered last year in Thailand and
used again in Malaysia this year presage a new marketing approach
for emerging markets.

So far, the localized versions consist of Windows XP minus
English language support. The company also has hinted that it's
developing a kind of "XP Lite," a leaner Windows with features
more appropriate to developing countries where "high tech" is not
a reality of everyday life.

Microsoft executives are themselves being lean with details,
citing competitive strategy. But they're willing to discuss the
concept.

"This is a new market with very different needs, from an
economic perspective, from a social perspective, from a technical
perspective," Barry Goff, group product manager for Windows
Client group, said in a telephone interview from company
headquarters in Redmond, Washington.

Setting prices based on geography is not new in other
industries. Pharmaceutical firms charge lower prices in
developing markets like Africa than in mature ones like the
United States. Even McDonald's sets different prices for Big Macs
based on geography.

But the software industry is just beginning to move beyond a
one-price-fits-all strategy.

Besides Microsoft, Symantec Corp. in May released a Thai
version of its Norton antivirus suite for half the price of its
regular English edition. And earlier this month, Sun Microsystems
Inc. introduced a government pricing scheme for its enterprise
software based on population and degree of development, as
determined by the United Nations.

"What we're seeing is the beginning of a trend," said Joe
Wilcox, a senior analyst at Jupiter Research. "The more companies
test the waters, the more of a trend there is because of the
competitive threat."

Microsoft changed its tune a year ago.

The software giant previously promoted a one-price-fits-all
policy: A shopkeeper in northern Thailand, for example, would be
charged the same for his copy of Windows as a corporate lawyer in
New York, despite the disparity in average national incomes.

Microsoft had little incentive to do otherwise as it commands
the market. At the same time, lax enforcement of intellectual
property laws throughout the region meant that many home users -
and not a few companies - used pirated versions of Microsoft
software.

When Thailand's Information and Communications Technology
Ministry last year launched a program to boost the country's
modest installed base of home computers by selling machines at a
rock-bottom price, it asked Microsoft to help out.

To keep to its targeted price of the equivalent of about
US$260 for a fully equipped desktop computer, the ministry sought
a discount on the company's software.

Convinced that price rather than feature set was the key to
success, the ministry went ahead and began marketing its
computers in May 2003, bundling them with freely distributed but
less user friendly "open source" software: a Thai language
version of the Linux operating system and an office productivity
suite.

Within a month, the ministry had more than 100,000 orders in
hand. And it also had the attention of Microsoft, which came back
with an offer the ministry couldn't refuse.

"Microsoft offered a special price of 1,500 baht ($38) for XP
Home and Office XP combined," recalled Jumrud Sawangsamud,
chairman of the affordable computing working committee. Normally,
Windows XP Home Edition sold for 4,500 baht ($114) and Office XP
cost 15,000 baht ($380).

The only thing lacking, said Thai and Microsoft officials, was
English-language in the Windows displays - menus and the such -
to discourage exports to outside markets.

The success of the program allowed the ICT Ministry to move on
to new promotions with Microsoft's participation, such as the
sale of cut-rate notebook computers to civil servants.

Microsoft now touts its original Thai deal as a model for
emerging markets.

When Malaysia's Ministry of Energy, Communications and
Multimedia announced a similar project to boost the number of
computers in rural households, Microsoft got in on the ground
floor.

Purchasers of Malaysia's PC Gemilang: PC Mampu Beli- "Glorious
PC: Affordable PC" - can buy machines loaded with open source
software, for 988 ringgit, or $260. Or they can opt for a desktop
loaded with a Malaysian-language only version of Microsoft
Windows XP Home Edition and the lightweight Works suite for 1,147
ringgit, or $302.

Vietnam, which announced a similar large-scale, low-cost
computer project, is a likely candidate for a similar deal and
has been in discussions with Microsoft since late last year. Ngo
Phuc Cuong, Microsoft's chief representative in Vietnam, declined
to give further details.

It's clear the rise of piracy in Southeast Asia and the low
cost of open source alternatives are spurring Microsoft's new
approach.

The company said the initiative was geared mostly for
developing countries, and that it was meant to fend off advances
by Linux. But Linux poses little immediate threat to Windows on
consumer desktops.

Even when Thailand was rolling out its cheap Linux PCs last
year, officials assumed that a substantial number of them would
be reconfigured with pirated copies of Windows.

The International Intellectual Property Alliance, a multi-
industry lobbying group, estimates 72 percent of the business
software used in Thailand last year was pirated. For Malaysia,
the figures were 68 percent, while Vietnam tied with Russia as
the world's worst, at 93 percent.

Microsoft's Goff characterized the program as an opportunity
to fulfill the company's vision of "a PC on every desktop and in
every home."

"From a ... First World perspective, we've largely succeeded
in that," he said. "But Microsoft is truly a global organization,
and if you really think about globally, 'Have we succeeded?' the
answer is 'Not even close."'