Software Pirates in China Beat Microsoft to the Punch

Software Pirates in China Beat Microsoft to the Punch

Published: October 18, 2009

TAIPEI — At shops in the bustling Xinyang market in Shanghai, fake Apple iPhones and Bose speakers were displayed alongside bootleg copies of Microsoft’s Windows 7 operating system, a week before it officially was to go on sale.

“Which version do you want? Ultimate? Normal? English or Chinese?” one shopkeeper asked, proudly pointing out her ample supply of discs packed in unmarked white boxes.

People in mainland China have been able to buy pirated copies of the newest version of Microsoft’s Windows franchise this month for just 20 yuan, or $2.93, each — a fraction of list prices, which are as high as $320.

Windows 7’s “early release” in China underscores the challenge major software makers face in trying to make money in China, the world’s second-largest PC market, after the United States.

The U.S. research firm IDC estimated that about 80 percent of software sold in China last year was pirated. While that figure is falling, it is still double the global average and about four times the average in developed markets like the United States and Japan.

“The big issue that is driving piracy in China today is price,” said Matthew Cheung, an analyst at the research firm Gartner. “If you’re trying to sell a program that costs 2,000 yuan to a student living on 400 yuan a month, that’s simply not going to work out for most consumers.”

In a nod to such pressures, Microsoft cut the price of its Office 2007 Home and Student Edition to 199 yuan last year from 699 yuan.

And Microsoft will sell its low-end Windows 7 Home Basic version for 399 yuan, a modest price by Western standards but still 15 times as much as is charged for pirated copies.

Violation of intellectual property rights has been a sore spot in China’s relations with its major trading partners, even as it has cracked down on rampant piracy of everything from Gucci bags to software.

A Chinese court jailed four people in August for spreading a bootleg version of Microsoft’s Windows XP, in what Xinhua, the official news agency, called the nation’s biggest software piracy bust.

“A lot of people are used to getting away with it for a long time,” said Steve Vickers, president of FTI-International Risk. “There are signs that law enforcement is picking up, and that should help things improve.”

Business Software Alliance, a trade association created by the software industry, said the sector had lost more than $6.6 billion in China last year to piracy.

Most experts agree that piracy in China is a long-term issue, but many say that conditions should improve as software makers cut prices, users become more educated and living standards rise.

“Piracy in China is reducing year by year because the government is placing more attention on it and prices between the real and fake have narrowed,” said Qian Liyong, director of the E.U.-China Project on the protection of intellectual property rights, based in Beijing.

Gartner estimated that software piracy rates in mainland China would fall as low as 50 percent by 2012, putting it almost on a par with rates in developed Asian markets like Hong Kong.

Customer education is also improving in mainland China as many realize the dangers of installing pirated software, which sometimes comes with viruses and spyware.

“This is a long-term issue — 10-20 years — it’s not just going to go away in an instant,” said Edward Yu, chief executive of Analysys International, a research firm.

In a bid to tackle the problem, Microsoft began an unconventional campaign in China last year that caused a black screen to be displayed every hour for users of pirated versions of Windows XP.

But that just caused thousands of irate users to migrate to free software from domestic companies like Kingsoft.

Some say that free Web-based software, supported by advertising, may ultimately help to reduce piracy in China by letting third parties pay for development costs.

“Because of the Internet, we are seeing a trend that software is by and large becoming free for consumers from point to point,” Mr. Yu said.