Microsoft is Smarter Than You
Posted on August 5, 2007
Filed Under Intellectual Property, Software Piracy |
Why would you bother to pay for licensed software? In a place like China, where pirate software is freely available and most IT service companies are happy to provide it, most people don’t seem to bother.
The Business Software Alliance (BSA) has China clocking in at 82% of software being pirated in 2006. This is a drop of 4% since 2005 and a drop of 10% since 2004 (see here).
There seems to be a bit of a disconnect with the Chinese government on this. People’s Daily quotes the Chinese State Intellectual Property Office with:
Software piracy rate was down from 26% in 2005 to 24% in 2006, software products piracy rate, including computer software and embedded software, fell from 40% in 2005 to 36% in 2006; and piracy rate relevant to computer software dropped from 57% in 2005 to 53% in 2006, according to a conference to release the “2006 China Software Piracy Rate Survey Report” held by the State Intellectual Property Office on Monday, or May 14.
Something may have been lost in translation - I’m confused with the three different sets of numbers. I don’t think it matters anyways, China is flush with pirate software and everyone knows it.
I’ve never been a big fan of the BSA, they seem to work on the premise that if there was no pirated software people and companies would happily shell out for the real thing. The low consumer purchasing power in developing countries would argue against that.
Plenty of people have made the argument that Microsoft is happy to see its software pirated now as long as it means market dominance. They’re confident of revenue later. China Law Blog quotes Felix Salmon about this here.
There’s no denying that Microsoft has established an enviable market position in China, as it has in the rest of the world. But Microsoft isn’t content to sit back and enjoy the revenue stream from some small fraction of their install base. They’re too smart for that.
Microsoft is smart about China, and smarter about piracy. In the 90’s, when Microsoft first came to China to do business, they fought hard against software piracy. They sued local firms and generally threw their weight around.
This culminated with reports in 2000 that government agencies were being told not to buy Microsoft software. When you push people, or a government’s constituencies, sometimes they shove back (especially in China). Microsoft was chastened and reversed course.
Within a couple of years Microsoft had initiated some massive investments in Chinese software companies (the first tranche was US$750 million in 2002) and had allowed the Chinese government to review the operating system’s source code.
All this paid off in 2006 when the government decreed that all new PCs should be sold with a licensed O/S installed. This in itself didn’t stop piracy, but it was a start. I have no numbers, but I really doubt there was a sudden surge in computers running Red Flag Linux.
In 2007, Microsoft released their next version of Windows, Vista. It was released simultaneously across the world with a huge marketing campaign. Results have been mixed. While 60 million units have been sold as of July, Steve Ballmer, Microsoft’s CEO, said in February that piracy in countries such as China (shocking, shocking!) have affected overall Vista sales (quoted here).
As others have noted, Microsoft just slashed prices in China (see prices here). Is this how Microsoft is going to fight piracy? Lower prices and hope for the guilty to start paying?
Microsoft is smarter than that, they have a plan to minimize piracy and really start raking in the money.
It all centers around the Windows Genuine Advantage (WGA). This little tool, automatically installed as a critical update in XP, checks your license and flashes a notification when your copy is illegitimate.
Problems with WGA have been rife since its inception with Windows XP and have continued with Vista (where WGA is natively installed in the operating system). Microsoft has even been sued for installing spyware - the WGA tool “phones home” to Microsoft with information about the PC and the license. It has stopped machines from working, accused users of piracy, and generally been an annoyance.
Which means that it’s working.
And it’s going to take anti-piracy to the next, logical, level. Where in XP you’d be told that you were using pirated software, in Vista you won’t be allowed to use it.
Take these quotes from Microsoft’s Vista WGA FAQ:
Q: How does WGA for Windows Vista work?
A: …Systems running a non-genuine copy of Windows Vista will be notified, and the lower right portion of their screen will permanently display a message that reads, “This copy of Windows is not genuine.†In addition, a user may be asked to reactivate within 30 days if it is determined that their product key has been blocked by Microsoft or their licensing files have been tampered. Failure to reactivate within the 30-day grace period may result in the system being placed into a reduced functionality mode.Reduced functionality?
Q: What is reduced functionality?
A: …there is no start menu, no desktop icons, and the desktop background is changed to black. The Web browser will function and Internet connectivity will not be blocked. After one hour, however, the system will log the user out without warning. The system will not be shut down, and the user can log back in. Even with reduced functionality, the system will not block access access to personal data stored on the computer.
As apocalyptic as this sounds (black background and all), this hasn’t been happening to a lot of people. Plenty of problems, but Microsoft is helping those it deems “victims” of software piracy.
And researchers and pirates are pretty crafty, too. Cracks to disable, fool, or otherwise circumvent WGA started coming out as soon as Vista did. The most recent, and effective, one is described here. It emulates and exploits how Microsoft allows OEM vendors to pre-install Vista on PCs.
So if the pirates are up to speed, can Microsoft outsmart them? Yes, of course. One of the outcomes of Microsoft being so smart is that they have so much money. Money means resources and you can be certain Microsoft won’t hesitate to use them. As their blog on WGA puts it here:
I do want to say something here about how we plan our responses. As I’ve said in the past, we focus on hacks that pose threats to our customers, partners and products. It’s worth noting we also prioritize our responses, because not every attempt deserves the same level of response. Our goal isn’t to stop every “mad scientist” that’s on a mission to hack Windows. Our first goal is to disrupt the business model of organized counterfeiters and protect users from becoming unknowing victims. This means focusing on responding to hacks that are scalable and can easily be commercialized, thereby making victims out of well-intentioned customers.
Roughly translated: we’ll go for the commercial bootleggers first, then pick off the mad scientists as they annoy us.
There will always be software piracy, but Microsoft has taken a big step in to clamp down on it. There will always be some people who can outwit the behemoth, but in the future in China, as in the rest of the world, most people are just going to start paying.
Perhaps in the past Microsoft was willing to lose revenue to build market share in emerging economies. But the market share is now well-established (and dominant), and it’s time for that investment to start paying off.
Score a big win for the evil empire, this is the real WOW in Vista.
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3 Responses to “Microsoft is Smarter Than You”
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This is my first time here, but I ended up reading every single post and I left very impressed. I will definitely be back. Keep up the good work.
What a bunch of pinko, biased, “sky is falling” diatribes from a techno-anarchist with an axe to grind.
This guy is obviously a Microsoft hating, Mac loving, Boston snob elitist!
So, of course I loved it.
[...] will pay off as China’s retail technology market matures. Add to this Microsoft’s WGA strategy and the East is looking quite rosy for the folks in [...]