Bad Early Warning Signs In Software Market For Microsoft

Protectionism may help local Microsoft competitors to dominate the software market in China.

A new policy by China's governing body the State Council will rule that all ministries have to buy only locally-produced software at the next upgrade cycle.

Strangely enough, rampant bootlegging in China may aid Microsoft by preventing local software companies from getting enough revenues to hire large staffs. If the Chinese government really cracked down on bootlegging of local developers' software while at the same time keeping Microsoft out of the market the revenues that the locals could eventually generate from serving the Chinese market may allow them to develop software that would eventually become a competitive threat to Microsoft in other countries as well.

What is the bigger threat to Microsoft, protectionist China or Linux? A couple of recent stories suggest that in the short to medium term Linux could be a growing threat.

SuSE CEO Richard Seibt talks about the significance of the price cut Microsoft offered the city of Munich in Germany.

From a customer perspective, the Munich deal has implications...that (Microsoft) will start to negotiate on a price point that's 90 percent below their list price. It's unbelievable. Cutting prices when you have offered high prices before means that all other customers will want the same thing too. Their other reaction will be: "What have I paid before?" And that causes disappointments, loss of trust and loss of relationship.

The Inquirer relays the most interesting details from a Wall Street Journal article that reported on how far Microsoft was willing to cut prices to win a deal with the government of Thailand against a Linux alternative.

According to the Journal, Microsoft said it would sell Windows XP and Office at a piffling $36 a PC.

Microsoft was even willing to remove product activation from the Thai version of their product. Of course, that doesn't open them up to much of a risk of bootlegging since people in other countries are not going to want to run the Thai versions of Windows and Office.

Every time a story comes out about how far Microsoft is willing to drop its prices in the face of Linux competition that will encourage more governments and companies to examine the possibility of switching to Linux or at least threatening to. If this becomes a major trend Microsoft will suffer a substantial decrease in sales.

Posted by Randall Parker at August 18, 2003 09:59 AM | TrackBack