Linux

Sanity check: How Microsoft beat Linux in China and what it means for freedom, justice, and the price of software


Issue: Microsoft's big win in China

Who remembers Red Flag Linux? Born during the dot-com boom and officially financed and adopted by the Chinese government, Red Flag Linux was supposed to be China's answer for avoiding the double-team of Windows and Microsoft Office that dominates the rest of the world's PCs. In some circles, the potential spread of Red Flag Linux in the world's most populated nation was even hailed as a critical sign that Microsoft was not going to be able to spread its domination of the software market to the rest of the world.

However, Red Flag Linux has turned out to be little more than a key bargaining chip in a high stakes game of commerce between the Chinese government and the world's largest software maker. Thanks to some major concessions on source code and a precipitous price drop, the Chinese government has now thoroughly embraced Windows and Office. And thanks to a major about-face in the way that it deals with piracy, Microsoft has also won over the Chinese people.

In April, Microsoft Chairman Bill Gates took a victory lap in China, and Fortune magazine's David Kirkpatrick went along for the ride, writing an account of the trip and an excellent synopsis of Microsoft's rocky path to success in China in a piece called "How Microsoft conquered China - Or is it the other way around?"

Photo by Paolo Pellegri of Fortune -- view full gallery

Kirkpatrick wrote, "No other Fortune 500 CEO gets quite the same treatment in China. While most would count themselves lucky to talk with one of China's top leaders, Gates will meet with four members of the Politburo ... As one government leader put it while introducing Gates at a business conference, the Microsoft chairman is 'bigger in China than any movie star.' Last spring President Hu Jintao toured the Microsoft campus in Redmond, Wash., and was feted at a dinner at Gates' home. ' You are a friend to the Chinese people, and I am a friend of Microsoft,' Hu told his host. 'Every morning I go to my office and use your software.'"

Just five years earlier, the Chinese government was doing everything it could to avoid Microsoft software. The government balked at the high price of the software and had serious security concerns about saving sensitive government data in a proprietary operating system built by a company located within the borders of one of its chief international rivals. China was worried that the U.S. government could use the Microsoft OS to spy on Chinese government activity. The city of Beijing even began installing Red Flag Linux, supported by the government-run Chinese Academy of Sciences, on the computers of city workers.

In 2003, Microsoft began a program that allowed select partners to view the source code of Windows, and even make some modifications. China was one of 60 countries invited to join the program. Then Microsoft got serious about competing on price by offering the Chinese government its Windows and Office software for an estimated $7-$10 per seat (in comparison to $100-$200 per seat in the U.S., Europe, and other countries).

These moves, coupled with building strong relationships within the Chinese government and opening a major research center in Beijing, completely changed Microsoft's fortunes in China. Today, the Chinese government uses a version of Windows that includes its own custom cryptography software. In Beijing, where many of the workers avoided Red Flag Linux and used a pirated version of Windows instead, the government has taken inventory of pirated software and forked over cut-rate licensing fees to Microsoft.

Of course, piracy among the Chinese population at large is still one of the major issues Microsoft has to overcome. Microsoft's initial strategy was to work to get intellectual property laws enforced in China, but that was an unmitigated disaster. Microsoft realized that it was powerless to stop widespread piracy in China, so it simply threw up the white flag. If Chinese users are going to pirate software, Microsoft wants them to pirate Microsoft software. Plus, Microsoft has made it easy for Chinese users to purchase legal copies by offering a $3 Windows/Office bundle to Chinese students.

Even with the cut-rate fees for students and the government, Microsoft will still collect an estimated $700 million in revenue from China in 2007. That amounts to only about 1.5% of Microsoft's total revenue worldwide, but the battle for mind share has been won. Windows now has roughly 90% market share in China. There are currently 120 million PCs in China, but that number is expected by grow exponentially in the coming decades, and Microsoft is in a great position to reap the benefits.

Sanity check

Microsoft's strategy in China and the ascendancy of Windows and Office there could have important implications for Linux, the software market worldwide, and the future of China and its citizens.

One of the necessary aspects of competing in China was that Microsoft has had to cozy up to the Chinese government, which has long been the target of international scrutiny for its censorship policies and its human rights abuses.

Photo by Paolo Pellegri of Fortune -- view full gallery

When Red Flag Linux was at the height of its hype cycle and China was being viewed as the start of something big for Linux, Eric Raymond, the open source advocate, was wary of people making too close of a connection between China and Linux. He said "any 'identification' between the values of the open-source community and the repressive practices of Communism is nothing but a vicious and cynical fraud. [We] would not care to be associated with the totalitarian and murderous government of Communist China -- unrepentant perpetrators of numerous atrocities against its own people."

During Gates' tour of China this spring, David Fitzpatrick asked Gates how he could reconcile Microsoft's relationship with the Chinese government with China's suppression of freedom of speech and disregard for human rights. There was a long pause, after which Gates finally said, "I don't want to give an answer to that."

Microsoft, Yahoo, and Google have all come under scrutiny recently for their cooperation with China censorship:

There are two divergent arguments for whether establishing a relationship with China is a good thing or a bad thing in helping the Chinese people achieve freedom and justice:

1.) By doing business or building a relationship with China, you are giving tacit approval to their suppressive government practices and only encouraging them to continue. Therefore, nations and organizations should unequivocally shun China unless the government changes its policies.

2.) By establishing strong ties with China, you bring it closer to being part of the international family of nations in the hope that it will eventually curb its more radical practices because of natural peer pressure. This is often viewed as a better alternative to isolation, which can lead to extremism.

Microsoft obviously subscribes to the latter. But its primary motivation seems to be that there's a lot at stake in China and it must have a strategy to compete in China if it wants to continue to lead the software market. As a result, Microsoft has taken an apolitical stance.

The fact that Red Flag Linux failed to gain a major foothold in China is yet another blow to desktop Linux. After nearly eight years of being on the verge of a breakthrough, Linux seems more destined than ever to be a force in the server room but little more than a narrow niche and an anomaly on the desktop.

As for the price of Microsoft software worldwide, Gates has admitted that the gap between the price in China and the price for the rest of the world will naturally meet in the middle over time. In other words, Gates wants to eventually charge China more and realizes that Microsoft won't be able to keep charging everyone else so much. For analysts and pundits (myself included) who have said that Microsoft's best strategy for combating software piracy in the U.S. is not with product activation but by simply charging less for the software, this is great news and a little bit of vindication. I guess we have China to thank for that.

What do you think about the victory of Windows and Office in China? Do you think the relationship of Microsoft with the Chinese government is a good thing or a bad thing? Join the discussion.

About

Jason Hiner is the Global Editor in Chief of TechRepublic and Global Long Form Editor of ZDNet. He is an award-winning journalist who writes about the people, products, and ideas that are revolutionizing the ways we live and work in the 21st century.

138 comments
876875765765765
876875765765765

You know I wasnt going to let you mention China's human rights without bringing up Americas. Few facts you conviniently left out. Speaking of repression, and oppresions, the USA has the largest prison population in the world. You are 6 times more likely to end up in prison in USA than in China. The U.S. soldier who exposed a video of American troops murdering innocent people has been thrown in prison. American troops have murdered 1/4 of the Iraqi population. How's that for human rights? America continuously supports Israel's genocide on the Palestinian people. Had enough? How bout America's sabatoge of democracy around the world. Just to name a few recent examples. Haytoyama overthrown in Japan by the USA. Thaksin of Thailand, overthrown with assistance from the USA. Both democratically elected. I could go on forever, but you can just do the research yourself instead of believing the western propaganda.

nananeko mikeneko
nananeko mikeneko

Chinese attitude about pay for service is like this. First they pay for Maxim. But Second pay. They move to cheeper and reazenable services.

mikifin
mikifin

There is an old proverb about holding a tiger's tail and ending up inside the tiger. I think that the Chinese will beat Microsoft with a stick over time.

qquidd
qquidd

Business as usual folks. Why cry foul? If Linux fanboys have the guts lets see them match M$ or are they just sad little Jason W-Hiners.

jackloo
jackloo

Haven't you seen - the main point is ITS OWN CRYPTOGRAPHY SYSTEM. ISN'T THERE A LAW IN US TO PREVENT SUPPORTING TOTALITAR REGIMES ANYHOW, LIKE ONES IN CHINA,RUSSIA ETC...?!!!!!!!

BALTHOR
BALTHOR

I don't remember any of this!

Altotus
Altotus

Total Victory For Microsoft. Nothing to discuss, this is why Microsoft is on top and has nothing in the rear view mirror.

rachel2046
rachel2046

This Eric Raymond sounds more like a anti-communism advocate than an 'open source advocate'.

walkersun
walkersun

source code is freedom? human right? nonsense!

jackie40d
jackie40d

Microsoft just got it put to them . . They will take it apart and learn all its secrets and come after it like a chicken on a june bug . . And any "VISTA" computer will fall to chinese hackers . . Have fun people with MS "VISTA" computers

Abhishek-ITGeek
Abhishek-ITGeek

Well, I think that as far as the huge success of Microsoft in china is concerned is only for two reasons: a) The MS software provides far greater securtiy and capability and tons of other features which a miniaure OS like Red Flag Linux can never dream to provide. b) Secondly, one of the most important concerns for the china government was SECURITY aspect. When MS started the program of sharing the source code of the windows with some select partners, then the hypothetical apprehensions of the chinese government that US will us MS to spy on china was removed. c) Last but not the least, BIll GATES magical power of turning things round and making weird things GOLD, did the magic for MS in china.

MPG187
MPG187

I am using Kubuntu now. How come in China they get Windows and office for only $3?? Maybe there should be more piracy in the western world, it will bring prices down! Also, how come in http://www.redflag-linux.com/pop/astorm/Banner.jpg everything is Chinese except for the AsiaNux part? And on the page everything is Chinese except for the word Linux?

The Truth
The Truth

Gates has helped M$, damaged America and only encouraged China to continue it's repression. In addition, MSN censors blogs to suit China. Yes, Gates is a real icon to be emulated !

PKA
PKA

Anything for a buck.

dcarper
dcarper

"Keep your friends close, and your enemies closer"

cescobar
cescobar

well.. about the pricing, microsoft's sw is way too expensive at least in chile, that's quite it if you think that the lowest salary is around US$ 280 or $140.000 in CLP, the price for a decent OS (at least a home edition.. i would NEVER be able to work correctly with starter ed..) is around $40.000 CLP (or about 80 US$) which makes it a bit hard to coexist with computing (at least in an extreme point of view), even if you made a good salary monthly, an XP Pro ed. (which i think it's by far the best edition i've used of XP) is still a bit too high in price... at least it is to me. Personally i make around US$ 600 a month, but an XP Pro would be a bit of a sacrifice if you take into account that you have to pay for water, electricity, food, etc. It'd cost me US$ 200, but those same US$ 200 are the ones I pay monthly for my university studies, so it'd for sure leave someone without much power short. Still we have home edition, but when you want to put some big access restrictions (for those of us who don't live at their own homes but with other university students), XP Home is not that great. And finally about China and Microsoft... I hope that serves as a start point for them lowering their prices... it'll definitely raise their sales for sure!

faye2040
faye2040

Microsoft, Yahoo, Google and so on, I believe all American or even all businesses love China because they only see money there, and blind to see any freedom, justice, and the price of software. These do not matter.

webranger
webranger

You ask whether it is a good thing when the dictatorial government of the largest nation on earth teams up with the richest man and largest company on earth? You have to ask whether that is going to have good results for ordinary people? If you have to ask those questions, you wouldn't understand the answer.

Dr_Zinj
Dr_Zinj

Considering how poorly George Bush treated the Chinese president when he visited, I'm not surprised that Mr Gates is getting all kinds of face time with the chinese politicos. Their way of thumbing their noses at Bush's rudeness. Good business move by Microsoft. But for the Chinese? Ha! I think they may live to regret inviting the Wolves of Redmond into their homes.

hokumyew
hokumyew

Isn't this what business is all about? What MS is doing in China is what every profit-maximising company is supposed to be doing. In this case, it is to find a way to enter a potentially enormous market; if it means charging less to gain mkt/mind share and to pre-empt the competition, so be it. What's the big deal?

ashdezign
ashdezign

Low price of Microsoft in China, outrageous price of Microsoft everywhere else... Read that as the western world pays a premium in order to subsidize the Chinese purchase of software. We pay more so they pay less.... why does that make me feel so violated on so many levels? No wonder I switched to Linux

m_c193
m_c193

Even communists can be bought out by Bill Gates - surprise?. Just an excellent view into the corrupt nature of govt in China and the amoral stance of most software vendors. THAT is why FLOSS is a better, higher road to travel. And a view of what Bill Gates would do to software competitiveness all over the world if possible. The moral of the story - software hegemony from ANY company is only beneficial at the early part of the curve. Microsoft's failure to play nicely in a like economy is highlighted by their behaviour in the EU. That is what we can expect from MS when they are asked to play nicely in the software market. Not only true from MS BTW, any large scale market dominator immediately displays the same behaviour; absolute control of a market is a BAD thing.

Rambo Tribble
Rambo Tribble

China's flagging Linux distro may only be a symptom of Turbolinux's success. A much larger picture exists here than is dreamt of in the philosophy of this article. Its conclusions, therefore, are thin, brittle, and strained.

CharlieSpencer
CharlieSpencer

Specifically, I'd like to see supporting links for your statements, "American troops have murdered 1/4 of the Iraqi population." and "Haytoyama overthrown in Japan by the USA." "...you can just do the research yourself..." That's not how it works. You're the one making the accusations. Either support them or shut up, but don't toss them out and expect others to do your research for you.

swell72
swell72

Which one has the other by the tail? MS holds China's tail or China holds MS's tail?

Farquhar
Farquhar

For the last 8 years I've worked in mainland China in tertiary education. All the software, except for personal laptops (usually Dell/Lenovo), is unlicensed. This ranges from Autocad and Solid Works down to Windows 2000 in the classrooms. Viruses and malware flow throughout colleges as an everyday occurance requiring vigilance and prompt action. Even the anti-virus programs are fakes ! My point is that I'm looking to Linux as one way to cut the number of attacks on basic (3-4 year-old) desktops that cannot easily support XP and certainly NOT the wretched Vista. I see no profit in holding my breath waiting for either a hardware and/or software upgrade over the next 6 years at least ! Why so gloomy ? New machines are given to the staff rather than being put into classrooms, until the machines become outdated - this cycle continues .......

apotheon
apotheon

What are you talking about? That didn't even make any sense.

apotheon
apotheon

You say that as though being "anti-communism" is incompatible with being an "open source advocate". On the contrary -- the best open source advocates are very much in favor of free market capitalism. That's because open source software, in its purest form, is the result of a free market approach to software development and "ownership", rejecting both the corporate mixed economy monopolism of proprietary software development and the left-wingnut entitlement culture of the Free Software Foundation.

Neon Samurai
Neon Samurai

I can't find fault with his Open Source theories and analysis of business models. Then though, I prefer the technical side of FOSS focused on open source development rather than the more political free software side. That's just me and I don't agree with everything Mr. Raymond has to say but he tends to be bang on the money and well thought through on FOSS topics.

MyLittleMansAnIdiot
MyLittleMansAnIdiot

Due to the way the Chinese written language works many English words can't be translated into the written language. "Western world" brand names are a prime example of this.

Neon Samurai
Neon Samurai

That seems odd for a Linux distribution developed by and four chinese speaking people now doesn't it.

HypnoToad72
HypnoToad72

Consumers, American programmers, tax breaks, oh my? China can oppress who they want. That's why they were a country on the wrong side during the Cold War for all those decades. Now times change, don't get me wrong, and maybe China will open up for the betterment of its people as well. But I'll agree, Gates is being rather cruel to his fellow Americans. (it isn't "globalization" when you're cutting jobs here and moving them elsewhere. That's "migration".)

zatnktelaus
zatnktelaus

even if you can see the source code you need the hocks and the right compiler and every one know there is a back door in windows that lets the FBI CIA and who ever from good dam land to see what you are doing why would you want to run windows pron to virus's spyware it is just a crap os the only thing it is good for is gameing nothing else as a server is sucks you can not leave it running for years unlike unix which is fine to run for years even novel netware is better than windows as a server the Chinese have made a big mistake

edupalacio
edupalacio

Even with the low price MS is too expensive to buy due to monopoly,lack of security, lack of privacy, manipulation and disrespect for users.

kemcnabb
kemcnabb

I somehow find it easier to cope with MS SELLING a product in China than to find out that not only can we find substances in our pet foods PURCHASED from China (found to be harmful or fatal) but now hear that I am probably eating produce and other foods from there rather than buying it locally and thus supporting our own people. Seems to me that Microsoft isn't our problem with China or global human treatment.

gotitright
gotitright

In my post, I reference another source which suggests a little different reality. Linux is way outpacing Windows growth in China. I think that economics and the government have a lot to do with it. Fortune tries to paint a pretty picture, but it is usually harder to do with whitewash.

jasonhiner
jasonhiner

I'd love to see them. Please share.

jackie40d
jackie40d

Ok since you there why not begin with a download of the newer version of Ubuntu 7.10.1 the ISO of it and make a CD of it ! Its got almost EVERYTHING in it and will run on older computers ! And to get the MS stuff into the computer there is a web site which takes you by the hand and shows you how to load VMware-player and Vmware-server into it and then run the windows OS inside of Linux . . http://ubuntuforums.org/showthread.php?t=84275 Go read !

HAL 9000
HAL 9000

Granted they know it all so why should us [b]Old Fogeys[/b] be expected to understand it's reasoning? Col

MPG187
MPG187

So then explain why there is some English? If its Chinese, then shoudlnt it all be Chinese?

apotheon
apotheon

I think your sarcasm my go over his/her head, if you're not careful.

HypnoToad72
HypnoToad72

Funny thing is, if the BSA and other anti-piracy entities has tantrums over every little happening in the US, right down to suing little girls who downloaded enough songs, why would members of the same lot be so lenient? Is it just a double standard? Should Americans start pirating to such obscene levels, in which case Microsoft's execs will get cozy with the US government? That's the impression some people doubtlessly are believing. (Not I, but having spent a lot of money to buy and use legitimate software, and having read that piracy is more than frowned upon, something isn't adding up. But I'm not a business class mentality.)

jasonhiner
jasonhiner

The report you quoted calls Linux's market position "weak" in China and says that Linux has 2.5 percent market share there.

jackie40d
jackie40d

I am glad some one explained that to me I thought I was off in the weeds and got lost ! Hay good news people I am baout to get the BIG check from a settlement and can make the jump to a full 4 gig of ram and take this board out to max CPU speed so it keeps up with my broad band connection . . HUHMMM also add a faster fancier video Card that leaves about $25,000.00 left to spend and put away for rainy day fund !

MPG187
MPG187

I know its Chinese and it doesnt surprise me the site is, but the fact there was English did, if you are going to put some Enlgish, might was well make it all English or all Chinese. Well lets just leave it at that, if anyone knows then they can say, but other than that, all is said...

Neon Samurai
Neon Samurai

I simply pointed out in less obvious terms that one should not be surprised that a website focusing on software for the chinese market was written in chinese either fully or partially (as you point out). The original psot read as if the person was shocked and horrified that a website would be written in any language other then english. You'd have to ask the website developers why they chose to include some english if you wanted to know specifics though.

ktunison
ktunison

With regards to the article, there are others that quote the same source (CCID - Chinese Consulting firm): http://www.tekrati.com/research/News.asp?id=8757 The original: http://www.ccidconsulting.com/search/channel/detail.asp?Content_id=13088 Basically Market growth (financial) is getting confused with Market growth as desktop growth. That being said, it is still apparent that there is money to be made in China, and Microsoft is by no means out of the game. It's also important to note that it is premature to state 'victory' for Microsoft. It really is just some fine FUD Compare that article to this fine peice by the San Francisco Chronicle and in 2003, Linux was to be used by 200 million desktops. http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/11/18/BUGRM34CUC1.DTL While today the Chinese Government has shifted their policy to MS, there is nothing to say it will not shift several more times before settling in the final hour of delivery. It is common in that culture to have things up in the air until the last second of delivery. Like another poster mentioned.. nothing new here.. move along :-)

ktunison
ktunison

The article quotes information from Microsoft regarding market share. Those numbers are not independent and reflect the views of Microsoft.

apotheon
apotheon

TR user "gotitright" was talking about growth, not current market share dominance. A 2.5% market share doesn't mean it isn't growing faster.

jasonhiner
jasonhiner

Direct quote from that report: "China's open source industry is still in the early stages. Compared with competing products such as Windows and Unix, Linux is still relatively weak and vendors with economies of scale are relatively rare." Sure, the report says Linux has 31% growth year-over-year, which is higher than Unix or Windows, but that's because the volumes are so low. The report says that Linux has only 2.5% market share in China. Plus, this report is mostly talking about Linux as a server OS, while the article is talking about Linux on the desktop. I expect Linux to do very well in the server room in China, just as it is doing very well in the U.S., Europe, and elsewhere.