Speaking earlier this week at Microsoft’s newly-opened R&D headquarters in Beijing, Microsoft CEO Steve Ballmer said widespread software piracy in China has prevented his company from seeing significant revenue in what will soon be the world’s largest PC software market. Ballmer said that the Chinese PC market is about the same size as that of the United States, but software revenue from China was only five percent that the company sees from the United States.
Ballmer’s comments underscore the challenges many software and Internet firms face attempting to bring their existing business models to China. In addition to being the largest market for Internet users on earth, it is also a largest producer of pirated and counterfeit software and media in the world. Although the Chinese government has long claimed to respect intellectual property rights, lax enforcement and a culture of piracy have long been a major hurdle in China’s relationship to the Western world.
According to the Wall Street Journal, Ballmer asserted that while PCs are still too expensive for many Chinese, the costs of software don’t place a significant burden on the market. Ballmer indicated that if Chinese customers can afford a PC in the first place, they can afford to pay for legitimate software.
Ballmer claimed other countries known for widespread software piracy don’t have the same degree of discrepancy between PC sales and software revenue. According to Ballmer, Microsoft makes six times more money per PC sold in India than it did per PC in China, and that if China’s intellectual property protections were at least as strong as India’s, then the Chinese software market would be worth “billions of dollars.”
Earlier this month, the Business Software Alliance estimated that the total value of software pirated during 2010 totaled some $59 billion. The same report found that the overall software piracy rate in China during 2010 was 78 percent, with a retail value of nearly $7.8 billion.
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