Microsoft spends $900m in China to save Windows

Stan Beer
Sunday, 30 April 2006 04:56

Your IT - Home IT

Microsoft CFO Chris Liddell didn't indicate in his conference call on 27 April whether the company's planned $2 billion in investment in high growth areas, included $900 million the company will spend in China over the next five years to grow its Windows market. However, it is clear that the world's largest software company will do just about anything to keep Windows alive and growing.

The problem for Microsoft is that Windows sales are inextricably linked with PC sales and its market in the developed economies is just about saturated. Windows revenue only grew 7.6% for the first three quarters of 2006 compared to the corresponding period in 2005.

In order to achieve to boost Windows growth, Microsoft needs to find new markets and it is looking to China as its salvation. A problem for Microsoft in China is the high level of software piracy and the possibility of Linux desktop distributions gaining a foothold. Microsoft hopes that spending a $900 million chunk of its huge war chest to kick start market share in China will solve both problems.

Of that investment, $200 million will be a gift to the National Development and Reform Commission, the agency that invests in Chinese software companies. That move is obviously to get Chinese companies developing products on Windows for the local market.

The other $700 million will be spent on Chinese hardware over five years, which is simply a brazen attempt to curry favour with the Chinese Government and hardware manufacturers. However, the strategy appears to be working.

The announcement comes on the back of a $1.2 billion deal signed with the largest Chinese PC maker Lenovo to have Windows XP pre-installed on all its PCs worldwide. Microsoft had to cut its Windows margins to cut the deal. At the time Lenovo chairman Yang Yuanqing said that he had convinced Microsoft that it had to give a little to get the deal done.

This seems to be the case with China as a whole. Microsoft will have to buy its way in to China to achieve market share. Market analysts are still a little uncertain as to whether the strategy will work. However, many have given their nod of approval, saying Microsoft's Chinese investments will eventually pay dividends and help to reduce the proliferation of pirated versions of Windows.

Making sure Chinese PC users have Windows on their desktops is certainly an important part of the growth equation for Microsoft going forward. However, doing the same thing for its other great money spinner Office is another matter.