Does Microsoft Need China?

There are various methodologies for viewing the total budgeted and unbudgeted costs over the lifespan of an IT system. These are divided into direct costs and indirect costs, with the direct, or budgeted, costs breaking down into hardware and software, IT operations, and administration. Indirect, or unbudgeted costs, are categorized as user operations and computer downtime.

Several studies this year - among them by tech group IDC and Forrester Research, both based in the US - have shown that total costs of operations favor Windows over Linux. The IDC study, for example, showed Windows had a cost advantage over five years of between 11 and 12 percent for four out of five typical server workloads. Linux proved to be cheaper in one category only: simple web serving. Those who favor Linux point out that some of the studies, such as the Forrester research, was funded by Microsoft, although no one has questioned the independence of Forrester's approach. A portion of Microsoft's website, Microsoft.com, is given over to the findings of these reports.

The critiques of Linux mostly boil down to issues emerging from Linux's comparatively early stage of evolution. While Linux may be attractive on several fronts, not enough apps built on the operating system exist to support some business tasks as well as its rival.

The rebuttal from the Linux crowd is that it's a matter of time before the eco-system—everything from a critical mass of software applications to specialists who can support Linux compatibility at affordable prices—develops. IBM, Oracle, and Hewlett-Packard have all embraced Linux and will help build toward this critical mass.

For now, it appears that Microsoft is ahead in the TCO debate only in developed markets. Rishab Ayer Ghosh, program leader of Free/Libre/Open Source Software, a think tank at the University of Maastricht in Holland, argues that exorbitantly high real costs of licensed software, coupled with lower costs of labor in the developing world, tips the TCO argument in favor of Linux.

The Butterfly Effect on Global Pricing?

A scheme to bring computers to the masses in Thailand is leading to region-wide pressure on Microsoft to reconsider its pricing model, in the view of a some analysts.

In May 2003, Prime Minister Thaksin Shinawatra announced a program to provide 1 million low-cost personal computers to Thai consumers through the Thai Ministry of Information, Communications, and Technology. The idea was to provide low-income earners with the means to buy a PC with internet access and a loan package to finance the purchase. Microsoft originally rejected the Thaksin government's invitation to participate by including a reduced-price version of its software in the program. Microsoft did not offer a Windows XP or Office XP Standard, Internet Explorer, or Windows Media Player in a Thai language version at the time of the program's inception, and this was instrumental in it's decision to stay out.

The Thai government opted for Thai-language versions of Red Hat Linux and Sun Microsystems StarOffice in lieu of Windows. Though many called it ambitious, the program quickly took off, and Microsoft's marketshare began immediately to drop. By summer 2003, Microsoft had performed an about-face, designed a Thai-language version of its products, and quickly bought into the program— offering its software at a radical discount of US$40 (the discount applied to Windows XP Home Edition and Office XP Standard Edition). Gartner Group has reported that by the time the program rolled into its second and third phases, the majority of applicants were choosing Windows.

Dion Wiggins, research director for the Gartner Group in Hong Kong, believes that the Thai precedent could have far-reaching implications. In a report last summer, he likened the incident to the butterfly effect, renowned in chaos theory. The term refers to how tiny events balloon into macro changes over time. Will this incident remain the flutter of a wing—or lead to a hurricane? Malaysia's government, seeing the success of the neighbor's program, launched a similar campaign this year and Microsoft participated. Eventually, it may be tough to contain so many butterflies.

The Price in Asia

The chart below shows license fees relative to GDP/capita for a basic toolset of Windows and Office XP*, and the effective US$ equivalent for the toolset across Asia, expressed via purchasing power parity rather than market exchange rates. The sources used are the World Bank World Development Indicators Database, 2001. Piracy data from the Business Software Alliance, a trade group, is shown to demonstrate the co-relation between piracy and higher real-costs for the software.

Source: Researched and compiled by Free/Libre/Open Source Software (FLOSS), University of Maastricht, Holland
*US price taken from Amazon.com

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