China has a big problem with software piracy but the victims have
not enjoyed much sympathy as long as they were deep-pocketed
multinationals like Microsoft.

Nevertheless, China's own fledgling software industry is also suffering from rampant piracy
and it is in a much weaker position to fight back. Ren Jian, chief
operating officer of Beijing-based Kingsoft, told the Associated Press:

Piracy has had a big impact on us, making it so we can't get powerful and compete with Microsoft.”

Kingsoft
is best-known for its English-Chinese dictionary program, PowerWord,
which is widely used in China. But 90% of the installed copies are
pirated and so Kingsoft has had to change strategy to defeat the
pirates.

oneleg.jpgIt
now downplays its traditional packaged software and focuses on online
games and anti-virus programs — applications that need an internet
connection to work and so their authenticity can be checked online.

That
raises the thorny question of whether western businesses in China
should also look to use online authentication to protect software and
other types of IP.

It's my experience that anti-piracy measures
create more problems for genuine users than they do for professional
counterfeiters — I still can't get a Copy Controlled audio CD to play
in my Walkman.

Microsoft is currently getting a lot of flack
for its Windows Genuine Advantage, its new online anti-piracy
procedure. Some users complain that it nags them to buy the real thing
even when they already have.

The US giant also knows it has to
tread particularly carefully in China. Not only is there an ingrained
resistance to paying “western” prices for software but Microsoft does
not yet have the stranglehold on the market it enjoys in the west.

If
it is too draconian in stamping down on piracy then it risks alienating
not just potential customers but also China's political leaders who
have finally recognised that piracy jeopardises the development of
China's own knowledge-based industries.

In addition, it risks
driving more potential customers to Linux, the open source alternative
to Windows. Linux has no licensing restrictions — the software itself
is free — and after a slow start it is finding growing support in
China, not least from the government which sees in Linux a cheap way to
bridge the country's digital divide.

The take-away for western
software companies looking to do business into China depends on what
market they target. If the software is a complex enterprise-level
product like an ERP system then counterfeit installation disks are of
limited value as the software cannot really be used without an
accompanying support and maintenance contract.

If the software
requires an internet connection then, again, illegally copied disks
have little use as the software has be periodically authenticated
online.

But many other types of software that are designed to be
used offline and with minimal vendor support are clearly highly
vulnerable to counterfeiting.

According to the latest report
from the Business Software Alliance, nine out of ten software programs
in China are pirated, although levels are finally starting to fall.
Robert Holleyman, BSA president and CEO, said:

This
year marks the second year in a row where there has been a decrease in
the PC software piracy rate in China. This is particularly significant,
considering the vast PC growth taking place in the Chinese IT market”

The
US, because of the sheer size of its software market, has the largest
monetary losses due to piracy — $6.9bn in 2005 — but the lowest
percentage of pirated software, just 21%. China had the second biggest
losses at $3.9bn and a piracy rate of an alarming 86%.

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