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.
It
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%.
