Friday, June 02, 2006

No Longer a "One Disk Country"

China has long been considered a "one disk country," a country where only one legal copy of a software program had to appear in order for it to spread to users everywhere. Software companies had always tended to put up with this, as the Chinese technology market was relatively small for a long time, and it was seen as too costly to fight (especially since there may well be some benefits to having people use your software, even if they don't pay for it).

But not anymore. The New York Times highlights China's increasing push to curb piracy at legitamize its technology based industries. Apparently, China has recently pushed legislation that requires all computers sold to ship with a licensed operating system. According to the article, in the past it was common for Chinese manufacturers to ship systems with DOS or Linux that users would then immediately replace with pirated versions of Windows bought for little more than a dollar (60 yuan). Microsoft sells legitimate copies of Windows for 600 yuan, or about $75.

Software piracy in China has never much impacted the US market, if for no other reason than because lots of pirated software in China is in Chinese. (I'm all for a cheaper version of Windows, but if it's in Mandarin, it's not going to help me very much.) But now the Chinese market is growing so fast, and is already so large, that the lack of property rights there may eventually start to stiffle innovation.

As it stands now, most software we use has been developed for US users and then brought over to China and other markets, but at the rate China is growing, the point where incentives in the Chinese market start to drive software innovation may not be far off. And if that's the case, then getting stronger property rights over there may benefit all of us, not just those of us lucky enough to be Microsoft stock holders.

Of course, maybe that will never happen and US market demands will continue to be what drives the software options we have. In that case, this is all much ado about nothing. Whether Microsoft collects profits from China or not, we're going to see the same software options at the same price; it's just the Chinese will be paying more for it and Microsoft shareholders will have a little more pocket change. [Keep in mind that once developed, producing another copy of a program is virtually zero cost, so unless enforcing anti-piracy laws in China helps to spur innovation in software, the losses to Chinese consumers will be larger than the gains to the software makers.]


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