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November 10, 2006 4:45 pm

Microsoft targets piracy

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Microsoft needs to do more to crack the consumer market in developing countries, with piracy and affordability holding back sales in regions ranging from Asia and eastern Europe to Latin America, its chief executive told the FT.

Steve Ballmer said the group had launched initiatives such as XP StarterEdition, a Windows software package with reduced features, and Flexgo, a pay-as-you-go PC, but these had not yet signficantly penetrated the middle-income markets in countries such as India and China.

"On a per-cent basis, it [emerging markets] is the most rapidly growing part of our business but it’s still a relatively small percentage. We have two issues: number one is where are the PCs and number two is piracy rates are also high in so-called emerging markets,” Mr Ballmer said in an interview in Mumbai.

Microsoft declined to provide a breakdown of its revenue by region or product. But Mr Ballmer, in Mumbai on a three-day visit to India, said emerging markets globally accounted for roughly 20 per cent of its total business, excluding software sales to hardware vendors, Xbox and other revenue streams such as advertising.

Total revenue in the year ended June was $44.282bn. While this was growing rapidly, the company could do better to reach middle-income consumers in developing countries. The company has sold only about 1m copies of Windows XP Starter since it was first piloted in 2004, most of these through government-sponsored programmes.

“XP Starter takes us a small way down the road, [but] we’ve got more to do,” Mr Ballmer said. “Not just ourselves - when you think of what it takes to deliver the experience, it takes hardware, it takes software, it takes internet connectivity.”

He cast doubt on whether a US$100 laptop being developed by the Massachussetts Institute of Technology for low-income children, which uses a wind-up crank arm to generate power rather than a battery, would be any more successful in penetrating low-end markets. There were already computers on the market in India for US$200 with built-in powerpacks. Connecting to the internet was the most expensive part of owning a PC.

“Even in India, you will pay more than US$100 a year to connect yourself to the internet,” Mr Ballmer said.

Microsoft was working on new initiatives to “re-engineer” the computing experience, Mr Ballmer said. He declined to elaborate on most of them but said one proposal was a plan to connect mobile phones that had their own micro-processors to keyboards and screens, using them as a computing platform.

Dion Wiggins, analyst with Gartner in Hong Kong, said Microsoft has tended to concentrate its innovation at the top end of the market, leaving behind the mass, lower end consumers.

But Starter Edition, while it still needed some improvements - for instance, it currently does not allow users to upgrade to full Windows - had made great strides. He said he expected Microsoft to begin pushing it much harder a few months after it launched Vista, its new operating system, early next year.

“Windows Starter Edition is now a relatively mature product and ready for bigger things,” Mr Wiggins said.

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