Internet & Tech

Ballmer’s fury

How Microsoft could make $6.3 billion more in China

Ballmer’s fury

Most foreign CEOs know thatnegative talk about the Chinese market can backfire with the local audience. Best instead to give things a positive spin, even when the urge might be to say something a little more hard-hitting.

Not Microsoft’s Steve Ballmer, who ditched his rose-tinted spectacles some time ago, as far as China sales were concerned (see WiC66). And on a trip to Beijing last week he was back on form, speaking out against some of the local business practices in his strongest language yet.

His target? China’s attitude to intellectual property, which Ballmer said meant that the US software firm was losing out on “billions of dollars” in revenues.

The Wall Street Journal reported Ballmer’s gripe that Microsoft revenue per PC sold in China is a sixth of what the firm makes in India, where he says IP laws are at a higher level.

Further, Ballmer lamented that Microsoft makes 20 times more revenue in the US than in China, a difference that can only be explained by piracy, given the near parity in personal computer volumes sold in the two countries.

IDC, a market research firm, reckons 71 million PCs will be sold in China this year, versus 75 million in America. “I am not saying everyone in China could afford to buy a PC… but if you can, you can afford the software,” Ballmer complained.

Whether this latest broadside will reverse Microsoft’s China fortunes is unlikely. But Ballmer must be hoping for more of a breakthrough in encouraging Chinese regulators to enforce their intellectual property legislation more widely.

Back in the US, Ballmer is under pressure, with Microsoft now overtaken by Apple and IBM in market capitalisation terms. Hedge fund shareholder David Einhorn has called publicly for Ballmer to be replaced.

So perhaps a little of his frustration is understandable. Based on Ballmer’s remarks in Beijing, the Journal calculates that the firm has revenues of $2 billion in China (versus $36.2 billion in the US). That’s a stunning gap considering roughly the same number of Windows operating systems are now being installed onto PCs in both countries each year. Given that Microsoft still makes about 60% of its global revenues from selling Windows and Office, that suggests if every Chinese user paid for those Microsoft products (rather than pirated them) the company’s revenues could rise by $6.3 billion. (WiC arrived at this very crude estimate, after taking account of Microsoft’s lower prices in China – selling Office, for example, at about a third of the US price).

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