Microsoft and Emerging Markets has a report on the challenges Microsoft is facing in emerging markets:

The company’s best effort so far at tackling emerging markets may be the basic versions of Windows XP and Office that Microsoft has sold as part of a Thai government program to offer low-cost PCs to the country’s population.

The program managed to get 150,000 computers in the hands of Thai citizens, Price said, though in most cases, the PCs were sold to people already considering buying a computer.

“It was a bit of a mess,” Price said of the program’s execution. “People were actually pretty dissatisfied with the quality of units.”

A similar program just started in Malaysia, but Price said the interest there was lower than in Thailand. “They have not had the same kind of success. They have had a much, much lower volume in terms of orders.”

As a result, Microsoft is still grappling with how to tweak its business model. “We’re trying to test things,” Price said. “The jury is still out in terms of whether, as an industry, this is going to be helpful for us.”

In February, Martin Taylor, Microsoft’s general manager of platform strategy, indicated that the company was considering various approaches that would break with the long-standing practice of pricing Microsoft software the same across the globe.

“How much does a Big Mac cost in India versus in New York versus in Taipei, and how do you map a similar Big Mac index to software?” Taylor said in the February conference call. “It’s a very difficult problem.”

The issue remains a big challenge, Price said. “There’s no silver bullet, and this is not even close to a silver bullet.”

If Microsoft does start adjusting its pricing based on country, analysts say, the company will have an easier time in countries with relatively uncommon languages. That may explain the fervor with which Microsoft is translating its software as part of a new Local Language Program. The company is adding “language interface packs” in 50 countries this year, all but four of which are emerging nations. In the program, Microsoft is working with local universities to help do the translations needed to quickly adapt the most common Windows commands.

“I could see that becoming not just a technical way to get Windows into those markets, but as a precursor to more segmented sales of Windows and Office in those markets,” said Directions on Microsoft analyst Rob Helm.

Helm said Microsoft recognizes that Linux is more of a threat overseas and has moved quickly, assigning a top Linux expert in the company, Maggie Wilderotter, to head worldwide public sector sales.

Another option for emerging countries may be so-called thin clients, PC-like devices that lack a hard drive and store information on a central server. But while devices without a local hard drive are easier to support, they require strong network connections and also have proved unpopular with consumers thus far.

“In fairness, it’s never worked with consumers in the developed world,” Helm said. “It’s not clear why it would work in developing world.”

Helm is wrong. Just because it didn’t work in the developed world does not mean it should not be considered for the developing world.

Here is what Microsoft needs to do in emerging markets:

– Start thinking like Apple to create end-to-end solutions. Apple has a 5% share in the PC world. Microsoft has a 1% market share in emerging markets – 9% goes to piracy and 90% to non-consumption.

– Understand that in countries like India what the customer spends on hardware and software is a constant, and lower than what they spend in the developed markets. So, if people are spending on thick desktops, the money left to spend on software is minimal.

– When it comes to combating piracy, it is an uphill battle and one which is a no-win game for Microsoft. From a user’s point of view, there are two price points: near-zero (for a pirated version) and near-infinity (for a legal version). Guess what users do.

– The total solution needs to therefore have thin clients which cut the cost of hardware, combine with server-centric computing (either on the LAN or on the Internet as bandwidth improves), and offer a monthly payment scheme for software (in fact, the full solution). [There is a precedent: look at the online gaming market in China. Millions are paying a few dollars a month for gaming services.]

Computing needs to become a service in emerging markets in emerging markets – available at price points like telecom. The focus needs to be on the next 99% – those who pirate and those who do not use the solution. They don’t really care much about Microsoft or Linux at this point – what they need is a full solution at reasonable (monthly) price points.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.