Microsoft’s Malaysia Strategy

WSJ writes about Microsoft’s affordability experiment in Malaysia:

PCs were red-hot for two days last month when software giant Microsoft Corp. swept into town. It offered shiny new computers running Microsoft software at rock-bottom prices. The machines were packed with everything from Microsoft’s signature world-processing software to a “premium” digital-photography package. They even boasted a Windows interface with key commands translated into the local language.

Microsoft and chip-maker Intel Corp., along with local partners, set up a colorful display of low-cost PCs on the ground floor of the Port Dickson mall, between a supermarket and a ginseng vendor. There were Microsoft balloons, posters and six new PCs for shoppers to try out as part of the government’s “PC Gemilang” program. That translates from the Malay as, roughly, “brilliant PC.” Machines running the Malaysian version of Windows XP started at roughly $302 [monitor included]; computers with Linux software cost even less, about $263. [Microsoft] its less robust — and less expensive — Works program in place of Office.

The promotion, part of a PC-ownership initiative backed by the Malaysian government, offers a glimpse of a much broader strategy of price cuts and other initiatives Microsoft executives are readying for the developing world.

Things like the Malaysian initiative could represent a break from the company’s years-old policy of “global pricing,” or charging roughly the same amount for most products world-wide. Microsoft is even considering a sort of “Windows Lite” operating system, which could offer fewer features, and a lower price, to people in less tech-savvy nations.

It’s a risky strategy, but one the Redmond, Wash., company is pursuing to drum up more business in poorer nations and fight “open source” software like Linux, its chief competitor there. Much open-source software can be downloaded free from the Internet, making it attractive to Third World governments struggling to bring their populations online.

While Microsoft’s sales in the developing world remain scant, less-developed nations, including China and India, represent a huge and critical emerging market for the company. Microsoft knows it will have to fight Linux and tap these markets to keep its vaunted growth machine humming.

Still, selectively slashing prices for first-time PC buyers in places like Malaysia or Indonesia opens up the possibility of a dangerous domino effect, some analysts say. Core business customers could demand discounts, too. Cheap and scaled-down software, if written in English, could cross international borders, depressing the price for regular Microsoft products globally and breaking the company’s profitable lock on the market.

The program could signal “the start of the collapse of the Microsoft pricing structure,” says Sam Jadallah, a venture capitalist at Mohr Davidow Ventures in Silicon Valley and a former top Microsoft executive. Indeed, the low-cost Malaysian PC program was sparked by a similar government initiative last year in Thailand. Indonesia recently announced a consumer computer program, and Vietnam and Laos are expected to launch initiatives soon.

Microsoft’s Mr. Moore wouldn’t comment about a “Windows Lite” operating system. But he said Microsoft is evaluating whether its current products represent “the appropriate technology, packaging and pricing for the developing world.”

The company would like to offer a uniform package of low-cost software to countries below a certain per-capita income, Mr. Moore said. The packages likely would be distributed only through government-PC programs. And, most likely, the low-cost software would be translated into local languages, as it is in Malaysia and Thailand. If it offered the software in English, the products could move around the globe, and “in six months’ time, the U.S. price would be the same price as in Malaysia,” says Butt Wai Choon, managing director of Microsoft’s Malaysian subsidiary.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.