On May 23th, in the Eastern city of Shanghai, Microsoft (NYSE: NASDAQ:MSFT) quietly released what is probably the best version of Windows since Windows 7. Its name, Windows 10 China Government Edition.
Windows 10 China Government Edition is a collaboration between China Electronics Technology Group (CETC), a Chinese state-run technology and defense company, and Microsoft to develop a version of Windows that complies with governmental standards with respect to privacy and security.
In particular, this version strips telemetry and data collection from Windows; thus, in a bit of irony, the Chinese Government-mandated edition is the only version of Windows since XP (or Windows 7 before updates/patches) that respects the privacy rights of its users and is not, as of today, a data-collection machine.
The Chinese Market
By some accounts, China has the largest installed base of Windows users in the world, or at the very least, the largest number of PCs in use. However, the number of paid licenses not just of Windows but of any Microsoft product is negligible, with piracy being widespread.
As Steve Ballmer once phrased it "Microsoft's total revenue in China, population 1.3 billion, is less than what it gets in the Netherlands, a country of fewer than 17 million".
To a large extent, the only buyers of authentic Microsoft products are Chinese branches of Western companies and a handful of large domestic SOEs and government offices, which may buy a few copies.
Private users in China don't see the value of a paid license beyond the $5 they most commonly pay per copy. China lives in a different ecosystem in terms of technology, and if you are not hooked up on MS Office, you really don't need Microsoft; in fact, although Windows XP is the dominant operating system within the country, Linux is reasonably popular. If intellectual property rights were strictly enforced in China, we suspect the vast majority of users would actually migrate to Linux rather than buy a genuine product.
With all this in mind, why devote time and resources to release a Chinese Windows version; in particular one that performs a 180 degree turn on the business model that Microsoft adopted since the release of Windows 8?
How The China Government Edition Came To Be
Around 2014, with the Snowden/NSA scandal still making the front news, and with Cisco (CSCO), then an important provider of telecommunications equipment in China, being implicated (Cisco has always denied the allegations), China became very concerned about U.S. companies providing backdoors for the U.S. government to use.
As a result, on May 16, 2014, China banned Microsoft's Windows 8 from being installed or run on government computers. China also insisted that Microsoft and other foreign software providers should share their source code with the government.
Along with concerns about espionage, the move also came in response to Microsoft's terminating support for Windows XP, which was still the dominant Windows version in China. By banning Windows 8, China was pre-empting a similar move on Windows 7, and perhaps hoping to force Microsoft into continuing support for XP or risk losing the country to an alternative operating system.
A year-and-a-half after the ban, on December 2015, Microsoft formed a joint venture with CETC, a Chinese government-related entity, to work on a version of Windows that could meet Chinese government standards for security and privacy.
Finally, on May 23 of this year, Microsoft released Windows 10 China Government Edition, a special version of Windows 10 that eliminates telemetry and data collection, thus being eligible for use in government computers again.
Although, Windows 8/10 was not banned in the private sector, SEOs usually follow the lead of the government, thus, eventually they would have migrated too, to competing operating systems.
In addition, private users still rely heavily on Windows XP and Windows 7. Even in the pirate market, where copies of different versions are sold at about the same price, anecdotal evidence indicates that users prefer Windows 7 to Windows 8 or Windows 10.
The Chinese version of Windows 10 will not end software piracy in China, and Microsoft will most likely not derive meaningful revenues from Windows, Office, or cloud services. What Microsoft accomplishes by getting Windows unbanned is that through widespread piracy, Windows will continue to be the leading operating system in China, thus preventing the development of rival operating system.
Although a number of attempts have been made to create an alternative operating system, with the exception of Apple, all have failed. The last serious attempt at offering a Windows alternative was in the late 1980's when IBM (IBM), in partnership with Microsoft, released it OS/2 which was discontinued by the mid 90's. Never in its history, has Microsoft has faced such a strong and well-funded potential adversary, which sees as a strategic imperative to reduce its dependence on foreign technology.
Even if Chinese users were to move to an existing alternative, such as Linux, the sheer volume of users would instantly lead to further development and refinement and could transform Linux from a niche operating system into a mainstream one.
In the past, other companies have been banned for not cooperating with Beijing. Google (GOOG) (GOOGL) is still completely banned, Facebook (FB) remains 'soft-banned' despite partially cooperating with the government, and Bloomberg (the website, not the terminal), continues to be blocked more than 5 years after publishing an investigative article about the riches of the extended family of current President Xi Jinping (vice president at the time).
What Microsoft achieves with the Chinese Government Edition release is twofold: 1) It allows Microsoft to capture a share of the paying market for software in China, with some revenues from Office and cloud services, and 2) By allowing Windows to be sold in the pirate market, Windows delays the development of a rival ecosystem which could then spread to rest of the world.
So far, the only alternative is Linux, which happens to be already reasonably popular in China although with a small share of the market. With so many competing distributions and a relatively small user base, developers have not devoted the resources needed to adapt their software or make Linux more user-friendly.
If China were to embrace Linux, or develop its own operating system, it would benefit from a captive user base in the hundreds of millions. This operating system could then spread outside of China and challenge Windows supremacy.
For the moment such development is not at reach, and Windows will continue to dominate the Chinese PC user base. Thus, whether Microsoft can derive revenue from its Chinese Windows edition or not, this edition should be considered a success.
This article was written by
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