China Law Blog

Reuters article just out on Microsoft's successes in reducing piracy in China and thereby increasing its revenue. The article notes how Microsoft "is seeing the benefits of more stringent intellectual property policies in China, with a decline in piracy rates and improved results at its mainstay Windows division." It also notes that China is "by no means the worst offender," with "more than a dozen other countries--including Indonesia and Ukraine--" having "higher software piracy rates, according to a study from the Business Software Alliance and IDC." According to the article, pirated software in China has declined from 90 percent in 2004 to 82 percent today.

Reduced piracy worldwide of Microsoft software goes nearly straight to the bottom line and "Microsoft said improvements in fighting piracy accounted for about $164 million of the $822 million revenue gain at the Windows client unit in the quarter ended September:"

Windows is Microsoft's most lucrative product with an operating margin exceeding 80 percent.

"Every pirated copy that Microsoft converts into a paying customer all flows to the bottom line," said Morningstar analyst Toan Tran. "It could have a dramatic effect on its profit margin."

The article goes on to talk about how easy it remains, however, to purchase pirated software in China, and since 82 percent of all software is pirated, that has to be true. Yes, China is getting marginally better in terms of sofware piracy, but our clients in the software and gaming industries who are doing business in China are focused on making money in ways other than or in addition to sales.