Mixed Messages from Microsoft on China
Microsoft's China policy is coming under increased scrutiny, not so much from US legislators - who are busy with their own affairs this week - as much as from investors who are curious whether either Microsoft message -- the promise or the threat -- has any teeth to it.
While Google has also come under scrutiny for its willingness to enable Chinese citizens access to a search engine that abides by at least some, if not all, government restrictions, both Google and Microsoft are also-rans in the search market there. The market leader, based on estimates released by a Chinese state-run marketing research firm, is a firm many Americans have never heard of: Baidu, which apparently has 62% of usage share in searches there, versus 25% for Google.
And despite all the attention placed on Google, a BusinessWeek report yesterday says Google actually lost 8% usage share this quarter. Microsoft, meanwhile, is just barely on the map there.
A MarketWatch analyst last week blamed Google's and Microsoft's inability to make serious headway against Baidu on the possibility that these companies simply aren't capable of judging what it is the Chinese citizen wants to see on the Internet. To cite from Baidu's own mission statement: "Our mission is to provide the best way for people to find information. To do this we listen carefully to our users' needs and wants. Have we collected all the Chinese web pages they want to see?"
In other words, maybe Americans are just looking at China the wrong way. In any event, Microsoft's willingness to make good on its China promises will be judged against how well it plays against an industry giant, which could also very well be an entrenched favorite of the state. If Microsoft doesn't make a dent in that country's search market, a pullout in protest of state policy, which is what its senior counsel appears to be advocating, may have a similarly dull impact upon that policy.
Meanwhile, the potency of the company's investments in that country are already being called into question by investors. This morning, analysts with the investment blog Seeking Alpha are cautioning traders against making too much of the company's investments in Comtech and Talkweb, saying that if the company were truly serious about helping these companies develop IP protection technology, it would have licensed them the real technology it had already developed, rather than something separate it's cooking up in a lab in China.
"To my knowledge, none of these technologies have ever been commercialized," writes one Seeking Alpha blogger. "This Microsoft deal may eventually lead to something interesting, but for now it represents very little."
As to the company's rewarding China for its anti-piracy efforts, just how much of a reward is it to Microsoft, and how much of a payoff have those efforts proven to be?
In a surprising answer to those questions during the company's quarterly earnings report last week, Microsoft CFO Chris Liddell said, actually, not very much at all. If the benefits to Windows XP sales in China from anti-piracy could be measured there, he said, it would only register about 1 - 2%, with nearly all of that amount being tallied "at the back half of the fiscal year" - meaning between next January and next July.
"We're not looking at significantly different rates relative to XP," said Liddell, "and clearly as we go to fiscal year '08 and onwards, we'll give you some guidance at that stage. But certainly it is helping, but we're already seeing some positive benefits from what we're doing on the XP side."
So it could very well turn out that both Microsoft's promise of future benefits for China, and threat of market retaliation, may not have much impetus behind them, besides perhaps some inspiration and spirited performance at the front of the proverbial dragon, on the part of whomever has been pegged to wear the ceremonial head. What the company may find itself dreading is a time in which, whenever it does act in concert with itself, the move it finally makes might not matter.