September 29, 2004
NEW DELHI, India - Microsoft Corp. is removing features and cutting prices in India for a special version of its Windows XP operating system to tap the large market potential in a country where only about 1 percent of the 1 billion people own computers.
Wednesday's announcement follows a similar one in Russia this week and brings to five the number of countries where Microsoft is marketing the Windows XP Starter Edition for first-time computer users.
The Starter Edition will be available only with the purchase of new computers, which Microsoft expects will cost about $300. The company is expected to charge manufacturers about $36 a copy, less than half the $85 cost of the Home Edition in India.
In India, the Starter Edition will be in Hindi, India's national language. If it works well, the U.S. software giant plans to offer it in 14 other Indian languages later.
Rajeev Kaul, managing director of Microsoft India, said the main objective is to create new buyers in India, where only 12 of every 1,000 people own a computer.
But analysts see the move as an attempt to counter software piracy and competition from Linux, an open-source operating system available at little or no cost.
"People think (Linux) is so cheap that it is virtually free," said Pawan Kumar, the chief of vMoksha Technologies, a Bangalore-based software services firm. "To counter this psychology, Microsoft may also want to create the impression that Windows is so cheap that it is also virtually free."
Although Microsoft, based in Redmond, Wash., has 90 percent of India's desktop software market, several major computer retailers, including IBM Corp. and Sun Microsystems Inc., have begun offering machines installed with locally adapted Linux.
Computer sales in India have grown 35 percent annually in recent years, but companies like Microsoft have benefited little because about 80 percent of the software used in the country is pirated. Though the Starter Edition is pricier than the pirated version, which can be had for $5 to $10, its availability should help bridge the price gap.
U.S. computer maker Hewlett-Packard Co. and Indian company HCL Infosystems said they will use the new software, which along with the Russian edition will be available early next year. The Starter Edition is to hit Thailand, Malaysia and Indonesia in October.
The new software, being launched with support from local governments, enables users to run only three programs concurrently, while the full XP operating system can run many more depending on the computer's memory.
Other downgrades include lower-resolution graphics, a lack of support for home networking and the absence of advanced features such as the ability to establish multiple user accounts on a single computer.
The Starter Edition also lacks English-language support in the Windows displays - menus and the such - to discourage exports to outside markets.
Microsoft also has been adding country-specific features. The Thai version, for instance, includes wallpaper photos of such landmarks as Bangkok's Grand Palace and a screensaver displaying a waving Thai flag.
In Russia, Microsoft and government officials also described the effort as a way to make computers affordable to first-time users in fast-growing information technology markets.
"This program assumes that the barrier for using information technology should be low," Deputy Minister of Information Technology and Communications Dmitry Milovantsev said in a statement released by Microsoft.
Setting prices based on geography is not new in other industries. Pharmaceutical firms charge lower prices in developing markets like Africa than in mature ones like the United States. Even McDonald's sets different prices for Big Macs based on geography.
But the software industry is just beginning to move beyond a one-price-fits-all strategy in which a shopkeeper in New Delhi pays as much as a corporate lawyer in New York, despite the disparity in average national incomes.
Microsoft, which had little incentive to do otherwise as it commands the market, began cutting prices in Thailand after the government got more than 100,000 orders in one month for low-cost Linux machines. Microsoft now touts its original Thai deal as a model for emerging markets and unveiled the Starter Edition there in August.