A Big Windows Cleanup In Asia

China is discovering that it pays off to sell PCs that contain legitimate Microsoft software

Dou Simin is ready to go straight. The 26-year-old engineer owns a PC with a bootlegged copy of Microsoft Corp.'s (MSFT ) Windows operating system. But now he's considering replacing it with a new machine loaded with the genuine article. "I support using legitimate software," Dou says as he looks over the computers on display at Buynow, a bustling four-story electronics mall in Shanghai. Scanning a flyer from Microsoft, he allows that legal software "has great compatibility and stability."

Chalk one up for Microsoft. Not long ago, it was easy to find knock-off copies of Windows and just about any other program in China, but much of that business has moved into back alleys or onto the Internet. These days 82% of the software installed on Chinese PCs is counterfeit, the Business Software Alliance said on May 15. While that may not sound like much of a victory, it's down from 92% in 2003, the Washington-based trade group estimates.

As the world's biggest software maker, Microsoft has lost billions to pirates in China. But its battlefield record is improving. Over the past decades, Microsoft has poured more than $1 billion into research and development in China and building partnerships with universities there. That effort paid off a year ago when Chinese President Hu Jintao stopped off at Microsoft's headquarters in Redmond, Wash.

Microsoft has also gotten a boost from Lenovo Group Ltd., which enjoys a commanding 36% share of the mainland computer market. Shortly after acquiring IBM's (IBM ) PC business in 2005, Lenovo realized that to become a respected global player it had to sell machines loaded with Windows rather than DOS or Linux, which were the norm in China. Lenovo now says 70% of the machines it sells on the mainland come with Windows preinstalled, up from just 10% two years ago. On May 10, Lenovo promised to buy as much as $1.3 billion in software from Microsoft over the coming year.

There are other signs of progress. Beijing now requires all government offices to use legit software. And China's state-owned TV networks run ads extolling the importance of intellectual-property rights. Ultimately, Windows piracy may even benefit Microsoft. With such widespread bootlegging, says Sigurd Leung, an analyst with research firm Analysys International, "people are already accustomed to using Windows."

By Jay Greene, with Bruce Einhorn in Hong Kong and Steve Hamm in New York

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