Pundits and bloggers bitch and moan about the price of software, including Microsoft flagship products like Windows and Office. And it’s true. The stuff is expensive.
Making matters worse is that part of the price we pay is a subsidy or transfer of wealth from countries with low piracy rates to those with high piracy rates.
In other words, you and I pay more for some software as a penalty for obeying the law and honoring user agreements. Other countries pay less as a reward for breaking the law and making illegal copies of software.
This phenomenon is repeated across the industry, and in many countries. But to simplify the issue, let’s focus on Microsoft, the leading software company, and China, the world’s largest country and one with a very high piracy rate.
Years ago, Microsoft charged the same price for Windows and Office in China as it did everywhere else. This fair, even-handed pricing policy failed miserably, as China’s high piracy rates meant that people just bought or made illegal copies. Even the Chinese government and military was pirating Microsoft software.
To combat this problem, Microsoft cracked down hard, using raids and the courts to punish counterfeiters. But that strategy failed, too.
Chinese nationalists rallied around the software pirates, and the whole episode resulted in Microsoft gaining a reputation as an industry bully (hard to imagine, I know).
Then along came Linux. Because Microsoft was viewed as a big, evil foreign company bent on coercing poor Chinese people to pay too much for software to make Bill Gates the richest man in history, pirating Windows and switching to Linux was viewed in some quarters as a kind of patriotic duty, a virtuous act.
About eight years ago, Microsoft reverse-engineered the problem and came up with a new, multi-pronged strategy. First, they would resist the encroachment of Linux into the Chinese market by easing up on counterfeiters.
Sure, Microsoft wasn’t getting paid for the vast majority of Windows installations, but at least the company could maintain dominant market share.
By selective leniency on counterfeiters, Microsoft has retained and fortified its dominance in China. Now, most major companies and government agencies use Windows because it’s the de facto national standard, thanks to piracy.
Microsoft selectively approaches those companies and agencies and says, Look, you guys are using Windows — shouldn’t you be paying? We’ll give you a massive discount.
And this is where the subsidy comes in. Microsoft offers public prices that are lower than people pay elsewhere, but not dramatically lower.
Behind the scenes, Microsoft is wheeling and dealing, selling software at extremely low prices. OEMs, big government contracts — these organizations are paying a fraction of what comparable organizations in the US pay.
One report says that Microsoft sold or is selling a bundled deal of both Windows Vista and Office for $3 to anyone who can flash a student ID. OEM prices are in the $7 to $10 range for companies selling PCs inside China.
If you assume that Microsoft has specific targets for worldwide Windows and Office revenues and profits, then those targets can only be met if somebody is making up for the losses on steep discounts in high-piracy countries.
And that would be us.
Next Page: Piracy and the Big Picture
Again, I use Microsoft and China because it’s an extreme case, and one that’s well documented. But a similar phenomenon is happening in many countries with many companies.
Because of the radical scalability of the software market — the costs are mainly in the development, then you can burn copies ’till the cows come home — software companies can tweak and fiddle with prices and deals in each country.
Ultimately, the price of anything is whatever the market will bear. But with software, the cost of production is very low — in fact, most of the costs of production will occur whether you end up selling a thousand copies or a billion.
Those of us who pay US prices for Windows and Office are subsidizing users in piracy countries whether they get a discount or not. The money we pay goes in part to the salaries of the people who build, package and sell the software.
Whether someone in China or elsewhere is just making a pirate copy or getting a steep discount, we’re still paying for all or part of the cost of their software either way.
In a country like China with a company like Microsoft, the current strategy is probably best for everyone. Microsoft is trying to slowly change the culture in China, and to get Chinese individuals, companies, government organizations and OEMs to get into the habit of paying for software.
As China emerges into a richer nation, we can count on Microsoft to jack up the prices so that, increasingly, they pay more of their fair share.
In the meantime, software piracy definitely pays for countries like China. While those of us in the West are paying full price — and more — for software, they get it either free, or subsidized by you and me.
So when you shell out $200 for your discounted upgrade of Windows 7 Professional (act before July 11), know that you’re actually paying only, say, $190 to $150 to for your software, plus between $10 and $50 as a contribution toward a copy of Windows 7 for someone in China. And the reason you’re doing that is because they have high rates of software piracy.
You’re welcome, China!
ALSO SEE: Interview with Pirate Party Leader: “These are Crucial Freedoms”
AND: Free Download: 100 Open Source Apps for Windows
Ethics and Artificial Intelligence: Driving Greater Equality
FEATURE | By James Maguire,
December 16, 2020
AI vs. Machine Learning vs. Deep Learning
FEATURE | By Cynthia Harvey,
December 11, 2020
Huawei’s AI Update: Things Are Moving Faster Than We Think
FEATURE | By Rob Enderle,
December 04, 2020
Keeping Machine Learning Algorithms Honest in the ‘Ethics-First’ Era
ARTIFICIAL INTELLIGENCE | By Guest Author,
November 18, 2020
Key Trends in Chatbots and RPA
FEATURE | By Guest Author,
November 10, 2020
FEATURE | By Samuel Greengard,
November 05, 2020
ARTIFICIAL INTELLIGENCE | By Guest Author,
November 02, 2020
How Intel’s Work With Autonomous Cars Could Redefine General Purpose AI
ARTIFICIAL INTELLIGENCE | By Rob Enderle,
October 29, 2020
Dell Technologies World: Weaving Together Human And Machine Interaction For AI And Robotics
ARTIFICIAL INTELLIGENCE | By Rob Enderle,
October 23, 2020
The Super Moderator, or How IBM Project Debater Could Save Social Media
FEATURE | By Rob Enderle,
October 16, 2020
FEATURE | By Cynthia Harvey,
October 07, 2020
ARTIFICIAL INTELLIGENCE | By Guest Author,
October 05, 2020
CIOs Discuss the Promise of AI and Data Science
FEATURE | By Guest Author,
September 25, 2020
Microsoft Is Building An AI Product That Could Predict The Future
FEATURE | By Rob Enderle,
September 25, 2020
Top 10 Machine Learning Companies 2021
FEATURE | By Cynthia Harvey,
September 22, 2020
NVIDIA and ARM: Massively Changing The AI Landscape
ARTIFICIAL INTELLIGENCE | By Rob Enderle,
September 18, 2020
Continuous Intelligence: Expert Discussion [Video and Podcast]
ARTIFICIAL INTELLIGENCE | By James Maguire,
September 14, 2020
Artificial Intelligence: Governance and Ethics [Video]
ARTIFICIAL INTELLIGENCE | By James Maguire,
September 13, 2020
IBM Watson At The US Open: Showcasing The Power Of A Mature Enterprise-Class AI
FEATURE | By Rob Enderle,
September 11, 2020
Artificial Intelligence: Perception vs. Reality
FEATURE | By James Maguire,
September 09, 2020
Datamation is the leading industry resource for B2B data professionals and technology buyers. Datamation's focus is on providing insight into the latest trends and innovation in AI, data security, big data, and more, along with in-depth product recommendations and comparisons. More than 1.7M users gain insight and guidance from Datamation every year.
Advertise with TechnologyAdvice on Datamation and our other data and technology-focused platforms.
Advertise with Us
Property of TechnologyAdvice.
© 2025 TechnologyAdvice. All Rights Reserved
Advertiser Disclosure: Some of the products that appear on this
site are from companies from which TechnologyAdvice receives
compensation. This compensation may impact how and where products
appear on this site including, for example, the order in which
they appear. TechnologyAdvice does not include all companies
or all types of products available in the marketplace.