For Microsoft, China Forecast is Cloudy

Trying to discern what’s happening in China — in technology, in politics, and where the two frequently converge — is a difficult endeavor.  Much of what occurs there is reported partially, inaccurately, or not at all.  You have to read the entrails and sift the tea leaves to follow the game, and there’s always a possibility you’ll misinterpret the signals.

That’s why, with China and technology, stories seem to emerge from nowhere. Developments percolate in unseen back rooms or in secret laboratories, then they spring into the public realm, catching some people (yes, I am raising my hand) by surprise.

NeoKylin?

This morning, for instance, I read that Microsoft has struck an agreement with a Linux operating system provider, China Standard Software Co. Ltd., to  jointly develop, market, and sell solutions for China’s cloud-computing market.  According to a Microsoft press release, the two companies will jointly develop solutions that will allow customers to adopt virtualization and cloud-based IT infrastructures.  The partners will focus on certification of China Standard’s NeoKylin Linux-based operating system on Windows Server 2008 R2 with Hyper-V, creating Microsoft Systems Center management packs for NeoKylin application workloads, and incorporating support for NeoKylin within the Hyper-V Cloud architecture.

The companies also have signed a “mutually beneficial customer legal covenant agreement.”

When I read the press release, I wanted to know more about NeoKylin. There’s not a lot of background material on the Internet, but I was able to learn that the operating system first received public mention toward the end of last year. At that time, China Standard Software and China’s National University of Defense Technology (NUDT) signed a strategic partnership to launch NeoKylin as an operating system that will be used for national defense and across key strategic sectors of China’s economy.

Ironic Turn

Before the advent of NeoKylin, China Standard developed the NeoShine Linux desktop distribution, whereas academics at NUDT produced Kylin, a secure FreeBSD-based alternative to Windows and other foreign operating systems.

There’s a certain irony in today’s announcement, because it’s clear that China wants to become less dependent on Western software purveyors by developing a domestic software industry capable of delivering home-grown operating systems.

China’s IT Aspirations and Concerns

China is pursuing this strategy for two reasons. First, it wants to develop a thriving software industry that refocuses its IT efforts upmarket, from lower-value manufacturing to higher-value research and innovation. But China also is pursuing its software strategy because of security concerns, including that software from Microsoft might be used against it — perhaps through backdoors and trojans — in the event of escalating tensions with the US and the West.

In that context, let’s cast our minds back to late 2008, when Microsoft’s anti-piracy strategy, undertaken as an outgrowth of its Windows Genuine Advantage initiative, included turning Windows desktop screens black when pirated copies of the operating system were detected.   This gambit not only resulted in howls of outrage and lawsuits from Chinese consumers, but it caused China’s authorities to wonder what else Microsoft might be able to do remotely to Windows-based computers.

Earlier in the last decade, Microsoft chose to espouse a tolerant approach to software piracy in China. Microsoft wasn’t happy about the practice, to be sure, but it felt it was better to build a user base that might be persuaded to pay for the software later than to clamp down hard on piracy and drive users to Linux or other open-source alternatives.  By 2008, though, Microsoft’s heart had hardened toward software piracy, and it took a more aggressive tack, resulting in the “black screen” and renewed fears in China about dependence on Windows.

Microsoft’s Mixed Results

It also has resulted in mixed results for Microsoft. Matt Rosoff reported at Business Insider earlier this year that Microsoft derives revenue of about $1.25 billion from China — one-fiftieth of the company’s total take. Microsoft does much better in India than in China, and it believes that its China revenue could grow to $7.5 billon if the authorities there would take a harder line against software piracy.

Apparently China has other plans.

So, now, in a bid to get a piece of what apparently is a burgeoning cloud-computing market in China, Microsoft will work with an operating-system developer whose government-mandated charter is to dislodge Windows from desktops and servers spanning the country’s key industries.

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