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Microsoft spending $1b to boost R&D

By Wang Xing (China Daily)
Updated: 2008-11-14 09:52

Visitors to a recent telecom show in Beijing walk past Microsoft's booth. The software giant is to spend $1 billion in China on R&D. [China Daily]

Software giant Microsoft said it will spend $1 billion on research and development (R&D) in China over the next three years, reiterating its long-term investment after the company's recent anti-piracy effort angered many users in the country.

Zhang Yaqin, chairman of China Research and Development for Microsoft, said the spending is mainly targeted at staffing and resources for R&D. He said the investment does not include the $300 million the firm is spending on its new research center in Beijing.

The investment plan came along with Microsoft's appointment of Simon Leung, a former executive at Motorola Inc, as the new chairman and chief executive of the firm's China operations.

The position had been vacant since September 2006 when Tim Chen, Microsoft's last China CEO, left to head NBA China.

The appointment and investment announcement came at a time when Microsoft's Windows Genuine Advantage (WGA) program, which turns a user's screen black if installed software fails a validation test, has enraged many Chinese users.

A Chinese lawyer even filed a complaint with the Chinese government suggesting that the company should be fined $1 billion for hacking into the computer systems of millions of users who have bought genuine software.

Leung said Microsoft would increase its cooperation with the Chinese government in the future, denying that Microsoft faces any serious challenges in the country.

Although it is the world's second-largest PC market, China still accounts for a tiny portion of Microsoft's global business due to piracy, which has helped Microsoft gain a dominant market share in China but at the same time foiled its further efforts to translate that into revenue, according to industry insiders.

Although Microsoft has convinced government organizations and PC vendors to use genuine software in recent years, the use of pirated software remains high among individual consumers.

Microsoft has intensified its battle this year against piracy in the consumer market. The company made a complaint to the Chinese government earlier this year that led to the detention of Hong Lei, the author of "Tomato Garden", a highly popular visually enhanced pirated version of Microsoft Windows XP.

It also announced a promotional plan in October to reduce the price of its Office 2007 software from 699 to 199 yuan during the week-long National Day holiday.

But many Chinese consumers still feel the price of Microsoft's products is far too high.

Microsoft said it would establish an executive management committee for China "because of the strategic importance and huge business potential of the region".

Its membership includes both Leung and Zhang, as well as Eugenio Beaufrand, COO of Microsoft China, and Liu Fengming, the company's vice-president who is responsible for legal issues.

Zhang said Microsoft's most comprehensive organizations outside the United States are in China. He said the establishment of the committee would help the company better coordinate its resources in the country.

Microsoft opened its first R&D center in China in 1995. Now the country is home to its largest R&D workforce outside the United States, with 1,500 full-time research employees and another 1,500 working on a project basis.

Microsoft said earlier that it would double the number of its full-time research employees in China to 3,000 over the next three years.

Last year, the company invested about $280 million in its R&D activities in China. These investments are said to have helped Microsoft win support from the Chinese government and boosted sales in the Chinese market.