Updated 20 May, 2013, 8:22 pm IST
In 20 years in China, Microsoft Corp hasn't had much luck. It is the world's largest market for PCs and yet with piracy rates as high as 77 percent, the software company is seeing only a fraction of the revenue it could collect.
Microsoft is betting on the Surface to curb piracy in China
After years of symbolic raids on software pirates and pronouncements, Microsoft has in recent years changed tack, prodding the government to get pirated software off its computers and replace it with legitimate copies. Although progress is being made, it is not necessarily benefiting Microsoft, analysts said.
State-owned enterprises have offices and subsidiaries spread across the country, slowing down the process, said Bryan Wang, China principal analyst at Forrester Research, while those who do replace their pirated software tend to opt for a much cheaper local variant called Kingsoft WPS.
"It's going to take some time," he said.
Microsoft's other businesses have also not fared so well in China. Since its launch in 2009, Microsoft's search engine Bing is still in beta mode and a sales ban on video game consoles in China means its popular Xbox cannot be sold legally in the country.
In the second quarter, Microsoft's smartphone software had a negligible share of the market while Apple's iPhone accounted for 6 percent of the market and Android phones for 83 percent, according to Analysys International. Local media reported that Nokia is due to launch its first Windows 8 Phone in China by the end of the year.
At first blush it faces a similar uphill battle in tablets. Sales of Apple's iPad accounted for 71 percent of tablets sold in the third quarter. Lenovo Group garnered 11 percent and Samsung Electronics 4 percent. Apple announced on Tuesday a smaller version of its iPad, adding to the already crowded field of choices.
But Microsoft believes it has prepared the ground to win over skeptics. In its favour is a fast-growing collection of software applications -- usually called apps -- already popular among Chinese users of Apple and Android devices.
Microsoft has persuaded Chinese developers such as Tencent Holdings, Sina Corp and PPTV to develop Windows 8 versions of their popular apps that will run on the Surface in advance of the launch.
That means that while globally the Surface will have fewer apps than Google's Play store and the Apple's App Store, the Windows App Store in China will have the second-highest number of apps globally when Windows 8 is launched, according to Ralph Haupter, Microsoft's China chief executive.
Atop that is the familiarity of Microsoft's operating system and office applications.
"I already have an iPad and a Galaxy Note but there are two major constraints with both products, they can't use USB and they can't handle Microsoft Office documents," said one customer who gave only her surname, Ma, who ordered her RT Surface online.
Also working in its favor is the price. A 32-gigabyte model of the Surface will sell in China for 3,688 yuan, about 800 yuan cheaper than a similar model of iPad sold by Apple. Pricing for the iPad mini was set at $329, which was higher than expected.
Some doubt this is low enough to win over users.
"Chinese consumers like foreign brands but they are still price sensitive. Microsoft's dominance is in software and while the introduction of Surface is good for the Chinese market it needs to be even cheaper if it wants to be more competitive," said Li Yanyan, an analyst with Beijing-based research firm Analysys International.
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