For Microsoft, its ability to successfully reduce piracy and move more people to Office XP is vital to the company's financial success in a soft economy and at a time when technology sales are slowing, analysts say. About 46 percent of the company's revenue, and more than 50 percent of income, is derived from Office, making it Microsoft's most important product line -- maybe even more so than Windows.
But Office sales are slowing, with revenue during Microsoft's second fiscal quarter declining 2 percent year over year to US$2.49bn from US$2.53bn. The fiscal third quarter is expected to be flat or show similar declines.
"No other product is more important to Microsoft than Office," said Gartner analyst, Chris LeTocq. "Any slowdown in Office sales is bound to hurt the whole company." Particularly as Microsoft prepares for perhaps the most important strategic shift in its history -- moving to Windows XP and the Microsoft .Net software-as-a-service initiative -- strong Office sales could be essential to carrying the company through the transition.
With the North American market saturated, Microsoft must expand Office sales in other geographic regions. But in many of those areas, the company faces stiff competition from casual and professional software pirates.
Technology trade groups, the Business Software Alliance and the Software & Information Industry Association, (SIIA) estimate about 25 percent of business software used in the United States is pirated. Worldwide, the rate jumps to 36 percent, but in some of the most important growth markets, the rate is much higher.
In China, for example, more than 90 percent of software is pirated. In some smaller markets, such as Vietnam, the piracy rate jumps to 98 percent.
"If you have factories in China ripping off Microsoft product, clearly this is a problem," Lucier said. "You have the Chinese government saying Windows is the tool of American imperialism and saying, 'We want our world to run on Red Flag Linux.' That's a serious problem for Microsoft."
Microsoft wouldn't say how much money it loses worldwide to piracy, but the SIIA puts the figure around USUS$12bn a year for all companies selling business software. In China, the loss is US$650m.
16%
7%
