In Asia, Microsoft sees slow start for budget XP

Microsoft may have started shipping its cheaper version of Windows in Asia, but getting support for its low-cost computing vision is still very much a work in progress.

The software giant first launched Windows XP Starter Edition, a localized version of the full-fledged Windows operating system with reduced features, in Thailand last October. The cut-rate version debuted in Malaysia and Indonesia in February.

The product has received the initial backing of more than 15 local system builders and multinational computer makers in these three countries.

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What's new:
Microsoft has been depending on its partners to bundle and promote Windows XP Starter Edition with their low-end desktops--a strategy that so far has been met with a tepid response.

Bottom line:
Microsoft recognizes the distribution problems with Starter Edition and plans to tailor its efforts to suit individual countries as part of a 12-month pilot program. A major challenge is combatting piracy, which floods markets with cheap bootleg copies of Windows software. In Kuala Lumpur, for example, bootleg copies of Windows XP go for less than $5.

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Unlike Microsoft's flagship Windows offerings, however, Starter Edition is not sold at retail. The company is banking on its partners to bundle and promote the software with their low-end PCs, a strategy that has so far received lukewarm response.

"We're not focused on Starter Edition," said Kharisma Shintara, director of Arta Computer Center, a computer assembler in Indonesia that has licensed Microsoft's scaled-down offering.

Shintara told CNETAsia that his primary product line will remain Pentium 4 PCs that are preloaded with Windows XP Home Edition--not the lower-end Intel Celeron machines, which Starter Edition is designed for.

"We've only used it in some projects for schools," he said, adding that the price of such Starter Edition-based PCs is around $320 (3 million Indonesian rupiah).

In Thailand, a number of Microsoft's Starter Edition partners, like Atec and Belta, are still promoting PCs that ship without any operating system.

Supreme Computer--one of the largest PC manufacturers in the country--is even selling a low-end Celeron PC preloaded with Linux for $404 (15,490 Thai baht).

The company also offers a similar system featuring Starter Edition that costs $443. Microsoft declined to provide sales figures for the new operating system in Thailand.

Besides Malaysia, Indonesia and Thailand, Starter Edition is also bound for Russia and India this year, although the Indian launch has been postponed from March until June.

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"Starter Edition has not gained much interest from vendors, nor has it generated much interest from end users," said Martin Gilliland, principal analyst with research company Gartner Asia-Pacific.

Gilliland attributed the tepid response largely to high piracy rates. Smaller computer retailers in these emerging countries, he said, tend to buy their systems from large original equipment manufacturers, or OEMs, and then load them with cheaper, unlicensed versions of Windows.

In Malaysia, Microsoft has set the pricing of Starter Edition at $32 (120 ringgits). In contrast, bootleg copies of Windows

XP Professional or Home Editions are sold at IT malls in Kuala Lumpur for less than $5.

According to Gilliland, PC makers in developing markets are mostly focused on driving hardware sales, not software margins. "They don't really make much profit from the OS (operating system) component of the PC. If they can sell more PCs to resellers by removing the OS, that's what they are going to do," he said.

To address this issue, he said, Microsoft will have to "create a different sales or go-to-market strategy."

"Their current standard vendor and channel relationships will need to be altered slightly to make this product succeed for them," Gilliland added.

Trial and error
Microsoft recognizes the problems with Starter Edition and plans to tailor its distribution and marketing efforts to suit individual countries as part of a 12-month pilot program, a senior company executive told CNETAsia.

"We'll be testing several go-to-market approaches," said Mike Wickstrand, Microsoft's director of Windows product management.

He said Redmond has decided on a "focused" approach in Malaysia by partnering with furniture and electronics megastore Courts Mammoth. On Tuesday, the retail giant announced it will start selling Starter Edition PCs made by local computer manufacturer FTEC in its 20 outlets.

According to Kelvin Wong, FTEC's executive director, the company hopes to sell 1,500 to 2,000 Starter Edition PCs per month. Besides the potential in rural areas, another market for these low-end machines could exist in schools and community projects, he added.

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Microsoft CEO Steve Ballmer has proposed that the industry launch a $100 PC as a way both to stem piracy and to offer consumers in emerging countries an affordable computer.

Blue Dot Systems, another reseller of Microsoft's budget Windows package in Malaysia, plans to launch Starter Edition PCs at the end of this month. They will be priced between $342 (1,300 ringgits) and $395, a company representative said.

Wickstrand hinted that in Indonesia, Microsoft will partner with a local bank to offer financing schemes for Starter Edition computer buyers.

"To really address the affordability of a PC, what really helps is financing," he said. "If we're going to see a large uptake in PCs, consumer finance needs to be available for the segment we're targeting."

In Thailand, Microsoft is not tweaking its channels strategy but has instead chosen to increase the awareness of Starter Edition by embarking on a five-city tour and an advertising and promotions blitz, the company said.

Winston Chai reports for CNetAsia. CNETAsia's Cordelia Lee contributed to this report.