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To prevent Linux from running away with Thailand's subsidized "people's PC project," Microsoft (Nasdaq: MSFT) has dropped the price of its Windows and Office packages from nearly US$600 to $37. Other Asian countries are lining up to duplicate the Thai program. As a result of the events in Thailand, analysts have begun to predict the end of Microsoft's long-standing "one-price-fits-all-markets policy."
Significantly, first-time PC users in Thailand are finding the Linux Thai Language Edition easier to master than Windows.
In a computer shop on the outskirts of Bangkok, Nalong Sripronsa is teaching his assistant how to install Linux Thai Language Edition OS on a secondhand Pentium PC. Nalong, manager of DCO Computer, has seen growing interest in Linux since the Thai government launched its people's PC project in May of this year.
The Ministry of Information and Communications Technology (ICT) is offering a million PCs preloaded with Linux StarOffice at rock-bottom prices to increase computer literacy in Thailand.
"Many people in Thailand have never used a PC before," Nalong told LinuxInsider. "They don't know the difference between Windows and Linux. If you go from Windows to Linux, it seems difficult, but for first-time PC users, the Thai edition of Linux is easier to learn than Windows." Nalong added that Microsoft has neglected the Thai market. The company only recently made Thai-language documentation available for beginners.
People's PC Project
The people's PC project, formally known as the ICT PC Project, revolutionized the Thai PC market, and its effect is being felt around the region. The Ministry of ICT aims to sell 700,000 PCs and 300,000 notebooks in the first year of the project. To make the PCs affordable, the government has insisted that computer makers offer the machines at fire-sale prices -- $250 for PCs and $400 for notebooks, including the software.
The government did invite Microsoft to participate in the project, but the company initially refused to lower its prices. Microsoft has a long-standing policy of charging the same prices throughout the world, which could help explain the widespread piracy in developing markets like Thailand, where the average annual income is about $7,000. Charging Thai consumers nearly $600 for Windows/Office is the equivalent of charging U.S. consumers $3,000.
Pirates in Bangkok sell copies of Windows XP for $4 and Office XP for $8. With Microsoft refusing to lower its prices, the Ministry of ICT turned to Linux and StarOffice.
The rock-bottom prices -- and easy financing terms -- generated enormous interest in the ICT PCs. An estimated 35,000 people showed up at a Bangkok convention center where the machines were launched. Some people even camped overnight to sign up for the program. By August of this year, Thai consumers had snapped up 300,000 ICT PCs. Three regional computer clubs joined forces to produce alternatives for those who were not qualified for the ICT PC, offering similar PCs for a slightly higher price.
Microsoft Has Second Thoughts
Microsoft, faced with the prospect of a million Linux PCs, began to have second thoughts about its pricing structure. With many students buying an ICT PC, the company risked losing both market share and mind share to Linux. Microsoft's newly appointed regional general manager, Andrew McBean, no doubt having consulted Redmond, offered to supply the ICT PC Program with the Windows/Office package for a mere $37 -- a price cut of 85 percent.
Gartner (NYSE: IT) research director Martin Galliland, coauthor of the report "Thai PC Market May Change Global Windows Landscape," told LinuxInsider that Microsoft's concerns about Linux and piracy explain the company's change of heart. "The price drop was clearly motivated by a feared loss of market share for legal copies of Microsoft software," said Galliland.
While some buyers still will install pirated copies of Microsoft's software, Gartner estimates that 70 percent of Thai consumers will stick with Linux, citing freely available software, lower prices and lack of knowledge among first-time PC owners.
Microsoft's Andrew McBean in Bangkok was not available for comment on the company's decision to participate in the ICT PC project.
Two Month's Salary
Gilliland said Gartner has been contacted by several other Asian countries wanting to duplicate the Thai initiative. "The apparent success 
of the Thai ICT project has spawned some interest in other emerging markets, and they have approached Gartner with very early statements of interest," Galliland told LinuxInsider. He refused to identify the countries involved. In what could signal an ominous sea change for Microsoft, nearly all countries in the region are developing localized versions of Linux.
Gartner had more bad news for Microsoft. In the second quarter of 2003, just 40 percent of all desktop PCs shipped in Thailand had a licensed copy of Windows installed, an all-time low that Gartner expects will dip even further. Moreover, PC manufacturer Laser Computer has replaced HP (NYSE: HPQ) as Thailand's top PC seller. Laser Computer sells only Linux PCs and has been growing at an annual rate of 300 percent.
Nalong Sripronsa at DCO Computer believes Linux will take market share from Microsoft. "Even people who do not qualify for the ICT PC program think Microsoft is just too expensive. Schoolteachers make only about $300 per month. How can they afford to pay $600 for Microsoft software? That's more than the cost of a basic PC. For a few dollars you can buy a Linux CD with all the applications you need."
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