IN VIETNAM, THE GOVERNMENT IS MICROSOFT'S FIRST TARGET

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000367

SIPDIS

SENSITIVE

State for EAP/BCLTV
State pass to USTR Elena Bryan
USDOC for 6500 and 4431/MAC/AP/OPB/VLC/HPPHO

E.O. 12958: N/A
TAGS: VM KIPR ECON ETRD
SUBJECT: IN VIETNAM, THE GOVERNMENT IS MICROSOFT'S FIRST TARGET

Summary
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1. (U) With a software piracy rate estimated at 95 percent by the
Business Software Alliance, there is no shortage of targets in
Vietnam for IPR protection efforts. Microsoft executives tell
ConGen that it will focus on getting the GVN and multi-national
corporations to use licensed software. Microsoft is worried about
the interest in Linux-based systems, fearing that because it is
more difficult to use, offices that officially switch to Linux
will soon unofficially switch back to pirated Microsoft software.

Target the Big Targets
--------------

2. (U) At a recent meeting with Econoff and Econ FSN, Microsoft's
Director for Business Development Asia-Pacific Emerging Markets
Mr. Faycal Bouchlaghem and Vietnam Country Director Mr. Ngo Phuc
Cuong described the situation in Vietnam from their company's
perspective. Despite the prevalence of vendors selling pirated
copies of Windows and other MS software from countless shops,
Microsoft has decided to focus first on getting the GVN and second
on multinational firms operating in Vietnam to use licensed
Microsoft software. Their target is to switch the GVN over
completely to licensed product over the next five years.
Microsoft told Econoff that, like the rest of the market, the GVN
currently uses very little licensed software and that many
multinational firms that are law abiding elsewhere start using
pirated software after a few months in Vietnam.

Windows Costs Money
--------------

3. (U) Microsoft describes two main difficulties in moving the
GVN from pirated to licensed software. First is Microsoft's lack
of pricing flexibility. MS claims that they are constrained from
offering deeply discounted pricing for the Vietnam or any other
market by a `Consent Decree' agreement with U.S. Department of
Justice. They say that the decree would allow MS to develop and
sell a new Vietnamese Windows product, and if it was substantially
different from the existing versions, they could sell this special
version for any price they chose. Microsoft's representatives
said that this was not viable, however, since the Vietnamese
market would not offer enough of a return on the investment needed
to develop such products. They said that the company can,
however, discount software to existing customers. But these
customers will still have to pay for it.

Linux is Cheaper
--------------

4. (U) The promise (false according to MS) of cheap or even free
Linux-based software is another issue. MS outlined several
reasons why, in their admittedly biased view, Windows was a better
choice. First, the average user is used to Windows-based point
and click software and retraining them to another system will be
difficult. Second, Linux systems require more technical expertise
on the part of the end user than do Windows systems. Finally,
there would be a massive compatibility problem -- most of the
world uses Windows, and the GVN could find themselves in a
position where it might be difficult to communicate and share data
between their Linux systems and everyone else's MS systems, not to
mention the relative shortage of third-party software that runs on
anything other than Windows.

Copying Thailand
--------------

5. (U) Microsoft claims that these factors will inevitably lead
to one outcome. They contend, based on their own analysis using a
post-purchase survey of commercial Linux users in Thailand, that
within a few months of a shift to Linux, almost every GVN computer
will also be running pirated Windows software. They claim using
Linux will be a hassle no one will put up with for very long. In
the Thai survey cited by MS over 70 percent of consumers that
acquired Linux operating systems were back to using illegal
Windows software within a few months.

Other Efforts
--------------

6. (U) Though the GVN and multinationals remain the focus, MS
also works with the Economic Police by offering them training on
how to detect pirated products in the retail market. Microsoft
agreed to let Econ FSNs attend the next training session. This
opportunity should allow ConGen to expand its contacts within the
Economic Police and help us better target our assistance on IPR
issues.


7. (SBU) The firm is still trying to figure out the best way to
work with local law enforcement. Like many observers Microsoft
has been critical of the GVN's effort to protect IPR and was
surprised in a recent meeting when the Economic Police asked MS to
"identify targets" for enforcement raids. Microsoft elected not
to give any names. They explained that they do not want to set a
precedent by doing the government's job when it does not take much
detective work to find an IPR violator. Nor do they wish to have
MS linked to police action in the minds of consumers. They do not
want Vietnamese to think police raids and fines when they think
Microsoft. Microsoft's country director told Econoff that a few
high-profile raids against small shopkeepers would not/not help
Microsoft's long term business plan in Vietnam.


8. (U) Though wary of the stick, MS has been trying to use the
carrot to change behavior. The company's Vietnam offices recently
began the "Clean Shop Program." This program asks retailers of
software and assemblers of PCs to sign a pledge to provide
customers with only licensed software. In return, program members
are rewarded with points for every licensed copy sold. Points
can be redeemed for merchandise in a system not much different
from a frequent flyer or shopper program. Thus far, the "Clean
Shop Program" has had limited success. In an investigation of
program members, MS found that over 30 percent of the shops and
factories -- all of whom volunteered for the program -- were still
distributing unlicensed software.


9. (SBU) Microsoft's efforts to influence the local IPR situation
extend beyond enforcement and rewards programs. On March 16,
2004 the software manufacturer signed a Memorandum of
Understanding (MOU) with the Information Technology Project
Management Office (ITPMO) of the Ho Chi Minh City People's
Committee. This MOU, five pages in length, was drafted to ensure,
"mutual business cooperation," and, "establish a formal basis for
cooperation in the area of Information and Communication
Technology." Under the terms of the MOU, Microsoft will,
"contribute to the social and economic development of Ho Chi Minh
City by developing the local IT ecosystem by building skills
through IT training for ICT companies, students, teachers and
government ICT professional employees based on common projects, so
as to help create employment opportunities in HCMC." Microsoft
also agrees to help develop HCMC's e-government projects and work
with the city government to agree on software licensing terms
under the Microsoft Volume Licensing Program. Finally, Microsoft
will set up courses to teach educators and students about ICT, as
well as seminars, "as appropriate for the target audience," on the
value of IPR protection and enforcement. In return, the HCMC
People's Committee, through the ITPMO, agrees to "co-operate with
Microsoft in order to ensure that the Ho Chi Minh City People's
Committee's government institutions lead by example in using only
licensed software and adopt the best practices for IPR protection
and for the enforcement of IPR protection through the relevant
Government Institutions." (NOTE: Full text of MOU to follow by
SEPTEL)

Comment
--------------


10. (SBU) While the MOU is certainly a positive development, in
that it increases dialogue and highlights the importance foreign
companies place on IPR matters, it is an agreement without teeth.
The MOU does not give either side legal leverage, nor are the
stated goals and responsibilities binding. Life can go on as
usual. If either party finds that an obligation must go
unfulfilled for reasons beyond their "reasonable" control, they
are automatically relieved of the obligation as long as they
inform the other signatory in writing. The MOU is a nice vision
of the future, but it lacks an actionable plan.


11. (SBU) For now it appears that the world's software giant is
more worried about competition from "shareware" than it is about
pirates. Microsoft's arguments that Linux may not be a good fit
for Vietnam clearly stem from self-interest, but they have a
point. In a country where government offices are filled with
computers running pirated software, it seems unlikely that a
lasting improvement will take root if the new system is any more
difficult to use than the familiar, albeit illegal, alternative.
And it will be hard to take real enforcement actions in the South,
when the government itself is one of the biggest violators.
YAMAUCHI