(MICRO)SOFT DIPLOMACY, VERSION 1.0

UNCLAS SECTION 01 OF 02 ALGIERS 001581

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TAGS: ECON EINV ETRD KIPR AG

SUBJECT: (MICRO)SOFT DIPLOMACY, VERSION 1.0



1. (U) SUMMARY: Microsoft CEO Steve Ballmer paid a brief visit to
Algeria in a trip touted as an opportunity for Microsoft to help the
GOA expand Algeria's information and communications technology (ICT)
sector and enhance its education system. Ballmer said he was
inspired by the GOA's commitment to technology development and by
the potential for market growth in Algeria. ICT insiders suggested
that the CEO visited Algeria in an effort to enhance Microsoft's
government relations, and to signal that its recently reorganized
business unit is serious about this market. Meanwhile, firms are
optimistic about the ICT sector in Algeria, but are skeptical about
whether Microsoft can effectively expand its software marketing
here, or expect to make any progress combating piracy. END
SUMMARY.


2. (U) In a whirlwind visit on October 3, Ballmer met with President
Bouteflika and several ministers to discuss the development of the
technology sector in Algeria, the use of IT start-up companies as a
means to energize the Algerian economy, and access to computers in
Algeria's schools. Ballmer later told a group of Microsoft partner
firms that the greatest growth potential for the ICT industry lies
in emerging markets like Algeria, where ICT structures can be
expanded to tap into significant populations hungry for access to
Web-based entertainment and educational services. (Note: 7.3
percent of the Algerian population has access to the Internet,
compared to a 0.2 percent penetration rate in 2000, according to
recent data compiled by the International Telecommunication Union.
End note.) Ballmer said that he came to Algeria to evaluate his
local team's recommendations for expansion, which he will consider
in early 2008. He told the industry group that he was "inspired by
the president's thoughtfulness toward the future," and that he saw
potential growth across all economic sectors.

BUT STILL, WHY COME TO ALGERIA?
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3. (SBU) Microsoft recently split its regional marketing division
and created the Microsoft Algeria business unit. Because of the
terrorist activity in Algeria in the 1990s, Microsoft established
its North African headquarters in Morocco, which local IT
representatives and former Microsoft employees say the GOA never
forgave. Ballmer's visit to Algeria appeared timed to show
corporate support for the new Algerian unit's government relations
efforts, and an attempt to relieve past tensions between the GOA and
Microsoft.

HOPE SPRINGS ETERNAL, BUT SO DO CLONES AND PIRATES
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4. (SBU) Industry representatives told Econoff that they were
optimistic about the near-term future of the ICT sector in Algeria.
Abdelaziz Ben Aissa, the general manager of a certified Microsoft
business solutions firm, said that the GOA seems focused on ICT
issues and opportunities are expanding. Ben Aissa's firm provides
support services for Northrop Grumman information systems. He works
extensively with the Algerian federal police, with whom he expects
more contracts to support expanding communications and information
systems. Djamal Hadjout, the information services director of an
Algerian wholesaler representing a number of leading American
computer periphery brands, said business is generally growing and
that retailers are finding new customers among both Algerian
corporate and individual consumers. He noted that American products
continue to be associated with quality and prestige but are
considered expensive.


5. (U) IT representatives were at the same time skeptical that
Microsoft will be able to raise significantly its stake in the
Algerian consumer software market or to combat piracy effectively
because of the relatively high price of its products and the
continued weakening of Algerians' buying power. They said that most
personal computers sold to households are clones assembled in
Algeria, and that most people buy pirated copies of operating
systems like Windows and other software applications for as little
as two dollars. Further, according to recent news reports,
electronics represents the second-largest category of goods smuggled
into Algeria (after cigarettes),and overall customs seizures of
contraband rose significantly throughout 2007. Given Algeria's
rising cost of living and high unemployment rate, the ICT
representatives saw little hope that Microsoft will be able to
counter these IPR challenges anytime soon. Ballmer was asked about
this dilemma, but gave only a general response about his company's

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commitment to finding innovative solutions to specific markets and
his confidence that the GOA will move in a positive direction
regarding ICT use and development in Algeria.


6. (SBU) COMMENT: Ballmer's visit, along with the recent creation of
Microsoft Algeria, likely went a long way to meeting Microsoft's
government relations goals. Some in the business world interpreted
President Bouteflika's overt hospitality to a corporate leader as a
sign that the GOA is serious about its stated intent to build out
Algeria's ICT sector, improve the country's education system through
access to technology, and see that every Algerian family has a
computer at home. Nonetheless, the challenges of contraband
hardware and pirated software remain significant as the high cost of
living continues to influence not only consumer decisions regarding
brand preference and when to buy, but also the choice between
licensed, cloned or pirated goods.

FORD