Why Is Bill Gates So Keen on China?

MICHAEL ROBINSONChina's leaders tend to be obsessed with the mighty and the prosperous. But that's not the only reason Bill Gates likes to visit so much. Unlike in the United States, where the Microsoft chairman faces an antitrust suit and a legion of committed enemies, in China Gates is usually taken at his word. On his most recent trip, he stopped in Shenzhen to confirm that he had lined up nearly every major Chinese computer manufacturer behind his company's Venus project, a combination of software and hardware that lets VCD players and other, similar devices display Chinese-language Internet content on an ordinary TV set. He claimed that the Venus set-top boxes would bring entertainment, education and communication technology into the homes of many families that couldn't otherwise afford it.

On the face of it, the plan makes perfect sense. China has 1.3 billion people, 320 million TV sets and only 2.1 million Internet users. Even the cheapest PCs can cost an average Chinese city-dweller several months' wages. Venus boxes will supposedly allow the majority of TV owners to leapfrog that stage and enter the information superhighway almost immediately. (The devices, developed at Microsoft's Beijing lab, are expected to be ready by the end of the year.) This, say Venus boosters, is a modern device with Chinese characteristics. Curiously, though, Venus does not even have a proper Chinese name--only a nearly meaningless phonetic transliteration from English. What it does have is Microsoft's Windows CE, and that alone should be prompting Chinese to question Gates' pious enthusiasm.

The idea of low-cost family computing is not new in China. For years, most major department stores have sold simple educational computers for as little as $50. These machines use technology similar to videogame consoles of five years ago but have full-sized keyboards, display Chinese characters on a TV screen and can run a wide variety of educational and entertainment software. Most of the Chinese companies that Microsoft has enlisted in the Venus project have the technology and resources to introduce such a product on their own. That they haven't should in itself cast suspicion on Gates' reasoning.

Fact is, the common wisdom--that 1.2 billion Chinese actually want to get on the information superhighway--does not hold much water. Since 1995, more than 10 million PCs have been sold in China, but only one in five Chinese has Internet access. In affluent Guangzhou, Internet penetration is far lower than in Beijing. At the same time, the low-cost, easy-to-use, national intranet, a local-content Internet alternative for the masses, has failed to catch on. It will probably be abandoned this year.

PAGE 1|All of this suggests that cost is not the primary hurdle to getting wired in China. One of the obstacles is social. The reason Beijing has the country's highest Internet penetration is because it is China's educational, cultural and high-tech center. Beijing simply has more people who can appreciate the web life-style, as Gates calls it. Another challenge is the low quality of content available for the mainland market. Currently, Internet access is most attractive to young, educated, English-speaking Chinese who can use the Net as a window to the world and a means to communicate with friends and ex-classmates living abroad. The Internet in China doesn't offer much today for the more conservative life-style of the common folk.

For Gates, though, Venus has an extra advantage: it could help overcome problems faced by Windows CE back home. Microsoft's Windows 95 has dominated the U.S. desktop market because of its compatibility: users buy the operating system that has the most software available, and third-party developers produce software for the system that has the most users. Windows CE, on the other hand, is targeted at the hand-held and embedded-systems market. Users of hand-held computers could care less how many programs can interact with their operating system; they just want a system that's simple, reliable and easy-to-use. By those criteria Windows CE has failed in the U.S., capturing only 25% of the hand-held market, trailing the 41% share of 3M's PalmOS.

Embedded systems, such as the proposed Venus box, are self-contained, which again means consumers do not require third-party software. In the West this has allowed for greater variety and stiffer competition, as companies far smaller than Microsoft develop more efficient software. The embedded-systems industry internet site, www.embedded.com, lists more than 30 commercially available embedded operating systems. Windows CE isn't even mentioned.

So Windows CE needs help. Manufacturers prefer to use mature, proven systems for big projects, but a system needs to be used on big projects before it can mature and prove itself. Thus, even if Venus never makes a big impact on China's Internet market, simply embedding Windows CE in millions of Chinese consumer products will create momentum that can only help the marketing of Windows CE elsewhere. Bill Gates can use his leverage in China to deliver a big project as a fait accompli. Chinese would do well to think more carefully about Gates' motives. When he comes to China, he may be asking not what he can do for the country, but what the country can do for him.

Michael Robinson is an Internet consultant in Beijing

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