With an eye to piracy, Microsoft will not sell physical copies of Windows 8 in China

Instead, the new OS, which debuts in China on Friday, will be available only via download and pre-installation on machines. The effort is meant to cut off the widespread practice in the country of retailers selling pirated copies as the legitimate product.

Diplomatically, Microsoft spun the move as a streamlining measure. “After having talked to many customers, Microsoft has made the decision to simplify the distribution model of Windows in China, by taking all physical Windows media off the market,” the company said in an email Monday, according to the IDG News Service.

But Microsoft has had more than its fair share of piracy concerns in the region, including a recent investigation in that country that revealed not only pirated software but also pre-installed malware in freshly packaged PCs. And in July, Microsoft China initiated infringement proceedings with nine computer resellers in seven cities in China, alleging that the dealers had installed pirated Windows software in machines from Lenovo, Hewlett-Packard, Dell, Acer and others.

Software piracy is a critical problem in the country, with sales and installations of illegal copies of OS and applications well outstripping the real thing. In 2011, China’s illegal software market was valued at $9 billion, compared to legal sales of just $3 billion, according to the Business Software Alliance.

The same study revealed that the proportion of China’s personal computers with pirated software installed stood at 77% in 2011, which is actually a new record low and a decrease of 15 percentage points since 2003, when the piracy rate stood at 92%, according to the report.

To put it in perspective, that 77% of illegal usage of pirated software in China compares with the average software piracy rate of 42% worldwide in 2011, and 60% in Asia Pacific as a whole.

Microsoft’s move to tighten up distribution control may pay off in the near term but it’s just a matter of time before an enterprising bootlegger simply burns CDs with a virtual copy. Vic DeMarines, vice president of products for V.I. Labs, told IDG that mass-produced CDs with Windows 8 will likely be available as soon as 30 days after the launch. He said that there is an arms race of sorts afoot as pirates scramble to be the first to successfully steal the OS.

The piracy-related revenue leakage for Microsoft meanwhile is significant given its market penetration: as of July, Microsoft’s Windows XP had a 73.7% market share in China in the desktop OS market, while Windows 7 claims 22.8%, according to Net Applications

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