[A2k] Wall Street Journal: Microsoft Battles Low-Cost Rival for Africa

[Thiru Balasubramaniam]

http://online.wsj.com/article/SB122332198757908625.html

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<SNIP>

To that end, it has established a presence in 13 countries, donated
Windows for thousands of school computers, and funded programs for
entrepreneurs and the young. It also has used aggressive business
tactics, some aimed at its biggest threat in the region: Linux, a
Windows alternative that costs little, and sometimes nothing at all.

In Nigeria, Microsoft proposed paying $400,000 last year under a joint-
marketing agreement to a government contractor it was trying to
persuade to replace Linux with Windows on thousands of school laptops.
The contractor's former chief executive describes the proposal as an
incentive to make the switch -- an interpretation Microsoft denies. In
Namibia and Nigeria, where it has sought government contracts, the
company hired family members of government officials. Microsoft says
they were qualified.

Microsoft Battles Low-Cost Rival for Africa
By STEVE STECKLOW

WINDHOEK, Namibia -- Microsoft Corp. sees sub-Saharan Africa, among
the poorest places on earth, as one of the last great computing
frontiers. It wants to make its Windows software a fixture there.

To that end, it has established a presence in 13 countries, donated
Windows for thousands of school computers, and funded programs for
entrepreneurs and the young. It also has used aggressive business
tactics, some aimed at its biggest threat in the region: Linux, a
Windows alternative that costs little, and sometimes nothing at all.

In Nigeria, Microsoft proposed paying $400,000 last year under a joint-
marketing agreement to a government contractor it was trying to
persuade to replace Linux with Windows on thousands of school laptops.
The contractor's former chief executive describes the proposal as an
incentive to make the switch -- an interpretation Microsoft denies. In
Namibia and Nigeria, where it has sought government contracts, the
company hired family members of government officials. Microsoft says
they were qualified.
The Last Computing Frontiers

<SNIP>

Critics say Microsoft's efforts to outflank Linux are steering cash-
strapped governments away from the cheapest, most sensible solution.
They say Microsoft has been locking African government agencies into
costly, multiyear agreements to license its software. "African
governments cannot afford long-term licensing contracts," says Nnenna
Nwakanma of the Free Software and Open Source Foundation for Africa, a
Ghanaian-based nonprofit. The money, she says, would be better spent
on training people to use computers and fostering homegrown software
development.

<SNIP>

To save money, some countries, including South Africa, Nigeria,
Namibia and Ghana, have begun using open-source software such as Linux
in some government ministries or schools. "Many education budgets in
Africa are seriously constrained," says Dorothy K. Gordon, director
general of an information-technology institute in Ghana. "At the
moment, there are very, very sound, robust open solutions out there."


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     * TECHNOLOGY
     * OCTOBER 28, 2008

View Slideshow
[SB122237132046476055]
Steve Stecklow/The Wall Street Journal

In Namibia, only about 200 of the country's 1,600 schools have even a
single computer.

The software giant describes its efforts in Africa as a way to bridge
the "digital divide" -- the gap between computer use in rich and poor
countries. In the nearly 50 countries of sub-Saharan Africa, roughly
750 million people have access to about 10 million computers,
Microsoft estimates. In many of those countries, less than 1% of the
population uses the Internet at all.

Critics say Microsoft's efforts to outflank Linux are steering cash-
strapped governments away from the cheapest, most sensible solution.
They say Microsoft has been locking African government agencies into
costly, multiyear agreements to license its software. "African
governments cannot afford long-term licensing contracts," says Nnenna
Nwakanma of the Free Software and Open Source Foundation for Africa, a
Ghanaian-based nonprofit. The money, she says, would be better spent
on training people to use computers and fostering homegrown software
development.

Microsoft says its pricing in Africa is fair, and that the company is
investing heavily in community projects across the continent. "We
believe we can help improve the lives of millions of people and
potentially grow our own business in the long term," says Thomas N.
Hansen, Microsoft's general manager for the region.

Some of Africa's poorest countries also have discovered that they
can't meet the terms of a special $3 Windows package for "underserved"
students around the world, announced last year by Microsoft Chairman
Bill Gates. For governments to be eligible, they have to buy at least
10,000 computers that students get to keep -- an expensive proposition
for cash-strapped countries. To date, Microsoft says only four
countries have qualified -- Libya, Egypt, Russia and Mexico.

Efforts have been under way for several years to bring computers to
Africa's masses. Computer makers, including the U.S. nonprofit One
Laptop Per Child, have developed low-cost laptops for poor nations.
Most can use either Windows or Linux operating systems.

Linux is "open source" software, meaning its coding is available for
anyone to modify. A number of software companies sell their own
versions at low prices, or even give them away and offer technical
support, for a fee.

In developed nations such as the U.S., Microsoft doesn't see Linux as
much of a threat to its commanding market share in software for
desktop and laptop computers. But in Africa, where resources are
limited and no system has completely taken root, it does.
[Windows of Opportunity]

To save money, some countries, including South Africa, Nigeria,
Namibia and Ghana, have begun using open-source software such as Linux
in some government ministries or schools. "Many education budgets in
Africa are seriously constrained," says Dorothy K. Gordon, director
general of an information-technology institute in Ghana. "At the
moment, there are very, very sound, robust open solutions out there."

Microsoft is trying to make Windows the choice of African government
offices, schools, companies and other institutions. It contends that
while Linux may be cheaper initially, Windows can cost less in the
long run to maintain, is more reliable and supports many more
applications.

Microsoft won't disclose its sub-Saharan sales. Mr. Hansen says they
are about one-tenth of its revenues in Singapore, which implies they
are small. The company says it has signed software-licensing contracts
with 11 sub-Saharan African governments, including Angola, Botswana
and Rwanda.

South Africa's technology agency signed a three-year licensing
agreement costing $800 per computer, says Daniel J. Mashao, the
agency's chief technology officer. Namibia's government signed a three-
year agreement for about $667 per computer, according to Gordon
Elliott, head of administration for the Namibian prime minister's
office. Those prices appear to be close to what Microsoft charges U.S.
businesses.

Microsoft won't discuss pricing on any agreements. A spokesman says
it's difficult to compare pricing because different deals may involve
different software packages. In setting prices for governments, it
sometimes considers a country's gross national income, or GNI, per
person. According to the World Bank, Namibia's GNI per person last
year was $3,360, compared with $46,040 in the U.S.

A close look at Namibia -- an arid, sparsely developed nation to the
northwest of South Africa -- shows how Microsoft is fighting Linux for
a foothold in the region.

Only about 200 of Namibia's 1,600 schools have even a single computer.
In February 2000, Joris Komen, a former information-technology manager
at Namibia's national museum, launched SchoolNet Namibia. Its goal was
to bring low-cost Internet access to all of Namibia's schools. It
began setting up computer labs with free, open-source educational
software, including Linux.

A study by the Swedish International Development Cooperation Agency,
which helped fund SchoolNet, found that by 2003, it had connected 112
schools to the Internet, sometimes using solar energy. SchoolNet "has
pioneered affordable strategies and solutions for schools," the report
said.

In 2002, SchoolNet held discussions with Microsoft about installing
Windows and Office on low-cost laptops for teachers, but the talks
ended without agreement. SchoolNet's Mr. Komen says that the following
year, Lizzie Range, then a Microsoft regional academic program
manager, "offered me a trip for fishing in Montana." He says he
believed it was to be free and was meant to co-opt him. He said no.
Ms. Range referred questions to Microsoft. The company says Ms. Range,
who owns a Montana fishing lodge, had suggested Mr. Komen "should
consider visiting the lodge" if he was in the U.S., but "no all-
expenses-paid trip was offered, suggested or intimated."

In July 2003, Microsoft signed an agreement with the Namibian
government to launch the "African Pathfinder Initiative," a pilot
program to bring refurbished Windows computers to Namibian schools.
The company promised to set up computer labs in 13 schools, train
teachers and help establish a government-run PC refurbishment center,
all for free. Microsoft hired Sean Nicholson as its project manager.
Mr. Nicholson previously had served as an adviser to Namibia's
Ministry of Education, promoting open-source software.
Pilot Schools

Several of the pilot schools selected by the government already had
Linux-based computer labs. School officials say they couldn't afford
to provide technical support for both Linux and Windows systems, so
the Linux software was removed.

One such school was in Katima Mulilo, in northeast Namibia. In 2004,
Eric Kouskalis, then a Harvard student, worked there as a volunteer
teacher for the WorldTeach organization. He says the Pathfinder
computers, provided by Microsoft, "weren't being used at all." He says
he spent weeks fixing software and hardware problems. If multiple
students tried to access the Microsoft Encarta encyclopedia,
"everything would freeze up." At several other Pathfinder schools he
visited, "nearly all the teachers felt very unprepared to use the
systems," he says.

Maggie Tabach, WorldTeach's Namibian country director, says that "from
Microsoft's point of view, it was about getting hardware and software
into the schools and not really maintaining it or seeing that it was
used." Microsoft says its intent was "to create a replicable model on
how best to provide technology to schools in emerging markets."

In June 2005, Microsoft declared Pathfinder a success and announced it
was turning the program over to the Namibian government. It hired
Kerii Tjitendero as a contractor to help in that process. Mr.
Tjitendero is the son of the late Mose Tjitendero, formerly speaker of
Namibia's national assembly, who signed the government's Pathfinder
agreement with Microsoft.

Mr. Tjitendero, who is no longer a contractor for Microsoft, says he
believes he was hired "partially" because of his father. "Just by
virtue of him being my father and the fact that he was an important
part of the policy part of the Pathfinder agreement in Namibia, it
just makes sense," he says. Microsoft says it "believed Kerii had the
professional background that made him a good fit for this role."

Microsoft had promised Namibia 4,000 used computers under the program.
Many were supposed to be retooled and loaded with Windows at a new
Namibian refurbishment center. Lodewyk van Graan, in charge of
staffing the center, says it received, at most, 600 computers. The
center closed after nine months. George Cook, chief executive of
Computers 4 Africa, a British charity that supplied the PCs on behalf
of Microsoft, says his group delivered only 1,300 for the pilot and
the retooling center. "Microsoft never asked for more," he says.

Microsoft acknowledges it came up short, and says discussions with the
Ministry of Education over the undelivered 2,700 PCs "remain ongoing."

After the pilot program ended, some of the school computers stopped
working. At the Katima Mulilo Combined School, which received 20
computers under the program, principal Fias Geel said in June that all
but four were broken and the network was down, leaving most students
unable to get "hands-on experience."

Paul Damaseb, the principal of Eden Primary School in Okahandja, said
in June that none of the 565 students had been able to use the
computers for six months because of a server crash. "This is just a
white elephant," says teacher Efraim Geingob.

In a statement, Microsoft said the project was a "valuable" learning
process. "Unfortunately, it now appears clear that the transition of
the pilot to a locally supported model and the subsequent stages of
the program have been much less successful." Microsoft said it
"accepts some responsibility for that," and it "could have and should
have managed the project transition effort better."

After the pilot ended, the government launched an ambitious plan to
bring computers to every school, prompting SchoolNet to stop
installing its Linux-based labs. The government's goal was new
computer labs, running either Windows or Linux, in 150 schools in
2007, and another 200 this year. But money has been short, and only
about 55 labs had been installed as of September, all containing
Microsoft software, says a person familiar with the matter.

Microsoft also saw opportunity to take business from Linux in Nigeria.
In 2005, Olusegun Obasanjo, then Nigeria's president, had pledged to
purchase one million laptops from One Laptop Per Child, the U.S.
nonprofit that promised machines using open-source software for $100
apiece. Microsoft had hired the president's son, Dare Obasanjo, in
2002; a year later, it signed a software-licensing agreement with the
government. Microsoft says the younger Mr. Obasanjo was hired on his
own merit, and that his hiring was not connected to winning the
government business.

Last year, as the price of the nonprofit's laptop rose above $100, the
Nigerian government decided to purchase a different computer, the
Classmate, which is marketed by Intel Corp. Efosa Idehen, an official
with a funding arm of Nigeria's communications commission, says the
agency hired a local subcontractor, Technology Support Center, or TSC,
to purchase about 10,000 Classmates. The laptops can run either
Windows or Linux, but the government said it wanted Linux, Mr. Idehen
says.

Microsoft says TSC asked about the $3 software package announced by
Mr. Gates. Microsoft told TSC that the deal wasn't available because
students wouldn't get to keep the laptops -- a requirement for the
heavily discounted product.
Rival Offer

TSC approached Mandriva SA, a French company that sells a Linux
version. Believing Microsoft had offered its $3 package, Mandriva
proposed a $3 price for a Linux operating system, plus about $2 for
other software, say people familiar with the situation. In August
2007, TSC issued a purchase order for Mandriva Linux, and the laptop's
Taiwanese manufacturer began loading it.

Microsoft continued to push Windows. It offered its XP and Office
software for about $45 per machine, says Nyimbi Odero, then TSC's
chief executive.

Mr. Odero says Microsoft wanted TSC to delete Linux from the initial
shipments of Classmates. He says Microsoft proposed a way to "make it
worth your while" through a joint-marketing agreement. According to a
draft agreement Microsoft sent to TSC last Sept. 13, Microsoft would
pay TSC to fund "certain marketing activities to encourage the sale
and distribution" of Microsoft products. Mr. Odero says Microsoft made
it clear that TSC wouldn't really be expected to market the products,
but could keep the money as an incentive to replace Linux with Windows.

Microsoft declined to make any Nigerian employees available for
interviews. It denies there was anything improper about the offer, and
says it intended to pay TSC only if it performed the marketing
activities and software installation. It says the draft agreement
"represented negotiations that were midstream" and "does not
accurately reflect the deliverables, services and expectations, all of
which were under negotiation."

The draft agreement stated that TSC would have to comply with the
"Microsoft Vendor Code of Conduct," which requires vendors to comply
with local antitrust, fair competition, anticorruption and antibribery
laws. Sections detailing how much Microsoft would pay TSC, and a
description of what TSC would do, were left blank. TSC proposed that
Microsoft pay it $1.3 million for the activities, which it said would
include laptop demonstrations, teacher training and advertising.
[Thomas N. Hansen]

Thomas N. Hansen

Mr. Hansen, Microsoft's regional manager, met Sept. 28, 2007, with TSC
and its parent company, Alteq, for "a very high-level discussion"
about the deal, Microsoft says. That same month, Justin Spelhaug, a
senior director in Microsoft's developing countries' business unit in
Redmond, Wash., was involved in the "initial approval" of $340,000 to
fund the TSC deal, Microsoft says.

On Oct. 30, Mandriva announced it had won the contract to provide
Linux software for the Classmates. Microsoft didn't give up. The next
day, it delivered TSC a revised draft agreement with an "effective
date" of Nov. 1, documents show. It offered to pay $400,000 to TSC. In
the revised agreement, there no longer was any mention of TSC having
to comply with Microsoft's code of conduct.

In an Oct. 31 email, TSC told Mandriva that there had been a "change
in circumstances," and that it "has recently reached an understanding
with Microsoft to convert" the Classmates from Linux to Windows.

Mandriva's chief executive, Francois Bancilhon, responded by posting
"an open letter to Steve Ballmer," Microsoft's CEO, on Mandriva's Web
site. "What have you done to these guys to make them change their mind
like this?" he wrote. "It's quite clear to me, and it will be to
everyone. How do you call what you just did, Steve? There are various
names for it, I'm sure you know them." Mr. Bancilhon declined to
elaborate on his letter.

In the end, the joint-marketing agreement was never signed, and the
Microsoft deal unraveled. Microsoft says it gave up after "it became
clear" that the Nigerian government wanted Linux.

The laptops were delivered with Linux.

Write to Steve Stecklow at steve.stecklow@wsj.com

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Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru@keionline.org


Tel: +41 22 791 6727
Mobile: +41 76 508 0997