Microsoft's North Africa Opportunity and Challenge
With shrinking computer sales, the engine of Microsoft (MS) revenue with operating system sales, every penny counts no matter where it comes from. Software giant Microsoft is expanded its focus on the North Africa region seeking to up its revenue from that emerging market. But although the Maghreb is a region full of opportunities, in particular as Microsoft begins to push for its latest operating system Windows 7, the company is facing a set of challenges, from convincing North Africans to upgrade, to actually making a dent on piracy, and competing against open source software.
In Algeria for example, the banking sector still uses outdated technologies, making a refresh cycle potentially appealing but very difficult to achieve given the technical complexity the transition would require. As a result, potential buyers continue to hold onto what they have, inhibiting sales of software, applications and even hardware.
The company dispatched senior executives in late 2008 to share Microsoft displeasure at the pace in which technology introduction is moving. Regional Manager Seddik Sherif noted that Algeria’s economic prosperity in the future will be linked to the modernization and performance of its banking sector.
While Mr. Sheriff’s statement feels more like a sales pitch, no one should fault him for telling the truth. Indeed, Algeria’s banking sector reform has been frozen for the past eight years. Despite the various initiatives put in place, the banking sector remains as entrenched in its mediocrity as ever before. And most of the problems come from the lack of political will to change the situation. Some, however and sadly applaud Algeria’s stance in keeping the banking sector frozen in time, calling it the right approach amid a major global financial sector collapse. That only perpetuates the sort of poor services Algerian consumer face.
Identifying the region and Algeria as key market opportunities, Microsoft opened an office in Algiers three years ago. In 2007, the charismatic and vocal Chief Executive of Microsoft, Steve Ballmer, traveled to Algiers as part of a North Africa-European tour. In Algiers, Ballmer spoke of a vision that included his company’s support of Algeria to develop its potentialities utilizing training, education, innovation, leading ultimately to job creation.
But Microsoft’s problems are not just about the resistance of the banking sector in Algeria. Piracy remains a substantial problem in the North African nation, in fact in the entire region, so much so that the company hoped the launch last year of Office 2007 and Windows Vista operating system would begin to put an end to piracy. Commenting on piracy, Seddik Sherif noted that “if we let it expand, piracy will discourage the culture of creativity, innovation, and value and job creation. And before investing, companies would want to benefit from legal protection.” Microsoft has made offers to the Algerian government to support it in the area of intellectual property rights enforcement.
Piracy is a global problem for software makers and in the region it’s not just an Algerian phenomenon. Analysts in the Maghreb region estimate that between 70% and 90% of the software currently used there is pirated and for Microsoft this means potentially a loss of $150 million.
Seeking to slow the pace of piracy, since it is impossible to eliminate it altogether, Microsoft and other software makers formed a watchdog and enforcement unit called the Business Software Alliance (BSA), which established a presence for the first time in the Maghreb in 1999. While the BSA’s initiatives to crack down on piracy have yet to be fully felt, it managed to get public sector organizations in the region to fully endorse its licensing and payment rules. In Tunisia, Microsoft is expected to receive TND 7.8 million in 2009 for the software used by the various administrations and ministries. That’s roughly the same in US dollar. The biggest user of Microsoft software in Tunisia is the ministry of higher education, scientific research and technology, which will contributed with a payout of TND 2.4 million. Other top users of MS products are the ministry of education and training (TND 852K), Justice and Human Rights (TND 813K), and others.
For Microsoft, there is also a perception problem. The problem is not a value judgment about the company about as a result of its massive market share and its dominance in key areas of computing technologies. Dominating the operating system market for client PCs is seen by North Africans as a difficult position to accept. And therefore alternatives to Microsoft have long been sought in the region. For instance local PC makers are generally encouraged to deploy the Linux platform. In Tunisia, for instance, there has been a strong open source community advocating for free software. Its members have often been vocal against Microsoft. Media campaigns by pro open source advocates were launch to make their case; including statements that Mozilla Firefox web browser has surpassed Microsoft’s Internet Explorer. This is not a figure The North Africa Journal could confirm.
For Microsoft, these advocates are not just a negligible group of technology militants of the 21st century. Big Tunisian companies have heard the message and have been deploying competing platforms to Microsoft products. The country’s retirement administration Caisse Nationale de Retraite et de Prévoyance Sociale (CNRPS) and power and utility monopoly STEG, are among the many other companies have deployed open source software arguing that it not only saves them in terms of cost but provides a different value proposition than proprietary software. This is obviously an issue that concerns not just Microsoft but all software makers who do not allow access to their codes.