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Microsoft tolerated its own pirates
Piracy at scale
In the 1990s and 2000s, more than 90 percent of personal computers in China ran Microsoft software, and almost all of those copies were pirated. The piracy was spread across the whole country on an extraordinary scale.
The Linux threat
Linux, a free open source operating system, was available at the time, and Chinese users were keen on it. If Microsoft had pushed harder to sell more products or to stamp out pirated versions, the thinking went, Linux could simply take the market away. Bill Gates referenced exactly this problem: Microsoft's software finds it easier to compete with Linux when there is piracy than when there is not.
Beijing's response
The Chinese government was already wary of depending too heavily on one foreign technology supplier. It ended up creating its own Chinese open source operating system, even back in the 1990s.
Why does piracy help a dominant software maker?
Software becomes more useful as more people use it, because files, skills, and add-ons pile up around it. Pirated copies still teach people the interface and spread the file formats, so a dominant program grows its user base even when no money changes hands. Economists call the resulting dependence lock-in, and it can pay off later when businesses and governments buy licenses. The industry group BSA, which surveys unlicensed software use, put China's rate above 90 percent in the early 2000s.
How did Linux become a rival so quickly?
Linus Torvalds released the first version of the Linux kernel in 1991 and put it under the GNU General Public License in 1992, which lets anyone copy, modify, and redistribute the code. Pairing the kernel with GNU tools gave the world a complete free operating system by the mid-1990s. In China, the Chinese Academy of Sciences backed Red Flag Linux, which launched in 1999. Red Flag was one of the best-known Chinese distributions of the period.
Why would China want its own operating system?
Governments tend to treat operating systems as infrastructure, because every other piece of software depends on them. With proprietary software only the vendor can read or change the source code, while open source code can be inspected and modified by its users. China's National University of Defense Technology began building the Kylin operating system in 2001 under a national research program. The Kylin lineage later produced commercial desktop and server systems.
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