China doesn’t need you. Not your software. Not your programmers. Not anything you have to offer.

China mints over 100,000 new software engineers each year. Those engineers are writing an incredible volume of great software. What software China doesn’t develop, it pirates, to the tune of 77% of all software used in China as of 2012. For Western technology vendors already struggling to meet the challenges of open source and cloud, China just made things harder.

Much harder. 

China is challenging the way Western firms make money in China and everywhere else. For those companies that manage to figure out how to do business in China, their future looks very, very bright.

Resisting China

Not everyone wants to play along, of course. Microsoft, for example, has opted to use U.S. state attorneys general to block Chinese firms from doing business in their states unless they pay for their Microsoft licenses. It’s clever, and it may generate billions of dollars for Microsoft, but it ultimately feels like Microsoft is trying to fit a square peg in a round hole. 

China, quite simply, doesn’t think about IP in the same way that Microsoft does. 

As I’ve noted, “like their Indian counterparts, Chinese enterprises seem inclined to pay for complex, proprietary enterprise software that’s more advanced than domestic firms have yet developed.” But this won’t last, as China’s software industry is in warp speed and showing no signs of slowing. China pirates until it can build its own.

But even then, it charges for software differently than in the U.S. Software is either delivered in appliances, the cloud or firms simply charge for support. None of these things can be pirated. 

And each, not surprisingly, is how companies make money with open source.

Open Sourcing China

As captured in J. Aaron Farr’s report on open source in China, Hu Ke, an analyst for CCID, notes that “China’s open source communities are relatively small and don’t have much influence. There is a lack of big projects, few participants, and little money.”

That’s the bad news.

The good news is that companies like Huawei view open source as a strategic priority. For example, while Huawei’s open source page is outdated and weak, it belies what’s actually going on in the technology behemoth. In conversations with the company and with consultants engaged with it, they cite a great deal of knowledge about open source within Huawei, though still a decided lack of know-how when it comes to engaging with open-source communities.

That isn’t likely to last.

For one thing, Chinese biggest Web companies actively embrace open source, a sign of what’s to come. Talk to anyone at Baidu, Alibaba, Weibo and you’ll discover that their software stacks are open source, top to bottom, running on homegrown hardware, not Western name brands. 

In other words, exactly like in the United States and Western Europe.

Take a look at what software the industry’s hottest startups use today and you’ll get a good sense of what China’s mainstream enterprises will use tomorrow, just as is happening in the Western world. And, not surprisingly, much of it is open source.

Selling To China

All of which means the future of China’s software industry will necessarily look nothing like the history of the U.S. software industry. There won’t be companies making billions of dollars selling proprietary shelfware. Intellectual property, in the Western sense, simply won’t factor into China’s tech economy.

Instead, vendors will need to find a way to sell something other than software. Cloud services will succeed. Hardware appliances will, too. Ditto support and consulting services (though at lower margins). Basically, China’s software industry will look like an industry filled with open source and no easy, proprietary crutches. 

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