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Free Software in Korea: Part One -- The Microsoft Connection

Oct 04, 1999, 06:05 (43 Talkback[s])
(Other stories by Randy Leganza)


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By Randy Leganza, Special Korea Correspondent for Linux Today

When Dwight Johnson of Linux Today asked in late July if I'd consider a doing an article on Linux in Korea, I had no idea the amount of time or the countless e-mails it would require. Even though there had been several recent stories in the Korean English press and the government's announced support for Linux in July, I grossly underestimated the "Linux in Korea" story.

When the Korean government's Ministry of Information and Communication announced in late July that it would "provide government support for the development and proliferation of Linux," it was not only one of the first official endorsements by a national government of the free operating system but one of the largest defeats ever for Microsoft.

To appreciate the Microsoft connection to the Korean government's embracing Linux requires relating events extending over two years. In the end, despite its best efforts, Microsoft Korea would not only fail to dominate the local word processor market it had targeted, it would suspend its "campus license" program and see its president suddenly resign.

These days hardly a week goes by without Microsoft's local ventures being mentioned in the English language Korean dailies. But Microsoft's interest in Korea extends back at least 15 years with a partnership agreement in 1984 and a branch office opening in 1992. Over the years, Microsoft developed relationships with numerous Korean companies.

Bill Gates has traveled to Korea several times. In 1994 Gates traveled to Korea to sign a source code licensing agreement with the Korea Advanced Institute of Science and Technology (KAIST). Then in June 1997 he traveled to Korea again to address the CIO Forum, a support group for Korea's CIOs organized by the Federation of Korean Information Industries.

Microsoft's trouble with the Korean government first began to surface in October 1997 when the Korean Fair Trade Commission announced an investigation into Microsoft's business practices. This investigation mirrored that of the U.S. Department of Justice. (No resolution of this investigation has yet been seen in the local English language press.)

While Korea was struggling in May 1998 to recover from its worst financial crisis in history, Steve Ballmer, then a Microsoft vice president, announced a $77 million software donation to Korean schools and institutions.

Although Microsoft's gift was graciously accepted, some thought it mostly an attempt to get Korean students on the Microsoft gravy train. When queried at the time about making an investment comparable to those made by Hewlett Packard and Intel, Ballmer reportedly said, "We think that an investment in knowledge is more important than any factory." Little did Korea know then what was up Ballmer's sleeve, nor did Ballmer then suspect that Microsoft would end up with egg on its face.

At the time of Ballmer's announcement, the maker of the country's only indigenous word processor, Hangul and Computer Company (H & C), was nearly bankrupt because of the bootleg software market for its product, Hangul. Microsoft negotiated a bailout plan for the ailing company -- in exchange for a Microsoft investment, H & C announced it would cease development of the Hangul word processor and end support for it a year later.

Only a month after Ballmer's announcement of the software gift, the deal was scheduled to be closed when, according to the plan, Bill Gates would fly in for a two day promotional tour.

But as soon as it was announced, there was an immediate public outcry and the deal ran afoul of both the Korean populace and the Korean Fair Trade Commission. Suddenly Koreans saw Microsoft's offer for what it was -- an attempt to monopolize the local word processor market. They took it as an assault on their national pride, a sort of "cultural colonization".

The Koreans had more than just their ire for Microsoft's business tactics on their side. The indigenous Hangul word processor could correctly display more than 11,000 combinations of the Korean language's phonetic characters, as contrasted with Microsoft Word's 2,500. And the Korean word processor could display western fonts as well.

Bill Gates still flew in but left empty handed after a meeting with the Korean President.

A grass roots fund raising campaign quickly began to revive H & C. The Korean Venture Business Association (KVBA) offered $7.3 million to save the company. Approximately two thirds of the investment would come from association members, and the remaining one third would come from contributions by Korean individuals. The company accepted the KVBA offer, wisely created a limited license version with a slashed price to encourage paying customers and called for the Korean government, itself a flagrant violator, to began a campaign against bootleg software.

H & C survived and in September 1998 announced its plan to raise $7.3 million dollars in a public stock offering.

Facing mounting opposition, but not to be out done, Microsoft continued with its aggressive drive to inundate Korean educational institutions with artificially cheap software. In August 1998, Microsoft released a Korean version of Windows 98 to an eager, but often disappointed, public and reported 27,000 copies sold within only the first four days, a figure comparable to Windows 95's sales.

Although Microsoft had not been able to buy out its chief word processing Korean competitor, its marketing machine was undaunted. It vowed to improve the Korean Microsoft Word's ability to display the older Korean characters and began to hype its Korean Microsoft Word 2000 in January 1999.

But Microsoft made a disastrous marketing miscalculation. While the schools and universities were getting bargain basement discounts to entice students onto the Microsoft gravy train, individual software buyers were still paying full price.

In early 1999, local software resellers, squeezed mercilessly from both sides, denounced Microsoft's pricing strategy. The Korean retail marketplace is still mostly a mom and pop operation. These small chains and individual stores could not turn enough volume to warrant the large discounts that retail giants and OEMs obtain. In addition, these resellers were the target of a crackdown on bootleg software. They objected to Microsoft's alleged entrapment of bootleg resellers, a charge denied by Microsoft. The resellers went so far as to hold a rally to protest Microsoft's pricing policy.

Then in mid May, the Korea Times published the results of a survey which reported that "87.2 percent said the Windows operating system is ``unsatisfactory'' but that they have no choice but to use it."

The May 1999 resellers anti-Microsoft protest was accented when Hangul and Computer charged that Microsoft was "dumping," selling its wares at 10% of its market price.

To this accusation, Microsoft responded (according to the Korea Herald), "We introduced the site license program, in which we sell our software package at cheap prices, to the Korean market to help spread the use of genuine software products among students." Microsoft also countered that H & C was guilty of its own accusations because they had slashed their price to less than $10 for their one year license version. The government said it would investigate.

Microsoft finally relented and withdrew its "campus license" policy pending a final decision by the Korean government. Microsoft Korea had now suffered its second setback in its drive to dominate the Korean word processor market.

Amidst all this negative attention, in June 1999, Microsoft released its Korean Microsoft Office 2000. As an answer to H & C's discounted one year license version of Hangul, Microsoft offered the Korean Microsoft Word 2000 with an annual subscription option of under $10. A Korea Herald article claimed it could now process 11,172 Korean syllables, 1.6 million old Korean characters and 27,000 Chinese characters.

Meanwhile, the Korean government continued its crackdown on bootleg software. Even though government agencies were as guilty as everyone else, the crackdown on bootleg software was hurting Korea's schools far more than the government. Many schools were forced to suspend computer classes because they could not afford the software license fees.

The Korean government was under pressure from all sides. Consumers and resellers complained that Microsoft's products were too expensive and that there was no alternative to Windows. The software industry wanted its license fees -- yet this unbudgeted expense was a monstrous burden on both small business and the educational system. Koreans wanted Hangul and Computer to survive -- yet they didn't want to appear anti-Microsoft and alienate another foreign business when their economy badly needed foreign investment.

The logical alternative seemed to be software without burdensome license fees -- enter Linux!

In July 1999, the very same day the Korean Ministry of Information and Communication announced it had formed a group to discuss support for Linux, the JoongAng Ilbo reported Microsoft Korea's President Kim Jae-min had abruptly resigned. Microsoft said the resignation was voluntary but some believed that he was held responsible for Microsoft Korea's failures over the past year. The government soon confirmed its support for Linux saying it would promote its use in public organizations.

Ironically, hard on the heals of this announcement came the release of a Federation of Korean Industries' survey picking Microsoft as the number one business role model, followed by General Electric and Ford.

Was it merely a coincidence that Microsoft Korea's president resigned at the same time the government announced its interest in Linux? No one is saying. Regardless of the government's motivation for supporting Linux, the support is there. Linux and Free Software in Korea is on the move.

[ Next by Randy Leganza: Free Software in Korea: Part Two -- The Linux Side ]
Randy lives in Taegu, Korea and is on his third, most fun and least stressful career. He's the QA/Test guy on a small team supporting a large Solaris WAN integration project, with a few Linux boxes scattered about. He gets to play with computers all day and intentionally break them -- then complain about it, and usually see things get fixed. When he can, he likes to fly airplanes, lift weights, hunt and fish.