Microsoft has cut the price of its Windows operating system and Office application suite in Thailand, according to a report released by market analyst Gartner.
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"Microsoft - in response to a Linux threat - recently reduced pricing to $40 (£26) for an Office and Windows package it offered as part of a government initiative in Thailand," said the report.
"Microsoft may offer a similar package in China as an incentive to keep Chinese enterprises using its products," the report added.
Pricing pressures and a backlash against Microsoft's dominance will move the company to offer more competitive pricing in other regions, according to Gartner.
Programmes similar to one launched in May by the Thai government to help low-income earners buy a desktop or a laptop PC with internet access will add to this pressure.
Microsoft initially did not take part in the Thai programme, so the government selected Red Hat's Linux operating system and Sun Microsystems' StarOffice productivity suite.
Price adjustments should start this year and by the second quarter of next year Microsoft will have cut prices by at least half in emerging markets, the research company predicted.
Responding to the report, Microsoft said that it had no plans to expand the Thai programme to other countries. However, the software company is willing to discuss with governments how it can help give underprivileged users better access to modern technology.
Despite an increased effort to battle software piracy, Microsoft faces a flourishing market for illegal software in Thailand. Copies of Windows XP can be bought for $4 and Office XP for $8, according to Gartner.
Hewlett-Packard is selling Linux-based laptops in Thailand for $450 as part of the programme initiated by the country's Information, Communications and Technology (ICT) ministry. Those laptops went on sale in May and HP has described demand as overwhelming.
The Microsoft price cuts in Thailand represent a steep discount compared with the US pricing for Windows and Office. The full version of Windows XP Home can be purchased for as little as $84 (£54) in the US, according to PCWorld.com's Product Finder. The full version of Windows XP Professional can be found for $130.95 and Office XP Professional for $254.
The country-specific price cut in Thailand, the second in Asia this year, represents a further break in Microsoft's long-standing policy of charging the same price for its software in countries around the world.
In 2002, Taiwan's Fair Trade Commission opened an investigation of Microsoft's business practices here, questioning whether the company had abused its dominant position in the market to inflate the prices of its products.
After a six-month investigation that proved inconclusive, the two sides reached a settlement earlier this year, with Microsoft agreeing to cut the price of some of its software products by an average of 26.7%.
Under the terms of that agreement, the price of Windows XP Professional Edition in Taiwan was cut by 23.7% while the price of Office XP was cut by up to 16.9%.
The greatest price reductions came for Windows XP Professional Academic Edition (54.5%), Office XP Academic Edition (50.1%) and Word (42%).
Sumner Lemon and Joris Evers write for IDG News Service