Microsoft aggressive pricing prompts security industry whining

Stan Beer
Saturday, 24 June 2006 14:53

Business IT - Security

An article accusing Microsoft of predatory pricing has the industry observers abuzz with speculation that Microsoft may once again run afoul of regulators. However, unbiased analysts and others with no vested interest in the security market see the accusation raised in the article for what it is - noise and whining from an industry that has been given a free ride on Microsoft's coat tails for the past decade.

The article unambiguously titled "Microsoft Practices Predatory Pricing", penned by Alex Eckelberry, the CEO of anti-spyware vendor Sunbelt Software, appears to even the most casual observer be a self serving exercise in moaning about the inevitable. Of course companies who make a living out selling security products are upset that the company which sells an almost universally used desktop operating system and office productivity software has now entered their market. However, a new entrant pricing a product below the incumbent competition is a long way from predatory pricing.

Before we go any further, we must dispel a glaring inaccuracy in Eckelberry's article. He says, "We already know that Microsoft loses money on most of its business (it primarily makes money on the operating system)." Just to set Eckelberry straight, Microsoft has indeed been losing money in businesses such as games and MSN (now Windows Live). However, a quick glance at Microsoft's last financial statement shows that aside from making a lot of money on its operating system, Microsoft makes about the same amount on its Office suite, as well as half as much again from its database division. Windows contributes less than half to Microsoft's bottom line.

Now back to pricing. If Microsoft was giving away its security software, selling it as a loss or even selling it at a break-even point, we would agree with Eckelberry and join his call for regulatory intervention. However, looking at Microsoft's pricing and the size of its potential security products customer base, it appears fairly obvious that far from losing money on security products, the software giant is going to reap a rich harvest in earnings. That is no doubt very bad news for Microsoft's competitors but good business is not the same thing as predatory pricing.

Eckelberry's best argument that Microsoft is engaging in unsavoury pricing practices is that Microsoft has undercut the main incumbent players by up to 60%. To many cynical users, who have been forced to pay hefty annual fees just to use their computers without being hacked by unwanted intruders, it's about time a new competitor entered the market offering more affordable pricing to consumers. If it was anyone else besides Microsoft entering the market, not so much as a whimper would be heard from the security players.

The past few months has revealed quite a lot about the nature of the security industry. In the wake of the impending release of Windows Vista and Microsoft's entry into the security space, we have seen the industry seen the industry grow progressively shriller and more desperate. Market leader Symantec has taken Microsoft to court and is even trying to prevent the company from bringing Vista to market. Eckelberry has come down hard on Microsoft because not only is its email server anti-virus product Antigen cheap but it includes five anti-virus engines instead of just one! Well, perhaps Microsoft should apologise for bringing out a better security product. And of course, the providers of those anti-virus engines, who license their products to Microsoft, would really be complaining wouldn't they?

Perhaps it's time for some sections of the security industry to stop whimpering about the inevitable fact that there is now serious new competition in their market space and get down to the business of competing. If they don't, then their collective fear of going out of business is likely to become a self-fulfilling prophecy.