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Microsoft invades another niche market

This column originally ran in ComputorEdge on July 1, 2005
(Issue 2326, It's a Crime)

Fresh off a bruising loss in the European Union, where it was found to have violated antitrust laws for bundling Windows Media Player with every copy of Windows, Microsoft is now elbowing its way into the anti-spyware camp – with implications for anti-virus vendors, too.

Microsoft has released a beta version of a new anti-spyware program (available from the Microsoft home page under Popular Downloads).

While having another tool to fight spyware and adware may sound like a good thing (just as having Internet Explorer to compete against the then-dominant Netscape browser once seemed good), anytime Microsoft gets into a new niche there are going to be concerns.

Exacerbating those concerns is the fact that Microsoft is (at least for now) giving away its anti-spyware software for free. That can't be making the folks at McAfee or Norton very comfortable. Both of those firms specialize in computer security, and through the years their anti-virus software and firewalls have become the dual standard in that area.

When spyware and adware – programs that install themselves to your hard drive without your permission or knowledge and then secretly track your online activity – appeared on the scene en masse a few years ago, North and McAfee were the logical businesses to develop utilities to locate and uninstall these digital invaders.

With the proliferation of viruses, spyware and adware, McAfee and Norton have had to become proficient and quickly identifying new outbreaks and updating their virus signature files ASAP.

It's a specialty skill, and one they've become (by all accounts) profitable on.

The dangers

But competition is good, right? Having Microsoft in the mix will only ensure that McAfee and Norton do their jobs even better, no?

At first, sure.

The danger, though – especially with Microsoft engaging in the generally illegal practice of price dumping – is that one or both of McAfee and Norton will go out of business, unable to sell enough software to pay their employees.

This is what happened with Netscape – unable to sell their browser once IE was not only free, but pre-installed on every PC with Windows, Netscape's income stream dried up and it was soon acquired for a song by AOL. (Netscape still exists as a division of AOL, and is now retaking market share in browsers from Microsoft, although Netscape is now also a free download.)

The fear that the same thing could happen to Real Networks (publishers of the Real Media Player, the once-dominant audio and video client for PCs) is what led the European Union to issue a finding against Microsoft, forcing the company to sell versions of Windows without Windows Media Player in Europe.

And of course, the only reason Microsoft supplanted Nintendo (however narrowly) as the No. 2 game console manufacturer is because it sells every Xbox at a loss. (You'd think Sony or Nintendo would have sued over this policy, as it certainly seems to be a case of price dumping.)

Microsoft can afford to sell Xbox at a loss, to give away Windows Media Player and Internet Explorer (and now its new anti-spyware software) because Windows is so utterly dominant as the operating system on the dominant Intel platform of personal computers. Windows costs Microsoft almost nothing to manufacturer, and so is wildly profitable – allowing Microsoft to take a bath on other products.

A scary business model

That is, though, the very definition of price dumping – trying to drive your competitors out of business by selling your products at a loss. Then, when the competition is gone, you can jack the prices up to whatever level you like.

While Microsoft defenders point out that IE has never been sold, it should be pointed out that Microsoft's revenue plan there didn't involve selling IE – it involved selling advertising space on the default MSN home page for IE. In addition, Microsoft uses the default MSN home page that IE is set to when it ships to point to its other services, like the Expedia travel service. True enough, end users can change the default settings in IE and never visit MSN again – but how many do?

In a more obvious example, Microsoft Office has become far more expensive than it used to be now that WordPerfect and WordStar are small players in the office productivity niche. With Office the de facto standard, Microsoft can charge whatever it wants – and does.

So the idea of McAfee and Norton going out of business ought to scare anyone with a PC. And given Microsoft's revenue model for IE (that is, making money by charging for placement within the IE environment), how dependable would Microsoft anti-spyware or anti-virus software be? (Hint: It was Microsoft's own scripting language in Office that allowed the Melissa style viruses to be so very deadly and hard to stop.) Who's to say Microsoft wouldn't define your program as being not spyware - for a price? In other words, pay Microsoft a set fee, and your hidden program won't be blocked or erased by Microsoft's anti-spyware software. This is nothing but pure conjecture, of course, but not too far removed from Microsoft's deals with third-party firms when Windows XP first shipped and certain utilities within Windows (such as the photo editor) steered you to specific merchants – who had just happened to pay fees to Microsoft for that honor.

Such a model could be far more lucrative than the honest but painstaking path set out by McAfee and Norton.

And if they're not around to keep Microsoft honest, how will we even know what's slipping through?