Microsoft Security Pricing: Predatory or Correctional?

By Ryan Naraine  |  Posted 2006-06-21

Microsoft Security Pricing: Predatory or Correctional?

Allegations of "predatory pricing" are beginning to swirl around Microsofts emergence as a player in the security software space.

On the heels of the software giants release of its Windows OneCare PC care bundle for consumers and a massive rebranding effort in the enterprise security sector, competitors are crying foul, charging that Microsoft is using its financial clout to kill competition and stifle innovation.

Alex Eckelberry, president of enterprise anti-virus vendor Sunbelt Software, went on the offensive on his companys blog, accusing Microsoft of "endangering the entire security ecosystem with ruthless, Standard Oil-style pricing."

Accusations of predatory pricing and unfair competitive practices could spur regulators in the United States and abroad to investigate Microsofts tactics, and Eckelberry suggests that the FTC (Federal Trade Commission) take a serious look at the way Redmond has priced its products way below fair market value.

He charged that predatory pricing is being used as a competitive weapon to drive weaker competitors out of the market.

In an interview with eWEEK following the publication of his blog entry, Eckelberry said he was "astonished" to find that Microsofts pricing for the Antigen e-mail security suite was more than 50 percent below rivals Symantec, Trend Micro and McAfee.

"They are low-balling the entire market," he said.

For Windows OneCare, a consumer application that includes anti-virus, anti-spyware, firewall and data backup features, Eckelberry said Microsoft was coming in between 29 percent and 44 percent lower than incumbents.

"We dont know what Microsoft plans to price Forefront Client Security, but one can assume from their pricing here, its going to be ruthless. What should be disturbing about of this all is that we very well might see Microsoft owning a majority in the security space," Eckelberry said.

In a statement released to eWEEK, Microsoft took a small swipe at incumbent security vendors, insisting that its entry into the market is driven by the fact that a segment of its customers remain unprotected.

"[The] market is full of opportunity for all security vendors to play a role in customer security. Microsoft believes that customers want the freedom to choose the security solutions that work best for them and were committed to seeing the sector stay competitive, with a large, thriving ecosystem of innovative companies," the company said.

David Moll, CEO of privately held anti-spyware vendor Webroot Software, threw his weight behind Eckelberrys concerns, arguing that Microsofts pricing policy is "consistently out of line with the rest of the industry."

"It will be interesting to see the response from the regulatory authorities here and in Europe," Moll said in an interview with eWEEK.

"I expect this to be a bigger issue as Microsoft starts rolling out their product lines. Well be evaluating our [legal] options here in the U.S.," he added.

John Pescatore, research director for Internet security at Gartner, says Eckelberrys numbers doesnt paint an accurate picture of the way anti-virus software is priced, particularly at the retail level.

For advice on how to secure your network and applications, as well as the latest security news, visit Ziff Davis Internets Security IT Hub.

Pescatore said Sunbelts comparison of the Windows OneCare pricing structure--three computers for $49.95, or $16.95 per user--to the cost of competing products fails to take into account the major rebate programs offered by market leaders Symantec and McAfee at the retail level.

"The other anti-virus companies had three-user pricing that was not as attractive because they were trying to get consumers to buy three separate copies to make more money. Symantec and McAfee never priced aggressive in retail store sales," Pescatore said.

Next Page: Rebate programs, bundling deals.

Rebate Programs, Bundling Deals

The Gartner analyst also pointed out that a consumer can get anti-virus software for free in aggressive rebate programs and from bundling deals with OEMs. He said Symantec and McAfee also make lucrative offers to lure consumers into switching anti-virus providers.

"Gartner really doesnt believe Microsoft is doing predatory pricing--they are doing aggressive pricing using the three-user pricing that works out to be not tremendously different than the pricing by anti-virus vendors after you take into account all the [other] tactics like rebates and switching incentives," Pescatore said.

"If the anti-virus vendors had been reducing prices or increasing value, Microsoft would never have had the opening to move into the market. The anti-virus vendors tried to keep margins high, and sell more products every time a new threat came out," he added.

Pescatore said the incumbents have known for at least two years that Microsoft was pushing into the security market and did not prepare properly.

"Weve said long ago there would not be a stand-alone anti-spyware market, that anti-virus and anti-spyware were basically the same thing. The market has generally gone this way, and the few remaining anti-spyware vendors are finding this out and struggling to react," Pescatore said.

Steve Orenberg, president of Kaspersky Labs U.S. unit, said he expects the price war to escalate even more in the coming months as the "Big Three" (Symantec, McAfee and Trend Micro) struggle to maintain market share.

"If you go into any of the major retail stores, you see the usual suspects on the shelf, and theyre all going after the lowest common denominator. Over the last few years, the list price has gone down and down and down. Now that Microsoft is coming in even lower, it will get crazier," Orenberg said in an interview.

Kaspersky is bucking the trend. The company sells its anti-virus stand-alone application for around $60 per PC, and there are no plans to cut prices to compete at the retail level.

"Were going after an educated, technical consumer. We will compete at the technological level and let the others fight over pricing," Orenberg said.

"Microsofts moves really dont bother us. Someone whos buying OneCare is probably not going to buy Kaspersky. Theyll take market share away from Symantec and McAfee. Weve decided to play in a different space," he added.

Check out eWEEK.coms for the latest security news, reviews and analysis. And for insights on security coverage around the Web, take a look at Security Center Editor Larry Seltzers Weblog.

Rocket Fuel