In a word, Microsoft’s antivirus strategy is controversial. The company’s historical struggles with security and code stability left many people wondering why the company didn’t make a move into the security product market earlier. Others thought such a move would raise the specter of the US government and possible antitrust concerns. Without a doubt, Microsoft’s moves are being closely watched.
And so, apparently, is their pricing. The boss of Sunbelt Software, a Gold Microsoft partner and longtime software developer for Windows, has publicly said that Microsoft is engaging in predatory pricing. "Microsoft is endangering the entire security ecosystem with ruthless, Standard Oil-style pricing," said Sunbelt president Alex Eckelberry on his company’s website.
Eckelberry argues the case that Microsoft is aggressively discounting its software in order to thwart competition, undercutting the cost of existing products by almost 50%. To arrive at this number, Eckelberry notes that Windows OneCare costs US$49.95, and comes with a three PC license, effectively making the cost $16.66 per computer. Three-license versions of Symantec Antivirus and McAfee VirusScan cost $89.99 and $69.99 respectively, or $29.99 and $23.33 per computer. In the Enterprise market, Eckelberry claims that "Microsoft has priced themselves over 60% less than Symantec," which in his view means that the company "effectively low-balled the entire antivirus industry in one fell swoop."
Eckleberry’s observations need footnoting, however. While it is technically correct to say that OneCare can deliver protection for $16.66 per computer in groups of three, the fact remains that it costs $49.95 for up to three computers. P.F. Chang’s Peking Ravioli may be $8 for four dumplings, but you can’t get one for $2, and you can’t buy OneCare for $16.66. Furthermore, Eckleberry has compared Microsoft’s online pricing to the suggested retail price of the competition, failing to note that McAfee and Symantec routinely offer rebates on their products. The end result is that the suggested retail price competition actually looks something like this: OneCare $49.95, VirusScan $39.99, Norton Antivirus $39.99. The difference comes when you talk about multiple licenses. Symantec, for instance, wants an additional $40 for two more licenses, McAfee $30.
Nonetheless, Eckelberry believes that this situation is more dire than in previous confrontations between the Redmond giant and competing software companies. "There is now a tremendous incentive to hack Windows, because there’s just so much money to be made by the bad guys," he said. "So Vista will get hacked, there will be zero-day attacks, there will be evolving forms of viruses and malware. And Microsoft security products will be targeted. In a world where Microsoft has a hegemony on security, the implications may be far reaching, possibly to our own national security."
Yet not everyone believes that Microsoft’s pricing is unfair, or a threat to security. At the top of that list is Microsoft, unsurprisingly. A company spokesman told Ars Technica that demand for security products is high, hinting that existing products aren’t meeting existing needs.
"With such a large segment going unprotected, the need clearly exists for technology providers to deliver solutions to customers, and the market is full of opportunity for all security vendors to play a role in customer security," a spokesman told Ars Technica. "Our customers have made it clear that malicious software and other Internet threats represent a major problem and they want Microsoft to deliver effective solutions."
In recent years that sentiment has been echoed by many users, some of which have gone so far as to accuse antivirus software makers of developing lackluster products that don’t work as advertised, choosing complacency as the best method for milking their cash cows. Others have bemoaned the increasing bloat of antivirus products which now often include a number of add-on products such as "crash guards," firewalls, and other ancillary features that go beyond strict antivirus protection. Cynics routinely argue that the bloat is used as justification for high prices.
In the end, Eckelberry has connected two separate issues by subtly arguing that one will lead to another, i.e., that predatory pricing will lead to a Microsoft-dominated security landscape, at least for antivirus software. Eckelberry could be right on this account, but at this stage, the cart has been put before the horse. Microsoft has yet to successfully sell OneCare in the marketplace. And while we’re talking about predatory pricing, let’s not forget that there are a handful of free antivirus applications available online, including the very popular AVG Free Edition. And in this new era of Google-Dell bundling deals, you can forget about the sweet OEM treatment. OneCare is going to have to compete on more than price alone, whether on store shelves, bundled deals from OEMs, or online.
In the meantime, we can answer the accusation of predatory pricing. It’s not. To be predatory by the classical definition, Microsoft would have to be a dominant force in the security world, but they’re not. Symantec is (by market share). Furthermore, predatory pricing typically involves the dominant player pricing their products below the cost of competing companies, making it impossible for them to turn a profit. It is not clear that this is happening, however. According to recent financial analysis, McAfee sports a 85.1% profit margin on its operations, while Symantec falls in closely behind at 84%. Both outshine Microsoft’s 81.4% profit margin. The third largest antivirus player, Trend Micro, recently saw an 82% margin. These players are all doing well, to say the least, and it is not apparent whether or not the pricing in question is truly unsustainable. This is especially true on the consumer level, where rebates and bundling deals already rule the day.
Nevertheless, Microsoft has its eyes on the lucrative enterprise market, and the company recently announced its new "Forefront" branding strategy aimed at that market. Branding alone won’t cut it, however. To make inroads into this market, Microsoft will need to convince IT managers that their product can reduce IT headaches that often stem from Windows’ own shortcomings, and that won’t be easy.