A Market that Probably Shouldn’t Exist

Soon computer viruses, spyware, and other malware may be a thing of the past.

If, that is, you pony up an extra $50 per year to Microsoft. This week, the software giant (obligatory cliche) announced a Windows Live OneCare, which promises to provide subscribers with “round-the-clock protection and maintenance–virus scanning, firewalls, tune ups, file backups, the whole nine yards.” This comes after years of demands from customers that the company shore up its operating systems and focus more attention on security.

Then again, regular major security flaws haven’t done much to erode Microsoft’s market share, and so perhaps there is some justification for making security an add-on service rather than a part of the operating system itself.

But one factor in the decision to sell Windows Live OneCare live, according to several industry analyst, is that Microsoft is aiming to avoid the attention of the antitrust squad. According to at least one commentator, this restrained competition is laudable:

It’s fair to argue that something like OneCare ought to be built into Windows. But think about what would happen next: The competition would probably find its air supply cut off, as people flee from the cost and complexity of adding third-party replacements for something built into Windows. And recent history has shown that Microsoft tends to slack off if it doesn’t feel a competitive threat–witness how Windows Media Player and Internet Explorer stagnated until iTunes and Firefox got Microsoft’s attention.

With OneCare, Microsoft is trying to clean up its own mess while preserving competition. That’s especially important in the security-software market, where many of the companies that have dominated it so far seem to have adopted Microsoft’s worst habits of sloth.

Remember that the ostensible purpose of antitrust law is to protect consumers. When companies become monopolists, the argument goes, they can raise prices and extract undue sums from their customers, while innovation, and the consumer benefits that come with it, stagnates.

But here, it’s consumers that are getting the short end of the stick. For fear of the antitrust boys (and perhaps because the market will bear it), Microsoft has essentially unbundled what was traditionally a part of an operating system–strong security to protect users’ files, networks, and operating environment–and is now selling it as a separate service for $50 per year. (Among UNIX-derived operating systems, for example, including advanced security auditing tools is the norm.) If antitrust concerns are behind this decision, then antitrust is costing security-conscious consumers, by my calculations, $50 per head per year.

That’s protection? It seems more like a protection scheme. One wonders whether Microsoft isn’t exactly upset that it can hint about antitrust concerns as its reason for unbundling security so as to avoid consumer ire.

Even if not in the U.S., Microsoft surely would have run into antitrust problems in the EU, where antitrust authorities are much keener to meddle, especially when a U.S. firm is involved. Recall that the company’s last settlement with the EU gave birth to “Windows N,” a version of the operating system without a bundled media player. (Not surprisingly, “N” has not exactly been a hit with consumers, leading to the joke that the ‘N’ stands for ‘no one.’)

Inadvertently, this time, the antitrust enforcers may have just created yet another version of the popular operating system: Windows NS. ‘NS’ stands for ‘no security,’ and it’s likely the version that you’re using right now.

Better than restrained competition–the sort of term that makes any economist nervous–is plain competition, unburdened by the threat of arbitrary government meddling. Without the antitrust hatchet hanging overhead, Microsoft’s OneCare might well just be a part of the operating system, correcting (perhaps; hopefully?) a series of flaws in the design of its products that have frustrated users for years.

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