Sell its own security products, on the other hand, and Microsoft faces a potential backlash from some of its allies — the companies that now provide an extra layer of security for its Windows operating system, Internet Explorer browser and other products.
With a powerhouse like Microsoft becoming a direct competitor, they could get squeezed out.
What a quandary.
Last week, Microsoft Chairman to both consumers and big businesses by the end of the year. But the Redmond company is mum on cost and features.
Speaking at a security conference, Gates also said the company would give consumers a free tool for combating spyware, a pesky and growing threat that can monitor users' activities, hinder computer performance and create other hassles. Microsoft also will sell a more sophisticated antispyware product to businesses.
Executives in the security industry say they believe Microsoft's promise to continue sharing security information and working with other security companies even after it becomes a direct competitor.
Analyst Gregg Moskowitz with Susquehanna Financial Group said both sides have an incentive to "continue to play nice with each other."
The security companies are dependent on Microsoft to make sure their defenses run smoothly, while Microsoft cannot risk having competing security products break down and wreak more havoc on Windows, Moskowitz said.
"A very significant number of people, if they don't have a good security experience, they're going to hold it against Microsoft — even if they're using another vendor," Moskowitz said.
Still, John Schwarz, president and chief operating officer of Symantec Corp., would rather see Microsoft concentrate on fixing security flaws.
"We believe they'd be better off in focusing on making sure that their platform, the Windows operating system, is less subject to attack," Schwarz said.
Microsoft has worked feverishly to better secure its products, including updating Windows XP with a new firewall and other security measures. But given their widespread use, the products are near-constant targets of attacks that take advantage of loopholes and flaws to hijack computers, steal personal information and cripple businesses.
McAfee Inc. president Gene Hodges calls its new competitor an example of "capitalism at its best."
But he said it will only be a fair fight if all companies have a level playing field in which everyone sells, rather than gives away, products.
Microsoft's move to sell antivirus software appears fair so far, Hodges said, though he said Microsoft's decision to give away an antispyware product could hurt smaller players who can't afford such giveaways.
"We would have rather they entered the market for spyware and competed," Hodges said.
Security companies including McAfee already sell antispyware products, generally charging between $30 and $40, though a few give away versions or trials for free.
Microsoft has downplayed the competitive angle, saying they are simply responding to requests from customers for more protection options. Amy Roberts, a director with the company's security and business unit, said the company is most concerned about people who have no extra protection at all.
Peter Kuper, an analyst with Morgan Stanley, believes Microsoft is most interested in protecting its Windows franchise, not finding a new way to make money.
The security problems are costly and damaging to Microsoft's reputation, he said, and failure to address the threats could drive more customers to competing products such as the Mozilla Firefox browser or Apple Computer Inc.'s Mac OS computers.
"They're not winning the war. They're not winning the battle," Kuper said. "So Microsoft is saying, 'I don't care whether it's free, as long as it's something. That's better than nothing.'"
Kuper isn't expecting Microsoft to immediately snag much market share from Symantec, McAfee and others. But he noted that, while Microsoft may not be looking at security as a big revenue stream, the cash-rich company could easily afford to undercut its competitors.
Symantec's Schwarz said he worries that Microsoft's clout could also discourage smaller security companies from entering the market or staying in it, effectively reducing options for consumers.
Microsoft's prior moves into new markets — including trouncing browser pioneer Netscape by shipping its Windows systems with Internet Explorer, now such a common target of Web-based attacks — have gotten the company in hot water with antitrust regulators in the United States and Europe. But for now at least, some competitors say they aren't planning to take this battle to court.
Symantec's Schwarz argues that his company's products will have an edge, especially with business customers, because they protect more than just Microsoft products. And McAfee's Hodges said he's confident his company's reputation will keep customers loyal.
"I'd rather fight Microsoft in the marketplace because we're convinced we can whip them," Symantec Chief Executive John Thompson said at the security conference where Gates spoke. "So this is not about showing up in Washington or whining on someone's doorstep about what Microsoft can or might do."
By Allison Linn