Consensus is building among industry watchers that Microsoft will have anti-spyware and anti-virus products on the market for businesses and consumers by year-end.

Many expect Bill Gates to detail such a product rollout during his keynote address at the RSA Security Conference in San Francisco in two weeks. Microsoft declined to discuss that prospect last week.

However, with Microsoft's pending security splash regarded as a fait accompli, anti-virus and anti-spyware vendors are sizing up their chances of withstanding the Redmond giant. Business customers, stocked up on anti-virus but now eager to buy spyware protection, wonder if a Microsoft entry would drive down costs, or if Microsoft - whose software seems to always require patching - really can be counted on as the first responder in worm and virus outbreaks.

"This is a challenge for Microsoft: the inherent conflict of interest in that Microsoft has had to constantly struggle with this need to fix problems in their own products," says Neil MacDonald, a Gartner research analyst. For Microsoft to sell anti-virus and anti-spyware products is akin to "the water company, which has smelly water, selling filters to take the smell out," he says.

Last week the speculation that Gates will make security news at RSA had analysts - including at least one financial analyst, Adam Holt at J.P. Morgan, who predicts Microsoft will have an anti-virus product out in the third quarter - issuing alerts about the prospect.

MacDonald says Microsoft is in a hurry to get into the anti-virus/anti-spyware business if only to provide added protections for its Web browser, which is starting to lose market share to the open source Firefox browser. Firefox is said to have better security protections than Internet Explorer.

Anti-virus and anti-spyware protections are destined to be combined, experts increasingly agree, and Microsoft appears to have signaled its assent recently by acquiring Giant Company Software in December and issuing a free beta version of an anti-spyware product in tandem with a free virus cleanup tool this month.

"It should be a single product, and the anti-virus vendors have dropped the ball," MacDonald says, though he adds that McAfee and Computer Associates are among the few that seem to understand the convergence. "I blame it on the greed and ineptitude of the [anti-virus] vendors," he adds.

IDC also believes that virus and spyware protection will more often be merged into one product, further blurring the line between today's estimated $3 billion anti-virus market and the much-less-mature $47 million anti-spyware market. This consolidation will occur because customers increasingly are demanding a single product to combat viruses, spyware, Trojans, worms and other types of malicious code, says Brian Burke, a senior research analyst at IDC.

Burke says Microsoft can be expected to have an integrated product by early next year.

One anti-spyware software vendor, Webroot Software, rejects the notion that stand-alone anti-spyware products will be ignored as combination products gain traction. David Moll, Webroot CEO, also says Microsoft will find spyware a tough sell because "customers will be faced with an interesting decision about purchasing a security product to protect software from the same company." Moll adds that Microsoft just signed a three-year deal with Webroot to use its technology for MSN subscribers.