IBM, Microsoft Square Off

As if Microsoft didn’t have enough problems already, along comes IBM to challenge the software giant in the small-to-medium-sized business market, where Microsoft is the dominant vendor.

IBM says its new software offerings will be priced as much as 25% lower than Microsoft’s for key products such as databases and Internet business software. Big Blue also promises lower pricing against Oracle’s database applications for its own DB2 Express for small businesses, which is aimed at businesses in the employee range of 100 to 1,000.

With Microsoft already cutting Office prices because of pressure from Linux, the company’s margins could conceivably come under pressure, a notion that might have seemed far-fetched until very recently.

Which brings us to the long and checkered history of antitrust law, which is full of long-running government actions that were finally settled just as the market changed and the trusts faced new and unforeseen competitive pressures. It’s an old story that may be happening again to Microsoft, which sure makes us think that it’s hard to beat free markets when it comes to regulating competition.

The broader market fell on Wednesday as traders threw a collective tantrum after the Federal Reserve cut interest rates by only 25 basis points, instead of the 50 basis points hoped for by traders.

The Nasdaq slipped 2 to 1602, the S&P 500 lost 8 to 975, and the Dow fell 98 to 9011. Volume rose to 1.44 billion shares on the NYSE, but declined to 1.56 billion on the Nasdaq. Advancers led 17-15 on the NYSE, and 17-14 on the Nasdaq. Downside volume was 58% on the NYSE, and 45% on the Nasdaq. New highs-new lows were 87-11 on the NYSE, and 115-8 on the Nasdaq.

After the close, Manugistics , Research in Motion and 3 Com beat estimates.

During the day, Palm rose 5.7% after beating estimates.

Verity plunged 29% on a warning.

Red Hat rose 5% on takeover rumors.

PeopleSoft and JD Edwards rose as Oracle softened its objections to the companies’ proposed merger, which suggests that Oracle may try to buy the combined company.

EDS fell 7% on liquidity concerns.

ATI surged 17% after beating estimates.

Stamps.com fell 6% after suing eBay .

Jupitermedia , publisher of this Web site, was unchanged after announcing an acquisition.

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