It is a marketing technique used when a competitor launches a product that is both better than yours and costs less, i.e. your product is no longer competitive. Unable to respond with hard facts, scare-mongering is used via 'gossip channels' to cast a shadow of doubt over the competitors offerings and make people think twice before using it. 

  

 In general it is used by companies with a large market share, and the overall message is 'Hey, it could be risky going down that road, stick with us and you are with the crowd. Our next soon-to-be-released version will be better than that anyway'. 

  

  

 When [IBM] moved into the desktop market with the launch of the [IBM] [PC], it took FUD tactics along with it. IBM themselves only reckoned on selling around 100 to 200 thousand units of the PC, which were to be sold as an alternative to the APPLE II in 'all [IBM]' companies. It should be remembered that in many respects the IBM PC was an overpriced and retrograde step for the desktop market which had already reached the level of 16 bit multi-user, multi-tasking machines with a good deal of flexibility and inter-operability of hardware. The [IBM] [PC] had non of these characteristics and cost more, but by marketing on the strength of the [IBM] label (stick with us, we are big), the [PC] exceeded all expectations and killed off the existing market. 

  

 Of course the PC story is perhaps more a tale of big name marketing rather than deliberate FUD mongering, but the PC also brought [Microsoft] to the forefront as the supplier of the basic-in-ROM cum disk operating system. [Microsoft] soon picked up the art of FUD from [IBM], and throughout the 80's used FUD as a primary marketing tool, much as IBM had in the previous decade. They ended up out FUD-ding [IBM] themselves during the OS2 vs Win3.1 years.