[OS] Will Open Source ever oust Microsoft?

Two Harvard Business School Professors say "No". Ramon Casadesus-Masanell and Pankaj Ghemawat explore the fundamental competitive dynamics question in their study, 'Will OSS ever displace traditional software from its market leadership position?'

They said that the one main advantage of OSS is that because users can modify the code directly (as they encounter problems or have new ideas on how to improve it), the development cycle is significantly shorter.

However, OSS has disadvantages too. Most importantly, it comes from behind in terms of market share (installed base). Because the value of an operating system depends critically on the number of users, traditional software has an advantage.

Their paper introduces a dynamic mixed duopoly model in which a profit-maximising competitor (Microsoft) interacts with a competitor that prices at zero (Linux), with the installed base affecting their relative values over time. The authors use a formal model to ask what conditions are needed for Linux to take over Windows. The questions that they addressed are:

• Is Linux's superior demand-side learning sufficient to win out?
• What is the effect of forced procurement by governments and some large corporations on the long-run equilibrium?
• How do cost asymmetries play out?
• Can Microsoft use piracy strategically to improve its market position?

From a managerial perspective, these are significant questions.

There is an interview with the report's authors here