The Move to the Middle: Convergence of the Open-Source and Proprietary Software Industries

This paper investigates competition between open source and proprietary software. Open source software is divided into two types: free open source and commercial open source. Free open source software can be available from the not-for-profit community, and Commercial open source software is software product based on free open source software. The usability of both free and commercial open source software is assumed to be inferior to proprietary software. It finds that: (i) when commercial open source vendor faces competition from proprietary software and free open source software, it may still be able to obtain profits; (ii) commercial open source vendor's pricing (resp. share or profit) may still be much lower (resp. less) than that of proprietary vendor even if its software functionality is not inferior to proprietary software; (iii) commercial open source vendor's pricing and profit may not increase as its software usability increases; (iv) proprietary software's price decreases with the usability of commercial open source software. Index Terms—proprietary software, open source software, price competition, software features, software usability

This paper analyzes the impact of network externalities on the competition between open source software (OSS) and proprietary software (PS) in a fully covered market. The installed base and the profit of proprietary software are found increasing at the expense of decreasing user base for OSS. Furthermore, we find that a threshold corresponding to the quality ratio between OSS and proprietary software can be derived such that if the network effect intensity of the OSS is greater than that of the proprietary software multiplied by this threshold value, then OSS benefits from the presence of network externality; Finally, we find that making software products compatible with competing rival is not desirable by proprietary software vendors but favored by OSS venders.

PurposeThe purpose of this paper is to educate the knowledge worker on the benefits of using open source software, and to demonstrate how open source methodology promotes the collaborative and innovative attributes of knowledge management.Design/methodology/approachThe author lists the open source initiative's definition for open source products, licensing information, the value of open source in a global economy, misconceived barriers to open source adoption, a functional comparison of open source and commercial software products, and web sites where open source products may be obtained.FindingsOpen source usage is prevalent throughout the world for governmental, business, educational, military, and space exploration purposes. Notwithstanding, some commercial enterprises such as the Microsoft Corporation have viewed the open source movement as a threat to profitability, citing alleged intellectual property infringement violations. However, other commercial entities such as IBM, Oracle, Novell, and Apple computer have embraced open source technology to conduct business operations as well as satisfy customer needs. Public appeal for open source products has been strong enough for Microsoft, through a recent public statement, to disclose that the firm wishes to “build a bridge” with the open source community, an apparent realization that open source is here to stay. The knowledge worker should understand that commercial and open source applications may coexist in the same IT environment.Originality/valueA knowledge enterprise's total cost of ownership (TCO) can be significantly reduced through the use of open source software, resulting in an improvement to overall performance attributed to the collaborative and innovative nature of the open source model. Enterprises can benefit by taking a closer look at how open source technology helps to meet organizational goals and objectives in the most efficient and effective manner available.

By modifying Hotelling model, we research the differentiation decisions between open source software (OSS) and proprietary software (PS) and the location decisions of proprietary software when open source software and proprietary software coexist in a software market. In this paper, we assume proprietary software producer pursues profit maximization and open source software is freely available. The study finds that: (i) Higher (resp. lower) the OSS's learning cost, smaller (resp. greeter) the software differentiation between OSS and PS; (ii) the compatibility degree between open source and proprietary software affects software differentiation; (iii) how the network externality and OSS user's software development skills affect the software differentiation decisions and the location decisions of proprietary software depends on the compatibility degree between PS and OSS.

This study investigates how open source software can play influences on the quality choices of commercial open source and proprietary software providers. It considers two types of open source software: community open source and commercial open source, and assumes that the usability of commercial open source software is better than community open source substitute but inferior to proprietary substitute. It finds that: (i) the functional quality of proprietary software decreases as the functional quality of community open source software increases, but it may increase as the usability of community open source software increases; (ii) even if commercial open source producers must open the source codes of their quality contributions, they have incentive to enhance the functional quality of community open source software; (iii) the influence of community open source software’s quality (usability or functional quality) or commercial open source software’s usability on the functional quality of commercial open source and proprietary software may be not same; (iv) the appearance of commercial open source software may lead to proprietary software producers lowering their software functional quality.

In this paper, we build analytical models to examine the impact of network externalities on the competition between open source software (OSS) and proprietary software. We investigate the competing OSS and proprietary software products with comparable functionalities in four different scenarios depending on whether they are compatible with each other and whether the underlying market is fully covered (i.e., all consumers adopt one of the two products). Furthermore, we study which party has the most incentive to make its product compatible with its counterpart. When the market is fully covered, the installed base and the profit of proprietary software increase at the expense of a decreasing user base for OSS in the presence of network externalities. This competitive imbalance becomes more pronounced when OSS and proprietary software are incompatible and the market is partially covered. Finally, we find that in the presence of network externalities, being compatible with its rival is not desirable for the proprietary software, but highly beneficial to the OSS community.

With the popularity of open source software (OSS) as an alternative to proprietary software (PS), proprietary-software firms such as IBM and Microsoft started to embrace this new paradigm during the past decades. We analyze how firms choose the software development strategy between OSS and PS, by constructing a duopoly model in which consumers sequentially purchase software and complementary services in a market that exhibits an indirect network effect. We show that a PS firm may benefit from the presence of an OSS firm, and the software market can be dominated by a single OSS if the indirect network effect is weak and the cost saving effect of OSS is negligible. We also show that the market can support two OSS if the cost saving effect of OSS is sizeable, and two PS if firms can provide fully compatible services to competitor’s PS. Building upon the existing works that investigate the competition between PS and OSS, this study improves our understanding of the role of OSS in firm’s software development strategy and market equilibrium.

Guest Editorial Open source software: investigating the software engineering, psychosocial and economic issues

Methodology for Public Administrators for selecting between open source and proprietary software

There are two puzzles in the software competition literature: whether both proprietary and open source software will survive and how producers of proprietary software differentiate themselves from open source competition. I address both puzzles by analyzing competition between a firm producing proprietary software and a community producing open source software. If the firm faces no competition, then the software caters to less technologically savvy individuals. When facing competition, the open source software caters to the most technologically savvy individuals, leading the firm to target even less savvy individuals than it would when acting as a monopolist in order to differentiate its software from the open source option. The open source movement, then, may not be an unalloyed success as the growth in open source can be tied to deterioration in the proprietary software. Given that both types of software survive by catering to different segments of the market, an important avenue for research will be to analyze the stability of the underlying segments and the corresponding welfare implications.

Impact of user skills and network effects on the competition between open source and proprietary software

By modifying Cournot model, this paper researches the quantity competition between open source software (OSS) and proprietary software (PS) in a software market exhibiting network externality. We assume open source software is free for users and proprietary software producer pursues profit maximization, and find the following results: (i) the optimal quantity of PS is bigger than that of OSS when the learning (maintenance or development) cost of OSS is high enough, and the opposite situation may appear when the learning (maintenance or development) cost of OSS is low enough, (ii) the optimal price, quantity and profit of PS increase with the learning (maintenance or development) cost of OSS, (iii) the optimal quantity of OSS decreases with the learning (maintenance or development) cost of OSS, (iv) the optimal price of PS decreases with the software development skills of OSS user and intensity of network externality.

By extending Hotelling game model, this paper explores compatible strategies between open source software (OSS) and proprietary software (PS). In this paper, we assume that PS producer aims at profit maximization, OSS producer pursues market share maximization and software user's expectations on network size may be fulfilled or myopic. For each type of user expectation, we study both cases of market fully covered and partly covered. The main findings are following: (i) in the case of myopic expectation, both OSS and PS producers choose maximum compatible degree in equilibrium. This conclusion is true in both fully covered and partly covered markets; (ii) in the case of fulfilled expectation, equilibrium compatible strategies depend on market coverage. When the market is partly covered, both OSS and PS producers choose maximum compatible degree in equilibrium. But when the market is fully covered, PS producer may choose maximum compatible degree or incompatibility as its equilibrium strategy (The choice depends on the learning (maintenance or development) cost of OSS, user's software development capacity and network externality); (iii) how the competitive strategies of OSS and PS producers are affected by the rival's compatible degree may be different in different user expectations (or market coverage).

Introduction Perhaps the business case for adopting open source software is an easy sell. After all, the software is free, and can be simply downloaded from the Internet and installed or customized as needed. Organizations interested in reducing the licensing fees of proprietary software, while also avoiding the penalties and legal liabilities associated with their illegal use, can definitely consider open source software a plausible alternative. However, less obvious than the cost savings but equally important are the barriers ("hidden costs") of adopting open source software. Open source software has created considerable excitement in the business world over the last decade. These applications, designed by groups of volunteer software developers, have the potential to break the current dominance of proprietary software and restrictive licenses for many business applications, reduce software development time and improve software quality, and most importantly, bring much needed software applications within the reach of individuals and small businesses, who cannot otherwise afford such software. Further, unlike proprietary software, open source software applications make their source code available for free, which can be customized to fit the unique needs of specific organizations. Many organizations have caught on to open source software and realized significant cost savings in technology expenditure as a result. For instance, Cendant Travel Distribution Services replaced a $100 million mainframe system with a $2.5 million system running on 144 Linux servers. Amazon.com cut its technology expenditure from $71 million to $54 million by switching to open source applications. Sabre Holdings saved tens of millions of dollars by adopting MySQL, an open source database product. Though the basic open source software is free, the prospect of paid ancillary products and services such as hardware and consulting has motivated many erstwhile proprietary technology vendors such as Hewlett-Packard, IBM, and Sun Microsystems to embrace open source software and offer value-added services based on such software. Table 1 shows an estimated range of the current global market share of several of today's open source software applications. This table shows that though the open source market is large and growing for some application domains such as Web server (such as Apache), server operating systems (such as Linux Server), database server (such as MySQL), electronic mail client (such as Sendmail), and Internet browser (such as Firefox), it is lagging behind its proprietary counterparts in other domains such as client operating systems (such as Linux Workstation), office productivity software (such as OpenOffice), and enterprise resource planning (ERP) systems. This pattern suggests that there may be significant barriers to open source software adoption among some sectors of the user populations. It is widely believed that proprietary software vendors often use fear, uncertainty and doubt to undermine and cut the market potential of their open source competitors. The objective of this paper is to reduce that uncertainty via a candid discussion of the barriers confronting open source software adoption and potential remedies to those barriers. These barriers and their remedies, summarized in Table 2, are discussed in detail.

Adaptive Entry Strategies under Dominant Standards - Hybrid Business Models in the Open Source Software Industry