| Abstract: |
This paper takes an analytical approach to identify the conditions under which
freely available open source software (OSS) and/or the commercial version of
the same (OSS-SS) will adversely affect the market position of proprietary
software (PS), and suggests some strategic steps that the PS vendor can take
in order to compete successfully. For example, we find that in software
markets characterized by low network benefits and OSS-SS with low usability
(relative to PS), open source software will have the dominant market share.
Interestingly, in these markets the profitability of PS vendor, when the
OSS-SS is also present in the market, is higher than its profitability, when
the OSS-SS is absent from the software market. In software markets
characterized by low network benefits and OSS-SS with high usability, PS will
dominate the market in terms of market share. It can maintain its domination
by actively participating in OSS projects and ensuring that OSS is as usable
as OSS- SS. In software markets characterized by high network benefits and
OSS- SS with low usability (relative to PS), we should expect to see the open
source software dominating this market in future. However, PS vendors can
effectively compete by ensuring that PS is more usable than OSS-SS and OSS.
Finally, in software markets characterized by high network benefits and OSS-SS
with high usability, PS faces the maximum threat since open source software
will dominate the market in terms of market share. Furthermore, the
equilibrium price that the PS can charge will not result in positive profits,
thus ensuring the exit of PS vendors from the software markets. However, we
have yet to see a commercial version of open source in this software category
that is as usable as the PS. Therefore, we have not observed the exit of PS
vendors from this software segment. |