The Impact of Open Source Software on the Strategic Choices of Firms Developing Proprietary Software

Abstract

Open source software (OSS) is now posing significant competition to proprietary or closed source software (CSS) in several software markets. In this paper, we characterize the response of a firm developing CSS to the presence of an OSS in its market. In particular, we look at the firm's choice of resource investments to improve quality and the firm's pricing decisions. We are primarly motivated by the following questions: Would a firm producing CSS produce higher-quality software when it faces competition from an OSS than when there is no OSS in its market? Would there be a change in the firm's response if the CSS faced competition from another CSS in addition to competition from the OSS? We show that the firm produces lower-quality CSS when it faces competition from an OSS than when it does not. Also, the quality of the CSS decreases as the quality of the OSS increases. This result holds true even if we consider network effects. When we consider competition from another CSS, in addition to competition from the OSS, then the quality of the CSS could increase or decrease as the quality of the OSS increases. The change in quality depends on how closely substitutable the two CSS are. We also extend our base model to consider: i) competition for resources, ii) uncertainty in resources available to the OSS, and iii) uncertainty about the software development process.

The attraction of contributors in free and open source software projects

“…In that case, our study would lose some of its explanatory power in exchange to strengthening its prescriptive nature. Nevertheless, with higher prescriptions, this study demonstrates how opportunities to operate strategically in the (open source) software market exist and may be used to maximize social welfare (Jaisingh et al, 2008). For the latter, governments may reduce software development costs by effectively opensourcing their applications and choosing the most attractive ones to adopt, and countries with less capability to develop software would have easier access to the knowledge embedded in the source code and thus be better equipped to provide services to their populations by relying on what others have made available on the Web.…”

“…To cover these processes, FOSP applications are classified according to domains, or project categories, such as genealogy, payroll, chat, browser and games (Crowston and Scozzi, 2002). The application domain restricts, where a software competes for contributors and their contributions; it is the software industry or niche (Jaisingh et al, 2008). For example, Firefox generally does not compete for users with R, as they operate in distinct arenas.…”

Open source ERP business model framework

“…Real competition between proprietorial vendor products and OSS include Microsoft's IIS software vs. OSS Apache in the Web server software market, MySQL vs. traditional database vendors such as Oracle and Microsoft, and Intuit's Quicken and Microsoft's Money vs. the OSS GNU Cash [11].…”

Relação entre inovação e estratégia: um estudo de caso em uma empresa de TIC

“…Indícios dessas mudanças podem ser observados no aumento da concentração do mercado por meio do grande número de aquisições de empresas, o maciço investimento em pesquisa e desenvolvimento (MOITRA; KRISHNAMOORTHY, 2004), no surgimento de novas tecnologias voltadas à internet, na migração do foco das empresas da produção de hardware para a prestação de serviços (HALKOS; TZEREMES, 2007), no aparecimento do conceito de mobilidade (VILHELMSON; THULIN, 2008) graças a dispositivos como celular, smartphones e tablets, e no crescimento do software livre (JAISINGH et al, 2008).…”

“…Particularmente no que diz respeito ao software livre, este, por meio da formação de comunidades de desenvolvedores que oferecem soluções e produtos equivalentes aos produzidos pelos grandes fornecedores do mercado, a preços mais baixos ou de forma gratuita, se coloca como mais um elemento de significativo poder de competição às empresas de software fechado (JAISINGH et al, 2008).…”