Two-sided competition of proprietary vs. open source technology platforms, and the implications for the software industry

Technology platforms, such as Microsoft Windows, are the hubs of technology industries. We develop a framework to characterize the optimal two-sided pricing strategy of a platform firm, that is, the pricing strategy towards the direct users of the platform as well as towards firms offering applications that are complementary to the platform. We compare industry structures based on a proprietary platform (such as Windows) with those based on an open-source platform (such as Linux) and analyze the structure of competition and industry implications in terms of pricing, sales, profitability, and social welfare. We find that, when the platform is proprietary, the equilibrium prices for the platform, the applications, and the platform access fee for applications may be below marginal cost, and we characterize demand conditions that lead to this. The proprietary applications sector of an industry based on an open source platform may be more profitable than the total profits of a proprietary platform industry. When users have a strong preference for application variety, the total profits of the proprietary industry are larger than the total profits of an industry based on an open source platform. The variety of applications is larger when the platform is open source. When a system based on an open source platform with an independent proprietary application competes with a proprietary system, the proprietary system is likely to dominate the open source platform industry both in terms of marketshare and profitability. This may explain the dominance of Microsoft in the market for PC operating systems.networks, network effects, network externalities, complements, systems, open source software, technology platforms, software industry structure.

Crafting a Systematic Literature Review on Open-Source Platforms

This working paper unveils the crafting of a systematic literature review on open-source platforms. The high-competitive mobile devices market, where several players such as Apple, Google, Nokia and Microsoft run a platforms- war with constant shifts in their technological strategies, is gaining increasing attention from scholars. It matters, then, to review previous literature on past platforms-wars, such as the ones from the PC and game-console industries, and assess its implications to the current mobile devices platforms-war. The paper starts by justifying the purpose and rationale behind this literature review on open-source platforms. The concepts of open-source software and computer-based platforms were then discussed both individually and in unison, in order to clarify the core-concept of 'open-source platform' that guides this literature review. The detailed design of the employed methodological strategy is then presented as the central part of this paper. The paper concludes with preliminary findings organizing previous literature on open-source platforms for the purpose of guiding future research in this area.Comment: As presented in 10th IFIP WG 2.13 International Conference on Open Source Systems, OSS 2014, San Jos\'e, Costa Rica, May 6-9, 201

The impact of commercial open source software on proprietary software producers and social welfare

Purpose: A growing number of commercial open source software, based on community open source, appears in many segments of the software market. The purpose of this study is to investigate how commercial open source software affects the pricing (market share or profit) of proprietary software producer, consumer surplus and social welfare. Design/methodology: To analyze the impact of commercial open source software on proprietary software producer, this study constructs two vertical-differentiation models: the basic model considers proprietary software only competing with community open source software, and its extended one considers proprietary software competing with both community and commercial open source software. Findings: This study mainly finds that the presence of commercial open source software can lead to the decrease of the software price and profit for proprietary software producer, while the consumer surplus and social welfare will be increased. However, it does not necessarily cause the decline in the market share for proprietary software producer. Originality/value: The main contribution of this study is to examine the effect of commercial open source software on the competitive strategies of proprietary software producer, consumer surplus and social welfarePeer Reviewe

AI and Business Model Innovation: Leverage the AI feedback loop

The article analyzes the effects of AI on Business Model Innovation. It shows that AI enables key strategic feedback loops that constitute the core structure of a business model. The article provides a framework and discusses implications for managers and entrepreneurs who seek to leverage the AI feedback loop

Nonbanks in the Payments System: Vertical Integration Issues

We discuss and evaluate the incentives for vertical expansion and vertical mergers in the payments systems industry paying particular attention to the implications of the existence of network effects in this industry. We assess the incentives of large merchants to extend vertically into payments systems, noting that this incentive is maximized when there is significant market power in payments systems and merchants are not sufficiently compensated for the business they bring to the network

Nonbanks in the Payments System: Vertical Integration Issues

We discuss and evaluate the incentives for vertical expansion and vertical mergers in the payments systems industry paying particular attention to the implications of the existence of network effects in this industry. We assess the incentives of large merchants to extend vertically into payments systems, noting that this incentive is maximized when there is significant market power in payments systems and merchants are not sufficiently compensated for the business they bring to the network