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.

Linux vs. Windows: A comparison of application and platform innovation incentives for open source and proprietary software platforms+

The paper analyzes and compares the investment incentives of platform and application developers for Linux and Windows. We find that the level of investment in applications is larger when the operating system is open source rather than proprietary. The comparison of the levels of investment in the operating systems depends, among others, on reputation effects and the number of developers. The paper also develops a short case study comparing Windows and Linux and identifies new directions for open source software research.

Decision Support System for Rooftop Solar in the Bronx

This paper proposes a decision support system for the economic and technical feasibility of operating distributed photovoltaics in Bronx, N.Y. Existing research shows that distributed generation (DG) is a more effective way of reengineering the electricity system to integrate more renewable sources compared to a centralized, fossil fuel-based system. The viability of decentralizing electricity production with solar, however, is location-dependent and does not achieve the economies of scale that centralized systems enjoy. To determine the economic feasibility of DG with photovoltaics at a regional level, the system proposed here accounts for the relative cost to consumers and supply of electricity from the grid based on a framework developed by the National Renewable Energy Laboratory. The variables that were considered include regional demand, space capacity, fixed and variable costs to consumers, supply costs, and existing government support programs. Thus, drawing on data reported by the New York City government and other sources, this paper found that rooftop solar is economically feasible with existing government support programs and can reduce overall emissions despite being unable to meet the Bronx’s peak demand. The proposed system can therefore be adopted and used by public and/or private local decision-makers from other similar locations

Decision Support System for Rooftop Solar in the Bronx

This paper proposes a decision support system for the economic and technical feasibility of operating distributed photovoltaics in Bronx, N.Y. Existing research shows that distributed generation (DG) is a more effective way of reengineering the electricity system to integrate more renewable sources compared to a centralized, fossil fuel-based system. The viability of decentralizing electricity production with solar, however, is location-dependent and does not achieve the economies of scale that centralized systems enjoy. To determine the economic feasibility of DG with photovoltaics at a regional level, the system proposed here accounts for the relative cost to consumers and supply of electricity from the grid based on a framework developed by the National Renewable Energy Laboratory. The variables that were considered include regional demand, space capacity, fixed and variable costs to consumers, supply costs, and existing government support programs. Thus, drawing on data reported by the New York City government and other sources, this paper found that rooftop solar is economically feasible with existing government support programs and can reduce overall emissions despite being unable to meet the Bronx’s peak demand. The proposed system can therefore be adopted and used by public and/or private local decision-makers from other similar locations

Linux vs. Windows: A Comparison of Application and Platform Innovation Incentives for Open Source and Proprietary Software Platforms

The chapter analyzes and compares the investment incentives of platform and application developers for Linux and Windows. We find that the level of investment in applications is larger when the operating system is open source rather than proprietary. The comparison of the levels of investment in the operating systems depends, among others, on reputation effects and the number of developers. The chapter also develops a short case study comparing Windows and Linux and identifies new directions for open source software research

The Smartphone as the Incumbent “Thing” among the Internet of Things

The smartphone has been the ubiquitous computing platform in the past decade. However, emerging consumer Internet of Things (IoT) technology trends, such as smartwatches and smart speakers, promise the establishment of new ubiquitous platforms. We model two competing horizontally-differentiated platforms that each offer a smartphone and another smart device. This market diverges markedly from standard mixed bundling results when devices from the same vendor have super-additive utility. We show that the degree of a smart device’s differentiation (relative to the smartphone) is the prime factor determining if it is profitable to deepen integration between a smart device with the incumbent smartphone platform. We provide managerial insights for technology strategy

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

Two-Sided Competition of Proprietary vs. Open Source TechnologyPlatforms 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 toward the direct users of the platform as well as toward 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 market share and profitability. This may explain the dominance of Microsoft in the market for PC operating systems