Linux vs. Windows: A Comparison of Application and Platform Innovation Incentives for Open Source and Proprietary Software Platforms Nicholas Economides and Evangelos Katsamakas
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. Keywords: Open Source Software, operating systems, technology platforms, Linux, innovation incentives. JEL Classification: L 10, L86, L3 1.
Open source software is an emerging type of software that may fundamentally affect the business and economic features of the software industry. Linux, an open source operating system, has been the prominent example of the potential of the open source movement, competing against Microsoft Windows, the incumbent operating system.
Nicholas Economides and Evangelos Katsamkas
This chapter analyzes the incentives to invest in application software and an operating system under two different software ecosystems: one based on an open source operating system, such as Linux, and the other based on a proprietary operating system, such as Microsoft Windows. We build a model extending Economides and Katsamakas (2005) to compare the innovation incentives of application developers and operating system developers for Linux and Windows. In our model, firms and developers invest to improve the quality of the platform or the application and expand the demand by users of these software products. When the operating system is proprietary, the platform provider and the application provider invest only in their own product to maximize their profit. When the operating system is open source, there is no platform provider firm, but the users invest in the platform to maximize their user surplus and their development reputation, which depends on the success of the platform measured by its adoption. This modeling approach is justified by other open source research that conceptualizes the users as developers (Franke and von Hippel 2003, von Hippel 2005). Another innovation of our model is that it considers the strategic interaction between the platform developers' investment incentives and the application developers' incentives. We show that this interaction is important and should not affected be ignored in public policy. The existing debate of how innovati0n.i~ by open vs. proprietary platforms (e.g. Lessig 2001) tends to focus only on the innovation incentives of application providers, ignoring the relationship of these incentives with the incentives of the platform provider. Beyond the analysis of investment incentives, we also present a short case study comparing Windows vs. Linux along three dimensions: the client-side, the server-side and the interaction between the client-side and the server-side. We emphasize that the comparison between Windows and Linux is an issue of comparing two competing software ecosystems, not just two products. The existing Windows ecosystem of the operating system, applications, application developers and service providers is competing against an emerging ecosystem centered on the Linux operating system. The short case study enables us to identify directions for future research on open source software. The main findings of our analysis are the following. First, the level of investment in the application is larger when the operating system is open source rather than proprietary, when the two operating...