That’s the chief conclusion of a study authored by two professors at the Harvard Business School, Pankaj Ghemawat and Ramon Casadesus-Masanell. Entitled “Dynamic Mixed Duopoly: A Model Motivated by Linux vs. Windows,” the paper constructs a theoretical model to examine the Linux-Windows shoot-out. It analyzes the competition between the two OS from a market perspective, weighing everything from piracy to software development models.
Though the paper’s conclusion favors Windows, it makes no judgment that Microsoft’s OS is better technologically.
Rather, Dr. Casadesus-Masanell tells Datamation, “The model tells us that even if Linux is potentially a much better product than Windows, if Microsoft takes advantage of the power of the installed base (direct and indirect network effects), then the superior product may never become the preferred choice.”
The market battle between Linux and Windows calls to mind an earlier competition between Wintel and Macs, he says. “Most people would say that Macs were, and still are, better machines. Apple’s market share in personal computers, however, is negligible compared to that of Wintel.” The implication is that market factors, not an OS’s inherent quality, makes or breaks its success in the long term.
“The difference is that ‘Linux’ competes with a very different business model (than Apple or Microsoft itself), but Microsoft’s advantage seems too formidable, at least in clients,” he says.
Open Source Advantages
The Harvard study notes that Linux has plenty of critical advantages in its competition with Windows.
For instance, some governments and corporations are committed to purchasing and/or promoting Linux. In Casadesus-Masanell’s view, governments choose OSS (open source software) because its open code allows them to double check that sensitive information is being handled securely. Corporations – he cites IBM – promote OSS because it acts to lessen Microsoft’s market strength.
Any uptick in OSS’s popularity implies skinnier profits for Microsoft, the study says. Therefore, the larger the price differential between Windows and Linux (with Linux being cheaper), the more precarious is the continued success of Windows, according to theory.
Linux’s chief technological advantage is what the study calls “demand-side learning,” which means its source code can be endlessly modified by users in response to changing needs.
“OSS is thought to harness demand-side learning more effectively than traditional “closed” models by compressing development cycles, leading to the testing of more use combinations, and providing more of an incentive for users to report problems or fixes than ‘closed’ models,” the study notes.
But, says Casadesus-Masanell, while the model suggests that rapid demand-side learning and a more robust architecture should result in the growth of Linux, these advantages aren’t enough to allow it to dominate the market.
Next page: FUD Plays a Role
The study suggests that Linux’s market acceptance may be hampered by the use of fear, uncertainty, and doubt (FUD) tactics directed at it by Microsoft.
For example, notes the paper:
“Such emotions were stirred in the Linux community by, among others, SCO, a small ‘vulture’ firm that had bought up the intellectual property rights to a particular version of Unix and was threatening Linux users with lawsuits over infringement of those rights unless they agreed to pay it substantial licensing fees. IBM, which was one of the prime corporate sponsors of Linux as well as the target of a lawsuit by SCO…alleged in mid 2003 that SCO was in cahoots with Microsoft.”
The study also quotes an interview with Microsoft chief executive Steve Ballmer, who used FUD in an effort to denigrate the reliability of OSS:
“Customers will never know what to expect from this product [Linux]. If the lead developer for this component chooses to do something else with his life, who will carry on the mantle for that?”
Yet, the study states, FUD has its limits. “Microsoft’s efforts to instill fear are to some extent offset by the users’ and developers’ concern that Microsoft may decide to raise prices in the future if it succeeds in derailing the progression of Linux.”
Pricing and Piracy
In Casadesus-Masanell’s view, Microsoft’s greatest competitive advantage comes from a combination of its greater installed base and its ability to strategically price its products.
If Microsoft were to lower the price of Windows, the demand for Linux would fall low enough so that it wouldn’t threaten the survival of Windows, the paper postulates. Going further still, Microsoft could choose to distribute the Windows operating system for free – an exceptionally aggressive competitive move.
Yet even this wouldn’t eliminate Linux, because (in the model created by the paper) Microsoft would still be selling its popular Office Suite, meaning cost-conscious developers would still have an impetus to create and use Linux.
To those who say that piracy threatens Microsoft competitively, the study says “maybe not” – in fact it might even help the Redmond giant.
There are two types of pirates, the study notes: those who would never have bought the Microsoft product due to cost, and those who would have bought it but instead choose to use an unlicensed copy.
According to study, this first group of pirates actually enlarges the Windows’ installed base without depressing sales – in effect increasing the value of Windows. (That’s likely not an argument that Microsoft would agree with.) The second group of unlicensed users does deprive Microsoft of revenues. However, if the first group is proportionally larger, the net result of piracy will be to boost Microsoft’s profits.
In the paper’s conclusion, its authors note that the study uses a theoretical model that does not fully encompass every factor that might influence the Windows-Linux competition. For example, the study makes no mention of the software development projects in which open source programs run in Windows environments, like Alfresco. To be sure, the real world battle between these two technologies will require years to fully play out.