How open is open enough? Melding proprietary and open ...in953/lectures/papers/RES POL JUL... · 1997). The one exception to IBM’s dominance was in Japan, where by the 1990s IBM

Research Policy 32 (2003) 1259–1285

How open is open enough?Melding proprietary and open source platform strategies

Joel West∗College of Business, San José State University, One Washington Square, San Jose, CA 95192-0070, USA

Abstract

Computer platforms provide an integrated architecture of hardware and software standards as a basis for developingcomplementary assets. The most successful platforms were owned by proprietary sponsors that controlled platform evolutionand appropriated associated rewards.

Responding to the Internet and open source systems, three traditional vendors of proprietary platforms experimentedwith hybrid strategies which attempted to combine the advantages of open source software while retaining control anddifferentiation. Such hybrid standards strategies reflect the competing imperatives for adoption and appropriability, and suggestthe conditions under which such strategies may be preferable to either the purely open or purely proprietary alternatives.© 2003 Elsevier Science B.V. All rights reserved.

Keywords: Open source; Standards competition; Computer architecture; Innovation returns

1. Introduction

The evolution of the computer industry has beendriven by the emergence of standardized platforms thatallow modular substitution of complementary assetssuch as software and peripheral hardware.

The initial platforms were proprietary, in which acomputer systems manufacturer controlled all hard-ware and software layers of the standards architec-ture. These platforms were later challenged by twohardware-independent operating systems—Unix andWindows—which reduced differentiation betweenhardware vendors and shifted platform control tothe operating system vendors. The Unix operatingsystem also inspired a more radical shift, the opensource movement in which Linux allowed users andcompetitors to control a platform’s direction.

∗ Tel.: +1-408-924-7069; fax:+1-408-924-3555.E-mail address: [email protected] (J. West).

These various strategies reflect the essential tensionof de facto standards creation: that between appropri-ability and adoption. To recoup the costs of develop-ing a platform, its sponsor must be able to appropriatefor itself some portion of the economic benefits of thatplatform. But to obtain any returns at all, the sponsormust get the platform adopted, which requires sharingthe economic returns with buyers and other membersof the value chain.

The proprietary and open source strategies corre-spond to the two extremes of this trade-off. In makinga platform strategy for the 21st century, leading com-puter vendors face a dilemma of how much is openenough to attract enough buyers while retaining ade-quate returns.

First I review the theory and history of proprietarycomputer platform strategies, contrasting that with theUnix-based open systems movement. I then exam-ine the origins and motivations of Linux and otheropen source software projects. In three abbreviated

0048-7333/03/$ – see front matter © 2003 Elsevier Science B.V. All rights reserved.doi:10.1016/S0048-7333(03)00052-0

1260 J. West / Research Policy 32 (2003) 1259–1285

case studies, I present the hybrid strategies of threeplatform vendors—Apple Computer, IBM and SunMicrosystems—that combine open source and propri-etary platform strategies in hopes of obtaining com-petitive advantage. Finally, an analysis of these casesis combined with prior research to suggest the theo-retical implications of such hybrid strategies.

2. Proprietary platform strategies

2.1. Dynamics of proprietary platform competition

A proprietary platform consists of an architec-ture of related standards, controlled by one or moresponsoring firms. For a computer system, the archi-tectural standards typically encompass a processor,operating system (OS), and associated peripherals.Some have also extended the concept of a “platform”to include multiple layers of software, such as ap-plications that rely on a “middleware” tool suchas Java or a database (Morris and Ferguson, 1993;Bresnahan and Greenstein, 1999; West and Dedrick,2000).

A platform is but a specific example of the generalclass of technological innovations studied byTeece(1986), who links the ability of firms to profit fromtheir technological innovations to the appropriabilityregime for intellectual property rights (IPR)—eitherthrough formal de jure protection (e.g. patents) orthrough de facto protection such as tacit knowledge ortrade secrets. Absent such IPR protection, firms sellinga given technology can be expected to adopt marginalcost pricing and drive profit margins to zero (Katz andShapiro, 1986; Beggs and Klemperer, 1992). Withoutappropriability,Teece (1986)suggests that firms mustuse some combination of speed, timing and luck ifthey hope to appropriate returns generated by their in-novation.

Teece (1986)also considers those innovations(such as computer systems) that require the provi-sion of complementary assets to commercialize theinnovation. When additional investment is required toco-specialize the asset to be useful with a given inno-vation, the successful adoption of the innovation andthe related assets are mutually reinforcing, providinga positive feedback cycle. Thus, to make a successful“whole product” solution, the owner of the innovation

seeks to attract such complementary assets, in part bysharing the overall returns of the innovation with thethird-party supplier of such assets (Katz and Shapiro,1985; Teece, 1986; Moore, 1991).

The positive feedback, self-reinforcing cycle of suc-cess between a de facto standard and its co-specializedasset success has been termed “network externalities”(Katz and Shapiro, 1985) or “demand side economiesof scale” (Katz and Shapiro, 1986). When such net-work effects are coupled with switching costs be-tween standards and high up front R&D costs,Arthur(1996) predicts that the dominant technology willenjoy “increasing returns to scale” that magnify anearly lead in a technology contest. The instability andself-reinforcing nature of such a lead has often beenreferred to as “tipping” of the contest (e.g.Besen andFarrell, 1994). Liebowitz and Margolis (1999)arguethat actual tipping is rare, and that lasting successis more often explained by production economies ofscale and firm execution.

In the case of computing platforms, most researchhas focused on one particular type of complemen-tary asset, that of prepackaged application software.A computer platform is not, in itself, useful with-out software to solve specific problems. During the1960s and 1970s, large organizations buying main-frame computers typically developed their own customsoftware. However, the advent of the mass-market per-sonal computers attracted many new users unable todevelop their own software, fueling a shift to prepack-aged application software packages (Mowery, 1996).As such, the control of the platform’s complementaryassets (e.g. packaged software) is determined by theability to create and evolve application programminginterfaces (APIs), which specify how application soft-ware must be co-specialized to work with a particularplatform (West and Dedrick, 2000).

Multiple platforms can and have simultane-ously co-existed serving different market segments(Table 1). Bresnahan and Greenstein (1999)arguethat in the US computer industry, new platforms suc-ceeded when they tapped unserved market niches,avoiding competition with established platforms untilthey achieved critical mass. Due to simple economiesof scale, mass-market platforms displaced more spe-cialized products, either by providing lower cost oraddressing a broader range of buyer needs (Morrisand Ferguson, 1993).

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Table 1Major 20th century computing platforms

Category Firm Platform Released

Mainframe IBM IBM S/360(S/370, S/390)

1964

Minicomputer DEC VAX/VMS(OpenVMS)

1977

IBM AS/400 1988AT&T, later OSFa Unix 1980b

Workstation Apollo Domainc 1980Sun Sun OS (Solaris) 1982

8-bit PC Apple Apple IIc 1977Digital Researcha CP/Mc 1976b

≥16-bit PC IBM IBM PC 1981Microsofta Windows 1990b

NEC PC-98c 1983Apple Macintosh 1984

Personaldigitalassistant

Palm Pilot 1996

Microsofta Windows CE 1996

a OS vendor; otherwise, vendors are vertically integrated man-ufacturers.

b Widespread commercial release.c Discontinued.

Firms that successfully establish and maintain aproprietary platform enjoy the right to appropriate thereturns from a success of that platform (Morris andFerguson, 1993). But platform success is necessary butnot sufficient condition for profiting from proprietarytechnology innovation. When competing firms controldifferent layers of the standards architecture, platformleadership is unstable because control of the platformcan shift without disrupting the buyer’s value proposi-tion. In particular, a firm that can take control of accessto the complementary assets has an incentive to do soto capture the returns from the platform (Bresnahanand Greenstein, 1999; West and Dedrick, 2000).

In explaining platform success, economic researchhas focused on demand and supply side economies ofscale, and the broad strategic choices made by spon-soring firms. However, there is also repeated evidencethat operational execution is crucial to the relative suc-cess or failure of individual platforms (Morris andFerguson, 1993; Liebowitz and Margolis, 1999; West,2003). Also, measures of platform success have fo-cused on adoption or market share. The more manage-rially relevant metric would be the sponsor’s net profit

or return on investment from the proprietary techno-logical innovation, although such data is much harderfor researchers to obtain.

2.2. Mainframes: vertically integratedproprietary platforms

In 1964, IBM introduced the world’s first success-ful computing platform, the System 360 (S/360). Akey success factor was the modular architecture thatenabled the use of the same software and peripheralsthroughout the product line, providing interoperabilitythat was missing the product lines of IBM and othercompanies. IBM also leveraged its existing domes-tic market share and global reach to win the largestshare of the global market, vanquishing the proprietaryplatforms of domestic rivals and European nationalchampions (Flamm, 1988; Chandler, 1997; Moschella,1997). The one exception to IBM’s dominance wasin Japan, where by the 1990s IBM held only a 25%share as part of a stable, four firm oligopoly, in whichIBM’s rivals produced clones of the S/360 platform(Anchordoguy, 1989; Ferguson and Morris, 1993).

IBM was a vertically integrated manufacturer ofprocessors, systems, peripherals and software for theS/360 platform and its System 370 (S/370) and Sys-tem 390 (S/390) successors. The pattern was repeatedby Digital Equipment Corp., which introduced a se-ries of minicomputer platforms, culminating with itsmost successful offering, the VAX 32-bit minicom-puter (1978) with its proprietary VAX-11 processorand VAX/VMS operating system. DEC dominated UStechnical markets, although IBM led business mar-kets with its AS/400 minicomputer (Bresnahan andGreenstein, 1999).

Late entrants had trouble gaining market share fortheir innovations due to switching costs between theproprietary platforms (Greenstein, 1997). A majorcost in converting from one platform to another wasdue to application software, which had to be special-ized to fit each platform’s APIs. In the 1960s and1970s, this tended to be software custom developed tomeet the firm’s particular needs, but subsequent buyershifts to using off-the-shelf packaged software shiftedthe conversion cost from users to third-party softwaresuppliers.

Chandler (1997)argues that the concentration ofthe global mainframe industry was consistent with the


pattern of other capital-intensive industries, in that thehigh entry costs allow the pioneer and early chal-lengers to form a stable oligopoly.Bresnahan andGreenstein (1999)attribute such oligopoly to the ef-fect of endogenous sunk costs in rewarding scale; theirmechanisms and predicted outcomes correspond toArthur’s (1996)formulation of increasing returns toscale.1

2.3. Personal computer brings horizontalplatform control

As with mainframes and minicomputers, the per-sonal computer industry attracted many new entrantsthat tried and failed to establish successful platforms.However, there was one crucial difference: the 1971invention of the microprocessor dramatically loweredthe cost of entry and also led to platform convergenceas a large number of systems makers purchased pro-cessors from a shrinking number of microprocessorvendors. During the initial 8-bit era, the PC indus-try used two different platform strategies. One groupused the Intel 8080 (or compatible) processors alongwith CP/M, a proprietary operating system licensedto many computer makers. The other group boughtan inexpensive processor and then designed their ownsoftware to run on top of it. Application software waseither designed for CP/M APIs, or for one of the pro-prietary platforms.

Seeing the growth of the PC market, and worriedabout ceding market control to early pioneers, in1980 IBM launched a crash project to build a 16-bitPC. IBM’s mainframe power and reputation assuredthe success of the IBM PC, which also rendered 8-bitPCs obsolete. The IBM PC standard soon dominatedthe world, except in Japan where NEC’s proprietaryPC-98 dominated the market from 1983 to 1995(Chposky and Leonsis, 1988; West and Dedrick,2000).

As with CP/M, IBM’s PC architecture used botha processor and operating system from outside ven-dors. When coupled with its unexpected legal defeatson ROM copyrights, IBM lost control of its platform

1 The Bresnahan and Greenstein formulation also identifiesplatform-specific investments in providing market stability, corre-sponding toTeece’s (1986)earlier analysis of specialized comple-mentary assets.

as other firms produced “clone” computers that ranthe same application software (Langlois, 1992). Forthe next decade, IBM spent billions of dollars on pro-prietary technologies in an unsuccessful attempt tore-assert its leadership of the PC industry.

Instead, the “IBM PC” platform gradually began tobe termed the “Wintel” platform, an acknowledgmentthat the proprietary platform control rested with Mi-crosoft (Windows) and Intel. Both firms enjoyed thebarriers to imitation provided by economies of scalefor R&D and network effects through software supply(Arthur, 1996). Grove (1996)argues that the resultanthorizontal specialization of the PC industry is moreefficient (and thus more durable) than the verticallyintegrated structure, because it allows for the producerof each layer to achieve economies of scale by servingthe broadest possible market.

2.4. Workstations: Unix and open systems

The horizontally specialized platform strategy pre-dates CP/M and MS-DOS, but instead began withAT&T’s Unix operating system. Unix began in 1969with minicomputers, helped create the new work-station platforms of the 1980s, and later became animportant multi-vendor, multi-product mainframeplatform. Unix eventually evolved into a new form ofopen non-proprietary platform standard, often referredto as the “open systems” movement (Gabel, 1987).

As with any other operating system, Unix wasnot a complete platform specification, because eachhardware system might have different processor andperipheral interface standards (Table 2). However,Unix quickly evolved into a portable OS that tendedto “hide” the differences between hardware fromsoftware applications, and so could present a set ofcommon APIs across widely divergent hardwareimplementations. The task was aided by the C pro-gramming language which served as a highly efficientsubstitute for hardware-dependent assembly language.

AT&T was restricted from selling computer prod-ucts by a 1956 anti-trust settlement, so in the first 15years Unix was limited to internal use, research uni-versities, and a comparatively small number of usercompanies and hardware vendors that bought sourcecode licenses. AT&T eventually spun-off Unix intoa separate company, which was sold to Novell andlater SCO. In the 1980s, Unix became the preferred


Table 2Ownership of achitectural layers for representative computer platforms, 1990

Product Platform

Vendor Product Segment Applications OS CPU

IBM S/390 Mainframe Own, third party OS/390 (own) ES9000 (own)DEC VaxStation Workstation Own, third party VMS (own) CVAX (own)DEC VaxStation Workstation Own, third party Unixa (third party) CVAX (own)Sun SparcStation Workstation Own, third party Unixa (third party) Sparc (own)Apple Macintosh PC Own, third party Mac OS (own) 68030 (third party)IBM PS/2 PC Own, third party MS-DOS (third party) 386 (third party)Compaq DeskPro PC Third party MS-DOS (third party) 386 (third party)

a Licensed from a third-party supplier but with proprietary extensions.

operating system for computer workstations andalso won significant market share in minicomputers,high-end computer servers and supercomputers.

In some ways, AT&T’s Unix strategies in the 1980sparalleled those of Microsoft with MS-DOS and laterWindows. By licensing their operating systems to mul-tiple hardware vendors, each made their platform ubiq-uitous by reducing switching costs and differentiationbetween hardware vendors. Both operating systemsshared APIs across multiple hardware vendors. Aswith even the most proprietary computing platform,UNIX and MS-DOS were “open” to third-party soft-ware suppliers, utilizing APIs widely disseminated tomaximize software availability.

Unix and Windows were also similar in that theshared OS nearly eliminated the antecedents ofArthur’s (1996) typology—economies of scale, net-work effects and switching costs—that might lead topositive returns to scale, and thus tip the market sharecontest to a single winner among computer manufac-turers.2 The lack of such factors made it unlikely thatany manufacturer would enjoy market dominance.In Unix workstations, most of the market was frag-mented among four major firms—Sun, IBM, HP and

2 For both Unix and Windows machines, the computer makersspent little on operating system research and development, elimi-nating that as a source of economies of scale. The shared APIs alsoprovided access to the same complementary assets and reducedswitching costs between computer makers. Between “Wintel” ma-chines, the complementary assets were identical and switchingcosts negligible; for Unix workstations, the processor differencesand proprietary API extensions slightly increased the switchingcosts for users and suppliers of application software, but weremuch lower than between proprietary platforms.

DEC (later Compaq)—none of whom captured morethan a 35% market share.

However, in the 1990s Unix and Windows differeddramatically in the control of their APIs. Windows re-tained its proprietary APIs under the control of a singlefirm which produced the only implementation, allow-ing it to enjoy monopoly rents. Meanwhile, de factocontrol of the Unix APIs had shifted to various in-dustry committees and consortia in the “open systemsmovement”, which published vendor-independentstandards such as POSIX, OSF/1 and X/OPEN. Whilethe trademarked “Unix” was all derived from AT&T’sIPR, the “open systems” evolved into multiple inde-pendent implementations—including several “opensource” implementations—each compliant with theaccepted POSIX specification. Thus, the open systemsmovement reflected an evolution of platform strate-gies that reduced the ability of any individual firmto obtain control or differentiation for their platform(Table 3). However, the subsequent “open source”movement took this to the next level.

2.5. Assessment

After IBM succeeded with its S/360 platform, rivalcomputer makers sought to emulate IBM’s verticallyintegrated proprietary platform strategy. Positive re-turns to scale meant the winning proprietary platformenjoyed high barriers to imitation and thus high prof-its. Vertical integration allowed a firm to appropriatethose profits without having to share them with otherfirms. But when a single platform (like the IBMS/360) enjoyed sustained market share dominance, ri-vals had trouble competing with a vertically integrated


Table 3Representative platform IPR strategies, 1990

Platform strategy Sponsor Multiplehardwarevendors

MultipleOSvendors

Sourcelicensing

PublishedAPIs forthird-partysoftware

API control Products

Most openVertically integrated

proprietaryHardwarevendors

No No No Yes Hardware vendor IBM S/360, DECVAX, Macintosh

Horizontal proprietary Microsoft Yes No No Yes Software vendor Windows 3.0Unix AT&T Yes No Yes Yes Software vendor System V

Most closedOpen systems Consortia Yes Yes Yes Yes Consortium OSF, X/Open

proprietary strategy: with a smaller share, they lackedminimum efficient scale to cover the fixed R&Dcosts.

As an interim measure, firms procured non-criticalcomponents (such as memory and peripherals) fromcommon suppliers, developing a proprietary proces-sor and operating system to provide differentiation.However, such component sourcing did not addressthe processor and OS R&D costs, and still leftmarket share laggards at a significant disadvantagedue to fewer complementary assets (typically soft-ware) and switching costs faced by most potentialusers.

So over the longer term, minor computer makerstried various strategies to pool R&D and the supplyof complementary assets across multiple producers;these strategies also allowed firms without proprietaryplatforms to enter new markets. One such strategy wasto buy the crucial OS or processor from external pro-prietary vendors (such as AT&T, Microsoft or Intel).Another was to form a multi-vendor consortia (e.g. theOpen Software Foundation) to pool technology amongvendors. By sharing some (or all) of their platform,they enjoyed better adoption but risked intra-platformcompetition that limited their ability to profit from theplatform success, even for firms (like IBM) that hadbeen the platform’s original innovator.

While these newer platform strategies gave com-puter users lower switching costs and higher bar-gaining power, buyers still fundamentally licensedtechnology that was owned by computer vendors (ortheir alliances)—owners that could set the terms andpricing of the technology, as well as the schedule for

enhancements and error correction.3 This relationshipfundamentally changed with the emergence of “opensource” computing platforms.

3. Emergence of open source platforms

In developed countries, software enjoys strong intel-lectual property rights protections in the form of tradesecrets, copyrights and (most recently) patents. Theability to create and modify software products is gov-erned by the access to the source code, which is whyfor-profit software developers have historically treatedsuch source code as a closely guarded trade secret.

So-called “open source” software represents the an-titheses of a proprietary technology strategy. Ratherthan using formal IPR protection to set boundaries be-tween vendors and their competitors and customers,open source enlists all as collaborators, maximizingadoption throughout the value chain but minimizingthe options for appropriating rents from the software.

The success of the open source movement reflecteda confluence of three factors in the mid-1990s (Westand Dedrick, 2001):

• users seeking an inexpensive Unix implementationfree of AT&T licensing restrictions;

• a philosophical movement rejecting the idea of soft-ware ownership and appropriability;

3 The open systems standards-setting consortia included repre-sentatives of major computer buyers, but the deployment of newtechnologies implementing these standards remained under thecontrol of the computer makers.


• emergence of the Internet as both an enabler andobjective for collaborative software development.

3.1. Linux and other Unix-like platforms

In the 1980s, the Unix platform had three main at-tractions for programmers: it ran on inexpensive mini-computers, was hardware independent and provided astate of the art environment for software development.Thus, it was a natural target for those who eventuallydeveloped “clone” operating systems.

In 1984, Richard Stallman left his job as an MITprogrammer to develop a free Unix-like operating sys-tem. He founded Project GNU, which by 1990 hadproduced a variety of software development tools, butlacked the essential core of a modern operating sys-tem, a kernel (Stallman, 1999). Efforts to develop akernel had first been delayed by work on other com-ponents, and then floundered for several years withoutstrong leadership.

Two groups used the GNU tools as the basis forassembling complete and free Unix “clone” operat-ing systems. In 1991, Linus Torvalds began writing aUNIX-compatible operating system for his new PC,and solicited others to join in his efforts. By early1993, a version of Linux was freely available fordownloading on the Internet (Varhol, 1994; Torvaldsand Diamond, 2001).

Meanwhile, from 1990 to 1992 a Unix team atthe University of California, Berkeley solicited out-siders to volunteer to rewrite components for its BSDUnix using only the published APIs (and thus notviolating the copyright and trade secrets of AT&T’ssource code). This in turn spawned a series of BSDimplementations primarily aimed at PC hardware:NetBSD (1993), FreeBSD (1993) and OpenBSD(1996) (McKusick, 1999; West and Dedrick, 2001).

By relying heavily upon the Project GNU compo-nents, both the Linux and various BSD teams deliveredfree Unix-compatible operating systems originally ori-ented at personal computer hobbyists. Through costand flexibility advantages, they gradually supplantedother Unix distributions for Intel-based personal com-puters, and also enabled such PCs to be used as reliableservers by organizations. Despite contrasting strate-gies for control and IPR, both the Linux and BSDgroups became forerunners of what later was namedthe “open source” movement.

3.2. “Free software” versus “open source”

In his academic computing career, Stallman cameto expect a computing environment where usersshared software and could make custom modifica-tions (Moore, 2001). Such sharing had also existedbetween some large computer sites, through com-puter user groups like SHARE (for IBM users) andDECUS (for Digital Equipment Corp. users), and ina few publicly distributed software programs such asthe TENEX operating system and the sendmail mailserver. In launching Project GNU, Stallman promoteda philosophy diametrically opposed to the norms ofproprietary commercial software. Extending by anal-ogy the traditions of pooled scientific research and thefree dissemination of ideas, Stallman argued that allsoftware should be “free software”, with source codethat can be read, modified and redistributed (Zachary,1991; Stallman, 1999).

Some but not all of Stallman’s goals were sharedby other developers of free software. By 1998, Linuxand other technologies had become popular butStallman’s ideology had won only limited commer-cial support. To promote adoption by business usersand third-party developers, firms that sold Linux- andGNU-related support and services met to promote amore business-friendly concept of collaborative soft-ware development. They labeled their common vision“open source” (DiBona et al., 1999, p. 3).

Unlike for proprietary software, for both “opensource” and “free software” the source code andexecutable component are freely distributed. Bothcan be freely downloaded from the Internet, eventhough some users decide to buy a distribution ontape or CD-ROM. And in both cases, consulting, sup-port and training services can and are sold withoutrestriction.

The major difference is that “free software” pro-hibits ex post appropriation of the technology: anyderivative works must also be distributed as “freesoftware” and all changes returned to the originalauthor for subsequent redistribution.Stallman (1999)argued that this is essential to prevent firms frommaking minor improvements to free software andthen using it as a way to attract users to their non-freecommercial upgrade. The Project GNU tools and theLinux OS were distributed under the restrictions ofthe so-called GNU Public License (GPL).


Meanwhile, “open source” projects did not imposeany such restrictions, allowing individuals or firms tocustomize and combine open source software as theydesired; however, the profit potential of minor im-provements is limited by the availability of the freealternative. This form of source code license was de-veloped by the BSD Unix clones and the Apache webserver, and was later emulated by other projects thatused “BSD-style” or “Apache-style” licenses (Westand Dedrick, 2001).4

The two licenses differ in their competitive im-plications. A developer releasing source code with aBSD-style license grants the most rights, in that others(including competitors) can modify and use the soft-ware as they please. Using the GPL levels the playingfield: all users are required to share any subsequentchanges, eliminating the ability of any party (includ-ing the original owner and any competitors) to differ-entiate their offerings through software enhancements.

They are similar in that for both licenses, a softwaredeveloper voluntarily surrenders the ability to appro-priate the returns from its R&D in hopes of winninggreater adoption. Although they cannot directly profitfrom such software, developers could use free soft-ware as a complementary asset to help sell hardware(or other software), or could use it to sell assets com-plementary to the free software—such as consulting,support and training.

4. Context for the study

This study examines the decision by proprietaryplatform vendors to release and support open sourcetechnologies as part of their platform strategies in theperiod 1995–2002 (Table 4). The field study and anal-ysis of secondary data were intended to explain thissomewhat paradoxical development. Was it a tempo-rary phenomenon tied to a particular time and place,e.g. the importance of supporting Internet standards?Was it a desperation phenomenon for firms that wereeventually destined to fail—as happened during theearly 1990s when failing minicomputer makers aban-doned their proprietary OS to adopt open systems? Orwas this a sustainable and ongoing business model for

4 Henceforward, I use “open source” to subsume both theBSD/Apache-style licenses and GNU-style “free software” li-censes.

makers of computer hardware and integrated comput-ing platforms?

The study considers three companies—Apple, IBMand Sun—that historically had promoted verticallyintegrated platforms differentiated by proprietarysoftware in (respectively) the PC, mainframe andworkstation eras. As these proprietary strategies be-gan to falter, each eventually employed open sourceto revitalize their strategies. At the beginning of thestudy, there were two obvious similarities between thethree companies: all three faced serious competitivepressures from Microsoft, and all three faced a chal-lenge in formulating “open” strategies that nonethe-less allowed them to retain one or more sources ofcompetitive advantage.

4.1. Responding to the Microsoft challenge

The reality in the late 1990s was that a single com-pany dominated the IT industry: Microsoft. While itshared the “Wintel” platform control with Intel, unlikeIntel Microsoft did not have a competitor in supplyingPC manufacturers. Microsoft also played a major rolein PC application software, server operating systems,server applications and an increasing role in mobiledevices.

IBM, Apple and Sun sought new strategies to re-spond to pressure from Microsoft. With its PC, IBMhad relinquished industry leadership to Microsoft;Apple had traditionally been Microsoft’s primarycompetitor in 16-bit PC platforms; and Sun found itscore workstation and server business threatened byMicrosoft’s attempts to expand beyond the PC.

Many hardware vendors had benefited fromMicrosoft’s technical leadership. Firms such as NCR,Siemens, and Unisys sold computers built on com-modity components, focusing on a particular geo-graphic or market niche. Other companies such asDell and Fujitsu obtained advantages of distributionor operational efficiency that enabled them to flourishin commodity markets (Kraemer et al., 2000).

But such was not in the “organizational DNA” ofthese three focal companies. IBM had led the computerindustry for 30 years, supporting the huge infrastruc-ture of world’s largest computer company. Similarly,as the only surviving PC startup of the 8-bit era, Ap-ple had from its birth pursued a go-it-alone strategy.Finally, Sun, while building upon the success of Unix

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Table 4Open source platform milestones, 1995–2002

Date Industry Apple IBM Sun

May 1995 Pre-release Java posted for freeInternet download

October 1995 Starts working on MkLinux forPower Macintosh

March 1996 Licenses Java to Microsoft

May 1996 Releases MkLinux, gives away20,000+ CDs to ISVs

October 1996 Sues Microsoft over “polluted” Java

December 1996 Buys NeXT to adaptMach/BSD-based OS

Announces “100% Pure Java”initiative

June 1998 Announces use of Apache acrossentire server line

July 1998 Torvalds on cover ofForbes Ends work on MkLinux

September 1998 Microsoft lists Linux as a threat inSEC filing

Announces DB2 will support Linux

November 1998 Microsoft “Halloween” memo stirscontroversy

Abandons ISO/IEC JTC1 Javastandards effort

December 1998 German IBM engineers port Linuxto S/390 mainframe

Introduces Sun Community SourceLicense, plans to release Javasource code

December 1998 Announces open source for JikesJava compiler

Announces support for Linux onUltraSparc CPUs

February 1999 Java 2 source code posted underSCSL

March 1999 IBM, Compaq, Oracle and Novellinvest in Red Hat

Announces Darwin open source OSand Apple Public Source License

Supports Linux for workstationsand PC servers

May 1999 Releases Darwin source code onApple web server

Certifies 4 Linux versions for PCservers

July 1999 Releases DB2 for Linux

August 1999 After IPO, Red Hat reaches US$ 4billion market cap

Buys StarOffice, reveals plans torelease source

September 1999 Launches developerWorks opensource site

Releases SPARC chip design underSCSL

October 1999 Microsoft posts “Linux Myths”page, attacks Linux

Announces it will release Solarisunder SCSL

December 1999 Abandons ECMA standards processon Java; Resells Red Hat Linux

February 2000 Posts its Linux for S/390 for freedownload

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Table 4 (Continued )

Date Industry Apple IBM Sun

August 2000 Open Source Development Labfunded

Releases tools under IBM PublicLicense

Replaces own GUI with opensource GNOME

September 2000 Releases public beta ofDarwin-based Mac OS X

Purchases Cobalt, maker of Linuxserver appliances

October 2000 Posts StarOffice source underLesser GPL license

November 2000 Red Hat drops Linux support forSun systems

December 2000 Announces IBM will spend US$ 1billion on Linux in 2001

Releases Solaris source under SCSLlicense

January 2001 Settles Java lawsuit with Microsoft

March 2001 Microsoft launches “Shared Source”initiative

Ships Mac OS X, based on Darwinand FreeBSD

Launches “Peace, Love and Linux”ad campaign

June 2001 Microsoft CEO Ballmer says“Linux is a cancer”

Hires FreeBSD co-founder

November 2001 Launches Eclipse open sourceconsortium

April 2002 HP wins Linux-basedsupercomputer contract with USDepartment of Energy

With non-profit Internet SoftwareConsortium, co-sponsorsOpenDarwin.org

May 2002 Retails StarOffice for US$ 76

September 2002 Red Hat Linux expands support toall IBM servers

Introduces LX series Linux-basedPC servers


and the open systems movement, had sought to differ-entiate itself by having the most complete and fullyfeatured Unix-based operating system.

Until the rise of the IBM PC “clones”, IBM hadlargely controlled its own destiny through propri-etary architectures. However, to win allies for theirde facto standards, IBM—and to a lesser, degree Sunand Apple—had tried to lead formal and de factostandards organizations to support their respectivetechnology initiatives, as with IBM’s DOS/V PCstandard in Japan (West and Dedrick, 2000).

Such alliances were more problematic for opensource technologies. In the decentralized “bazaar”model epitomized by Linux, there was no centraladministrative authority with which to negotiate; tosome degree, publishers such as Red Hat and SuSEended up filling this role.5 The more centralizedcooperative efforts such as FreeBSD or Apache—the “cathedral” in the famous typology ofRaymond(1999)—provided a more identifiable authority fornegotiating alliances.

4.2. Leveraging openness while keepingdifferentiation

The open source movement was in part framed asa reaction to Microsoft and its proprietary controlof the computer industry, just as the open systemsmovement a decade earlier had been a reaction tothe proprietary control of IBM. As such, the move-ment found natural affinity with Microsoft’s threemajor platform competitors, as well as hardwaremakers—particularly Intel—who both benefited fromMicrosoft’s success but also wanted to increase theirindependence from it. Thus in 2001, HP, IBM, Inteland NEC launched a joint open source research labin Oregon and Japan; meanwhile, Linux publisherRed Hat had already won equity investments by In-tel, followed by Compaq, Dell, HP, IBM and Novell(MacCormack and Herman, 1999; West and Dedrick,2001).

The problem for IBM, Apple and Sun was that bymaking source code freely available and modifiable,open source inherently reduced barriers to entry by

5 In analyzing the “bazaar” archetype for the Linux project, onemust recognize the ongoing de facto leadership and control exertedby founder Linus Torvalds.

rivals and switching costs by customers. So despite theappealing logic of mutual adversaries (“the enemy ofmy enemy is my friend”), a pure open source strategywould eliminate each company’s historic source ofdifferentiation, their proprietary software. Each of thefirms faced a dilemma of how to adapt an open sourcestrategy suitable for their respective core competenciesand resources.

5. Apple: re-use and leverage

Apple Computer’s heyday had come with its cre-ation of proprietary computer platforms, but—likeIBM—its onetime supplier Microsoft had become aformidable rival that threatened this traditional sourceof advantage. This forced Apple to consider (andembrace) something previously unthinkable: sharingtechnology through the use of open source.

Apple’s adoption of open source came after severalfailed attempts to develop a new PC operating system,and seemed to offer Apple a way out of its techno-logical dead-end. In 1995, Apple was the first majorcomputer maker to sponsor a Linux implementationfor its own hardware. The experimental Linux projectwas eventually dropped, but it was replaced by a newOS that combined a unique mix of proprietary andopen source components.

5.1. Strategic position in mid-1990s

Although the most successful US maker of 8-bit per-sonal computers, Apple had several false starts beforereleasing a popular 16-bit PC with the Macintosh. TheMacintosh differentiated itself with ease of use pro-vided by a proprietary graphical user interface (GUI),but for various reasons lagged MS-DOS and its Win-dows in adoption.6 Finally, cutting prices to respond toits MS-DOS rivals, Apple grew market share in majormarkets in the early 1990s and enjoyed record mar-ket share and revenues through its fiscal year endingSeptember 1995. However, the August 1995 releaseof Windows 95 effectively eliminated its ease of usedifferentiation. Both the actual and predicted shift indemand helped fuel a downward spiral that in the next

6 The discussion of Apple’s proprietary platform strategies isadapted fromWest (2000).


2 years brought nearly US$ 2 billion in losses andforced resignation of two Apple CEOs.7

Ongoing improvements in operational efficiencyfrom 1996 to 1998, the return of Steve Jobs as CEO inAugust 1997 and the introduction of the popular iMac1 year later at least temporarily quelled predictions ofthe company’s immediate demise. But the companyfaced the same dilemma as at the beginning of thedecade—upgrading its core operating system to in-corporate modern multi-processing and memory pro-tection features without rendering its software libraryobsolete. While Microsoft had released Windows NTas an eventual replacement for Windows 95, Applewas still using improved versions of its 1984 archi-tecture, designed for a machine with 128 KB RAMand two floppy drives. More seriously, the company’sdecline in both profits and R&D staff made it eventougher to respond to the Microsoft challenge than ithad been in 1990.

As a quick fix, in 1996 Apple evaluated variousalternatives to jump-start its future operating systemdesign, including licensing Windows NT and Sun’sSolaris variant of Unix. In the end, it bypassed thepurchase of the promising but incomplete BeOS toacquire NeXT, a company that Jobs had founded in1985 after leaving Apple. The acquisition brought notonly NeXT’s operating system to Apple, but Jobs andhis R&D team, which quickly assumed key positionswithin the company.

5.2. Shifting to Unix

The search for a modern operating system wouldeventually bring both the Unix operating system andopen source to the core of Apple’s long term platformstrategy. In buying NeXT, Apple cast its future withthe NextStep operating system that was the acquiree’sprimary asset. NextStep was a Unix variant that com-bined the Mach operating system “kernel” with othercomponents from BSD Unix. To this NeXT had added

7 The conventional analysis attributes Apple’s problems in thelate 1980s and 1990s to its failure to license its operating systemto rivals prior to the rise of Windows in 1991. Assessing such posthoc advice is complicated by the variety of other strategic and ex-ecution errors during this period, including nearly $2 billion spenton unsuccessful efforts both to upgrade its core technology anddiversify into new market segments such as handheld computersand set-top boxes (West, 2003).

various extensions, including a graphical user inter-face, software development and system administrationtools.

Prior to the NeXT acquisition, Apple already hadexperience with Unix, offering the AT&T-based A/UXoperating system from 1988 to 1995. But by the timeit was abandoned after a shift to IBM’s RISC-basedprocessors, A/UX had attracted only 15,000 users—ata time when Apple was selling 4 million units a year(Hess, 1995; Dataquest, 1996).8

Apple had experimented with both the Mach OSand open source prior to the NeXT purchase. In 1995,to help its operating systems design efforts it fundeda research project to adapt the Mach kernel for Applehardware. Because of the rising popularity of Linux,Apple selected a Mach–Linux combination instead ofthe standard Mach–BSD combination. This operat-ing system, named MkLinux, was released in a seriesof developer releases from May 1996 until the sum-mer of 1998, when the project was destaffed by Ap-ple and handled over to its base of user-programmers.The Mach and Linux source code were released underBSD-style and GNU-style open source licenses.

Instead of continuing with Linux, the 1997 mergerwith NeXT committed Apple to adapting its existingMac OS to use the BSD-based NextStep technology. In1997 it announced “Rhapsody”—a Macintosh versionof the existing NeXT OS—which shipped as “Mac OSX Server” in 1999. However, the company’s main fo-cus was a comprehensive upgrade of the NeXT tech-nology, incorporating a new GUI and an emulator forolder Mac OS programs. This “Mac OS X” was origi-nally promised for late 1999, was released in beta formin September 2000 and eventually shipped to users inMarch 2001. During 2000 and 2001, the Mac OS Xuser and Server code bases were merged so that bothused the same core technology and user interface.

5.3. Building a new OS on open source parts

The original NextStep was based on both AT&Tand BSD licensed Unix code, but by 1999 Applereplaced that code with FreeBSD, one of the threeopen source Intel-based versions of Unix. More sig-nificantly, Apple announced that it was releasing the

8 From 1996 to 1997, Apple sold IBM’s AIX version of Unix,in between canceling A/UX and buying NeXT.


Mach, FreeBSD and some NeXT components as a newopen source operating system, “Darwin”, which out-side experts described as a new member of the BSDfamily tree.

Darwin, in effect, was the central core of Apple’sMac OS X Server and subsequent Mac OS X (Fig. 1).It provided proven multi-user memory managementand process control services which the original MacOS had lacked. At the time, Apple proclaimed it was“leading the industry by becoming the first major OSprovider to make it’s [sic] core operating system avail-able to open source developers” (Apple Computer,1999).

Project manager Ernest Prabhakar noted that a cat-alyst for the Darwin strategy was pressure from largeuniversity customers with specialized networkingneeds:

We realized that the pieces they’re most interestedin are the most commoditized. There wasn’t anyproprietary technology added that we had to worryabout them copying.. . . We started making the case[that] we should just open the source code and re-lease it as a complete BSD-style operating system.(Wayner, 2000, p. 175)

Prabhakar later said that Apple sought to “embraceand enhance” existing open source technologies, butin some cases would “embrace and layer” by buildingApple’s proprietary code on top of the publicly sharedopen source code.

The move was proclaimed by optimists as legit-imizing open source development, in that a once pro-prietary platform firm was willing to share a portion

Fig. 1. Architectural layers for Apple’s Mac OS X platform.Source: Apple Computer (2000).

of its core operating system with outside developers.However, other open source advocates attacked someof the exclusions in Apple’s license, and the contro-versy divided previously allied leaders of the opensource movement. While the major license concernswere resolved within a month, the dispute hurt opensource advocates within Apple by demonstrating thelack of a single spokesperson within the open sourcecommunity who could speak on behalf of the entirecommunity (Shankland, 1999; Wayner, 2000, pp. 162–163).

Some also complained about Apple’s choice of theBSD-style rather than GPL-style license, which allowsa commercial firm to take the public source, make pro-prietary modifications, and to release that part pub-lic, part private product as a proprietary solution (e.g.Leibovitch, 2001). Such is both the inherent advantage(for commercial firms) and disadvantage (for opensource purists) of the BSD-style license.

But the most enduring controversy continued overApple’s decision to hold some layers of its operatingsystem entirely proprietary. Most of the public Darwinsource was a derivative work of the public FreeBSDand Mach, and so as a practical matter Darwin offeredthe same functionality as its FreeBSD cousin. Applehad held out the largest (roughly 75%) and most valu-able parts of Mac OS X—its graphical user interface,the NeXT and Mac OS application support—meaningthat Darwin was not a complete GUI operating sys-tem and thus of little interest to average users. OtherApple-controlled technologies—such as its TrueTypefonts and QuickTime multimedia software—weresimilarly excluded, preventing Darwin (and Linux)


users from using these technologies without Applehardware.

In March 2002, Apple helped launch a new orga-nization, OpenDarwin.org. OpenDarwin maintained astand-alone version of Darwin outside Apple’s directcontrol, with its own discussion groups and bug lists,but sharing source code with Apple. By December2002 it had 48 identifiable user-contributors.

On paper, Apple enjoyed the best of all possibleworlds. The open source Darwin allowed it to lever-age off the larger BSD communities to incorporate en-hancements in networking and other technologies, andto port Unix-based applications such as web and mailservers. Darwin also provided low-level documenta-tion to third-party hardware vendors, freeing Appleto concentrate its support efforts on application soft-ware. Apple also retained differentiation in the tradi-tional areas where it had mattered most—in graphicsand ease of use for its core markets in graphical designand education.

However, by opening only part of its technology—largely corresponding to the existing FreeBSD—Apple made it less valuable to user-contributors. Thefewer users that contributed to the Darwin sources,the less benefit Apple realized from its open sourcestrategy.

6. IBM: from platforms to applications

Despite its well publicized travails of the 1980sand 1990s, IBM remains the world’s largest computercompany, as measured both by total sales and employ-ees. It was also the most aggressive of any incumbentcomputer maker in embracing Linux and open source.

As he announced IBM’s 2001 plans to invest US$1 billion in Linux, the then CEO, Louis Gerstner, pre-dicted an end to the era of proprietary platforms thathis company had spawned:

The movement to standards-based computing is soinexorable, I believe Sun—and EMC and Microsoftfor that matter—is running the last big proprietaryplay we’ll see in this industry for a good long while.(Wilcox, 2000)

While Gerstner might secretly prefer a return toIBM-controlled proprietary industry, the reality wasthat he found that an open source world—where hard-

ware vendors and customers all had full control overcrucial system software—was preferable a proprietaryindustry controlled by Microsoft.


IBM was best known for creating the first computerplatform with its S/360 proprietary mainframes, andits subsequent AS/400 minicomputer platform. Manyargued, however, that its most successful architecturewas the one that got away: the IBM PC. The shift ofleadership was traumatic for IBM. In the early 1990s,IBM spent billions of dollars on OS/2 and joint ven-tures with various industry rivals—all in an unsuccess-ful attempt to re-assert its proprietary leadership ofthe computer industry, or at least break free of depen-dence on Microsoft. By 1996, the hatred of the “EvilEmpire” within IBM bordered on the profane (Garr,1999, pp. 187–188).

After losing the PC OS war, IBM’s leadership wasconfined to those segments (large computer systems)that were enduring a systemic decline. In more rapidlygrowing PC and workstation markets, it was an alsoran. In response, the company sought to reposition thedemand for mainframe computers, first by promotingclient/server architecture and later by developing soft-ware to enable them to serve as massive web servers.Meanwhile, it placed increasing emphasis on the saleof software and services, winning business based onits unmatched ability to offer a complete end-to-end“turnkey” solution.

6.2. Phase I: application software

IBM’s first major open source initiative came in itsefforts to integrate corporate mainframes (with theirvast legacy databases) to directly support e-commerceand intranet initiatives. In June 1998, it unveiledits WebSphere product family, which built upon theApache open source web page server. IBM had be-gun with its own internally developed web server, butadopted the Internet’s most popular web server afterfailure of negotiations with Netscape over licensingits proprietary web server (McKay, 1998).

IBM’s efforts to adapt Apache to meet its specificneeds set a pattern for collaboration in its sponsorshipof subsequent open source efforts. IBM helped fundApache’s adaptation for use on Windows NT, because


it was central to its WebSphere strategy (Moltzen andBurke, 1998). Meanwhile, IBM engineers contributedcode back for use by all Apache implementations, andIBM hired one of the key open source developers to actas a permanent liaison (Wayner, 2000, pp. 181–183).IBM found that working with (largely user driven)open source group provided more flexibility than usingsomeone else’s proprietary solution, a lesson it wouldlater apply to Linux.

WebSphere was also the first IBM application tobe made available on various Linux platforms. IBMadded a Linux version of its DB2 database, which inDecember 1998 was released in beta form on IBM’sweb site; IBM later ported a third major product, itsLotus Domino groupware. As with other Unix appli-cation vendors, IBM found that offering a Linux ver-sion required a comparatively small investment.

The WebSphere product indirectly led to IBM’sNovember 2001 formation of Eclipse, an independentopen source consortium to develop common softwaretools. IBM donated source code it valued at US$ 40million to launch the consortium, which eventuallygrew to include Fujitsu, HP, Oracle, Red Hat and SAP.Sun (with its competing JavaBeans) was notably ab-sent.

While IBM’s initial focus was on developingweb-enabled applications in Java and HTML, theEclipse project bragged that it was a “universal toolplatform . . . for anything and nothing in particular”(Eclipse.org, 2002). The IBM-developed architec-ture allowed third-party developers to write plug-inmodules to support various programming languages(C, C++, Cobol), file formats and external softwareproducts (like IBM’s WebSphere Application Server).

The code was licensed under the Common PublicLicense, an open source license which like BSD—and unlike GPL—allowed commercial distribution ofderivative works. As Eclipse evolved, IBM mergedupdates from it into its commercial product, Web-Sphere Studio Workbench. In December 2002, IBMannounced a US$ 2.1 billion purchase of RationalSoftware, an Eclipse consortium member that sold ap-plication development tools.

Overall, IBM’s development of applications usingopen source software had three common threads. First,IBM accepted commodization of certain layers of itsapplication architecture and was thus was willing tocollaborate with open source software programmers to

make a shared technology available to all; these layerstypically implemented open Internet standards whichoffered less opportunities for differentiation. Second,in many cases the shared software competed with pro-prietary solutions developed by Microsoft using itsUS$ 4 billion annual R&D budget, such as its InternetInformation Services web server. Finally, the sharedsoftware was released under a non-GPL license al-lowing IBM to retain technology or make proprietaryenhancements.

6.3. Phase II: system software

Unlike with applications, IBM’s direct support forLinux as a replacement operating system was longin coming. Throughout 1998, IBM’s corporate strate-gists had no intention of providing or supportingLinux, as it would reduce differentiation and alsothreaten its high-margin proprietary operating sys-tem sales. So instead of being officially sponsoredby developers of IBM’s S/390 mainframe, Linuxwas successfully “ported” in late 1998 through un-sanctioned effort of programmers at IBM Germany(Hall, 2001). This internal version of S/390 Linuxwas eventually released for customer downloads inFebruary 2000. Subsequently, the changes to stan-dard Linux to support the S/390 were made availableboth on IBM’s web site and through commercialdistributors Red Hat, SuSE and TurboLinux. IBMalso endorsed existing Linux distributions for its PCservers.

In early 2000, IBM announced it would supportLinux across its entire range of servers, from PCs upto the largest mainframe (Table 5). At the same time,a reorganization eliminated its Internet business unit,and reassigned its head, Irving Wladawsky–Berger,to head a combined Unix–Linux unit. That group waslocated within IBM’s Enterprise Systems division—clearly targeting IBM’s traditional large corporatecustomers rather than the PC-based Internet serviceproviders that up to that point had been the largestmarket for Linux.

Beyond the level of customer demand (or “marketpull”), endorsing Linux gave IBM key strategic ad-vantages. First, Linux provided a common set of APIsacross its entire product line, providing a unified ar-chitecture for software developers. Second, the com-paratively immature (yet complex) operating system


Table 5IBM’s supported platforms before and after Linux adoption

Earlier platforms Revised platforms

Category Hardware Operating system Rebranding Operating systema

Mainframe IBM S/390 OS/390 zSeries LinuxMinicomputer AS/400 OS/400 iSeries LinuxWorkstation RS/6000 AIX pSeries LinuxServer PC Netfinity Windows NT, Windows 2000 xSeries LinuxDesktop/laptop PC NetVista, ThinkPad Windows 95/98/ME NA NAPDA WorkPad Palm OS NA NA

a Traditional OS also available on rebranded platforms.

required support services, a traditional IBM strength,as Wladawsky–Berger later explained:

We’ve wedded ourselves to the integration ofthe solution, the notion being that the Internetand e-business solutions are more important thanany particular component. And as a result, we’vechanged all our business models so that the inte-gration of the pieces has become more importantthan any one piece. (Cooper, 2001)

Finally, the open source operating system allowedIBM to make changes to improve its hardware differ-entiation for enterprise customers. As chief technol-ogy officer for PC servers noted, Linux “has givenIBM an opportunity we did not have before to playto our strengths, which is availability and reliability”(Shankland, 2002).

Wladawsky–Berger also said that the open sourcemodel was a logical extension of the long-standingIBM research culture. Towards that end, in August2000 IBM’s special developerWorks open source website released the source code from two large IBM re-search projects, the Andrew file system (later calledOpenAFS) and its Jikes Java compiler. Both were re-leased under the IBM Public License, an antecedentof the Common Public License.

7. Sun: opening new platforms

Sun was founded in 1982 to make engineeringworkstations, and by the late 1980s had outlasted itsrival Apollo to lead the market. While its Sun OS(later Solaris) platform was based on the same UNIXoperating system adopted by most of its worksta-tion rivals, Sun successfully differentiated itself from

other rivals through ongoing enhancements in its op-erating system, particularly with its support for datanetworking (Garud and Kumaraswamy, 1993).

As the 1990s ended, Sun faced threats to its corebusiness, by open source Linux on the one hand andMicrosoft’s Windows NT on the other. At the sametime, it sought to retain its traditional control of theoperating system and other technology that had fueledits success in the workstation and server market.


In the mid-1990s, Sun held a strong position inworkstations. Meanwhile, it was well positioned tocapitalize on rapidly growing industry demand formidrange servers and those that required networkingand Internet support. While Sun’s marketing had his-torically emphasized support for “open architecture”,it used proprietary extensions to Unix software to dif-ferentiate itself from workstation rivals such as HP,IBM and DEC (later Compaq).9

To improve adoption, it licensed its workstationand OS technology to customers and complemen-tors; this included a small number of makers of“clone” products, most notably in Japan (Garud andKumaraswamy, 1993). At the same time, Sun re-tained full control of the architecture, allowing it torapidly evolve the technology rather than negotiatewith standards committees. As such, Sun’s strategymore closely fit the “proprietary but open” model ofMorris and Ferguson (1993)than did Microsoft.

9 However, the differences in Unix APIs increased costs for userand software developers, eventually forcing vendors to agree on acommon GUI and system specifications in the mid-1990s, endingthe “Unix wars”.


By concentrating on Unix-based systems and ig-noring PCs, in the mid-1990s Sun held a uniqueposition in the computer industry with respect toMicrosoft. Most computer companies licensed one ofMicrosoft’s Windows operating systems for servers,PCs, laptops or handheld computers; while Applenotably did not, it bundled Microsoft’s web browserand actively courted its Office application suite. Assuch, no matter how much some initiatives of IBMor Apple (or HP or Compaq) might conflict withMicrosoft, at other times they were Microsoft al-lies. Even bitter rivals America Online and Net-scape made Windows support their top applicationspriority.

By contrast, Sun lacked such a “co-opetition” re-lationship with Microsoft. A decade earlier, the twofirms had little overlap with completely different tech-nologies and customers. However, industry trends—particularly the shift of the Internet from a researchnetwork to a consumer one—had led them to becomedirect competitors (Goff, 1999). The Windows NTserver operating system was directly aimed at the Unixserver business led by Sun, while any success of Mi-crosoft in establishing proprietary Internet protocolswould come at Sun’s expense. Meanwhile, Sun didnot ship Microsoft’s operating system or applications.Thus, it was not surprising that Sun’s co-founder andlong-time CEO Scott McNealy was one of Microsoft’sharshest and most vocal critics, both because of thetwo company’s conflicting goals and because ofthe lack of dependence on Microsoft for any keytechnology.

Both Windows NT (later Windows 2000 and XP)and Linux posed a low-cost threat to Sun’s lucrativeserver business: both were based on high-volume Intelprocessors, whose performance was increasing morerapidly than that of Sun’s proprietary RISC proces-sors. In another dimension, Windows and Linux wereattacking Sun from opposite sides: the former repre-sented a more proprietary approach under control of astrong, centralized rival, while the latter offered greateropenness that was supported (initially) by a diffusegroup of hobbyists.

7.2. Strategy 1: new platforms

Sun’s primary strategy during the late 1990s wasto establish new platforms independent of Microsoft

that would limit (if not reduce) Microsoft’s control ofindustry standards.

Most of Sun’s efforts went towards establishing Javaas a new platform with a common set of APIs availableon a wide range of computer systems, under the slogan“write once, run anywhere”. An early prototype ofJava was made available for user downloads in May1995, and licensed by most major computer companiesover the next year (Garud et al., 2002). Sun mounted a4-year lawsuit accusing Microsoft of trying to hinderJava’s success, a lawsuit settled out of court in January2001.

After distributing previews of its technologyand generating great interest, Sun spent 3 years(1997–2000) trying to get Java established as a dejure standard albeit under Sun’s control, first at theISO/IEC Joint Technical Committee 1 (JTC1) andthen later at ECMA.10 Both efforts were withdrawnafter vigorous and well-financed opposition fromcompeting computer makers, particularly Microsoftand HP (Egyedi, 2001). Sun also objected to the pro-visions that would have required it to surrender IPRto the standardization committee.

In a second major initiative, in August 1999 Sunspent US$ 73.5 million to acquire the German makerof StarOffice, a clone of Microsoft Office. As Sunlater noted “It is critical for all of Sun’s customers thatthere be open, viable, cutting-edge office productivitysoftware available to run in the heterogeneous networkand across all platforms” (Sun Microsystems, 2001).The company also stated a desire to shift the industryfrom the purchase of software products to the rental ofnetwork-intensive application services (which wouldrequire more Sun systems to implement).

To a large degree, Sun’s preoccupation with its of-fensive strategy against Microsoft contributed to itsfailure to defend against Linux. For example, in a3,000+ word 1996 interview, Sun’s CEO did not men-tion Linux or open source code at all. Instead, hereiterated Sun’s historic push for Unix-based opensystems over proprietary platforms:

Q: Now Microsoft’s recent licensing of Java seemslike a solid vote of confidence in the technology, but

10 ECMA was founded in 1961 as the European Computer Man-ufacturers Association, but in 1994 switched to its acronym inhopes of increasing its global influence.


are you worried Microsoft might try to position Javaas just another language, or bury it under ActiveX?

McNealy: We’re always worried people will try andhijack the standards on the network. . . The realbeauty of the Net is all interfaces are open, they’remulti-vendor and you can publish your data or pub-lish your application once and know it will run oneverything. That makes it a lot more competitiveand lowers the price to the user. That’s not exactlywhat all the technology companies want to do. Theywant to get you locked in. (Taylor, 1996)

Ironically, the efforts of Microsoft and other propri-etary computer makers to derail Sun’s platform strate-gies led it towards its first open source strategies,which improved its ability both to compete and coop-erate with open source software.

7.3. Strategy 2: partly-open source

Instead of responding to Linux, Sun’s first opensource strategies focused on its competition withMicrosoft in getting core technologies adopted byusers and software developers. The evolution of thesestrategies began with Java, extended to StarOffice andeventually reached its core Solaris operating system.In addition to its pro-active strategies, Sun also re-acted to pressure to increase the access to its Java codeexerted by licensees and standardization committees.

The effort to define Sun’s open source strategy wasled by chief scientist Bill Joy, who had been one of theleading engineers in the Berkeley Unix group beforeleaving to co-found Sun (Kim, 1999). The most radi-cal option—which would please the largest number ofopen source advocates—would have been to use theGNU Public License, in which all changes made bySun, its customers or competitors must be shared witheveryone. While this would fuel adoption, it posedreal concerns about appropriating the returns of Sun’sR&D investment, as Joy explained:

I can’t license all of Sun’s intellectual property un-der the GPL, because it just won’t work. I don’t seeany reason why I should give somebody who’s do-ing commercial reuse unfettered access to stuff thatcost me millions of dollars to do. We’re spendingover a billion dollars a year in research. I can’t justthrow it all on the street. . .

If I make code available under the GPL, I’ll losecontrol of it. . . . The GPL just doesn’t solve mybusiness problem at Sun. I would like all of ourintellectual property to be available in source form,but I can’t economically do that under the GPL.(Kim, 1999)

Instead, in February 1999 Sun released Java sourcecode under what it called the Sun Community SourceLicense, a hybrid between a traditional proprietary li-cense and a BSD-style open source license. The li-cense had four basic elements: (1) right to modifythe source code; (2) royalty free distribution in opensource projects; (3) royalties for commercial redistri-bution; and (4) testing requirement to maintain com-patibility and prevent forking (Loukides, 1999). FromSun’s standpoint, the license: “provides protection forintellectual property,. . . guarantees structured inno-vation within a single responsible organization, [andprovides] clear control over compatibility” (Gabrieland Joy, 1998). The Sun license is innovative in itsgovernance: the SCSL processes in many ways resem-ble a formal standards consortium or de jure standard-ization committee more than the “bazaar” associatedwith decentralized Linux development.

If Sun had concern over rivals and control with Java,these were even greater with Solaris, its Unix-basedoperating system that had provided its key differenti-ation in the workstation and server market. However,in October 1999 it announced that it would releaseSolaris under the restrictions of the SCSL, and in De-cember 2000 finally did so.

Sun adopted a different strategy for StarOffice; inOctober 2000 it released all source code to a new or-ganization, OpenOffice.org. The code was licensed ina way that guaranteed the source would always remainpublic, but allowed its use in commercial products bySun or anyone else.11 After nearly a decade of devel-opment, StarOffice badly lagged Microsoft’s productin features, compatibility and reliability. The “bazaar”community of open source user-developers was ide-ally suited for addressing such concerns, as Sun ex-plained:

11 Technically, the Lesser GNU Public License has some charac-teristics in common with the GPL, but in practical terms it wasmore similar to an Apache-style license in that it lacked the “viral”provisions of the GPL.


By engaging the energy and creativity of develop-ers worldwide, we will accelerate the addition ofinnovative features and improved integration withother products. Making the source code availablealso enables the StarOffice software functionalityto be ported to a wider range of systems. (SunMicrosystems, 2001)

In 2002, Sun released a US$ 76 commercial versionof StarOffice, sharing code with OpenOffice, whichremained an ongoing open source project. Both Sunand the open source community retained a commongoal, being able to access business documents com-patible with Microsoft Office and the dominant Win-dows standard.

7.4. Strategy 3: if you can’t beat them, join them

Compared to its other workstation rivals—particularly HP and IBM—Sun did little to embraceLinux. From 1998 to 2000 it provided technicalassistance to outside groups porting Linux to runon its 32-bit SPARC and 64-bit UltraSparc line ofSolaris-based systems. It did not sell systems withLinux pre-installed, leaving that to value-added re-sellers. In fact the demand for Linux on Sun hardwarewas so weak that in November 2000 a leading Linuxdistributor, Red Hat, canceled future development ofLinux for Sun computers.12

Sun was initially ambivalent about the successof Linux. On the one hand, increasing adoption ofUnix-based systems reduced Microsoft’s influenceand improved availability of Unix-related software,training and engineers. On the other hand, Sun hadcharged a premium to its workstation rivals basedon its superior Solaris software, so a world whereLinux was the norm would eliminate that advantage(Rosenberg, 2000). As one analyst put it: “Sun isgiving Linux some rhetoric, but Sun does not wantLinux to take off” (Scannell and Gardner, 1999).

Eventually, in the face of competition in thelow-end server business, Sun adopted Linux as aserver operating system, albeit to a lesser degree thanIBM. In 2000, Sun purchased Cobalt, a maker oflow-end Linux server appliances. Two years later,

12 It should be noted, however, that Sun’s Internet servers incor-porated the same open source applications (such as Apache andsendmail) as the other Unix and Linux-based servers.

Sun announced plans for its own branded Intel-basedservers, running Linux or Solaris.

8. Effect of open source on platform strategies

The popularity of open source operating systemscreated both problems and opportunities for propri-etary platform vendors. Disclosing software technol-ogy through open source licenses would naturally leadto the commodization of such software. Not surpris-ingly, the response of leading industry firms varied de-pending on whether they had used software as a sourceof competitive advantage, and whether they retainedother sources of competitive advantage.

8.1. Comparing strategies by Apple, IBM and Sun

While IBM was one of the world’s top softwarevendors, its software was normally sold as part of acombined solution with its own hardware. It contin-ued to differentiate itself based on services such as in-tegration, services that would provide switching costsif it adopted commodity software. Also, its key rev-enues were in mainframe and midrange systems wherethere were few remaining competitors. Under suchconditions—with either service differentiation or fewviable competitors—software commoditization wouldbe less of a concern, and anything that reduces costs orincreases demand is an unvarnished plus. In fact, Linuxoffered IBM something it had never had—a commonset of software APIs across its entire product line.

Linux successes would hurt Apple and Sun, whichhistorically bundled average hardware with better thanaverage operating systems. Apple and Sun faced di-minished profit margins if they shared the same soft-ware as their rivals (or vice versa). But unlike IBM,both Apple and Sun released source code from theirprimary operating system. The two firms adopted twodifferent approaches: opening parts versus partly open.In part by building on code that was already opensource, Apple chose to grant all rights to a subset of itsnew OS X operating system. Meanwhile, Sun releasedthe entire source of Java and Solaris under restrictiveterms—the former to improve adoption, the latter inresponse to competition from the open source Linux.

All three firms sought to maintain control of theirproprietary OS and other technologies, in part to assure


that they would continue to evolve and remain com-petitive. They also had specific concerns about aidingrivals and an historic aversion to sharing profits withothers in their respective value chains.

Prior to embracing open source strategies, all threecompanies had extended the value of their platformsthrough proprietary applications and “middleware”.Such software had enabled them to serve their respec-tive markets—large corporate servers for IBM and Sunand multimedia-savvy consumers for Apple. By re-taining this software as proprietary and unique to theirrespective platforms, the firms were able to retain atleast some differentiation relative to both proprietaryand open source competitors.

8.2. Microsoft’s response

Of the industry’s largest firms, Microsoft clearlyhad the most to lose by the having free software sup-plant commercial operating systems and applicationsoftware; it lacked the hardware and services revenuesto replace software sales lost to free software. On theother hand, Microsoft’s proprietary platform strategiescontinued to be successful and thus it faced the leastpressure to adopt an open strategy. However, the risingpublicity associated with open source and the poten-tial shift of server customers from Windows to Linuxforced it to respond.

In the first half of 2001 key Microsoft executivespublicly attacked the movement, particularly the“viral” nature of the GPL (West and Dedrick, 2001);the company later clarified its position to emphasizesupport for BSD-style licenses. Microsoft also un-veiled its own form of licensed source code disclosurecalled “Shared Source”. By 2002, its strategy hadevolved to allow PC vendors, third-party developersand large end-users to view but not modify the sourceto Windows. To win the hearts and minds of aca-demics, Microsoft also allowed universities to bothview and modify the source for internal research.

The role of Microsoft was clearly paramount inthe open source license strategies adopted by bothnon-profit and corporate software developers. Linuxdevelopers and other backers of the GNU license of-ten cited Microsoft’s decision to use BSD networkingtechnologies in Windows, then enhance those tech-nologies in a way that made Windows incompatiblewith Unix-like systems. As Sun’s Bill Joy complained:

The top predator now is Microsoft. We didn’t havea top predator back when I did TCP/IP. When youhave a person with unlimited funds who is clearlyfocused on destroying the value proposition of whatyou’re doing, you’d be a fool not to account forthem in the strategy that you adopted. (Kim, 1999)

9. Discussion

The use of multiple qualitative case studies pro-vides a rich opportunity for building theory in emer-gent areas that is grounded in empirical data. Thissection uses induction to generalize the observedopen source platform strategies of proprietary firmsinto broader theoretical predictions about competitivestrategies for IT platforms, and suggest areas for futureresearch.

Such theory always runs the risk of being idiosyn-cratic and not generalizable to the entire population(Eisenhardt, 1989). In this case, by studying firmsthat were previously successful with proprietary strate-gies, such findings may not be applicable to firmsthat unsuccessfully pursued proprietary strategies, orde novo entrants that lack prior platform capabili-ties upon which they can build. There is also therisk of attempting to generalize from a still-emergentprocess: the adoption of open source—both by busi-ness end-users and proprietary hardware companies—is still comparatively recent phenomenon. Any or allof the companies studied could fail in their efforts, orfind greater success by returning to more proprietarystrategies.

9.1. Shifting from proprietary to open sourcestrategies

The study suggests a three stage evolution of pro-prietary platform vendors to the use of open source.

9.1.1. Proprietary platformsAs with other industries, computer industry pi-

oneers began by vertically integrating to deliver acomplete proprietary platform solution. Wheneverpossible, the firms prefer proprietary platform strate-gies, because they provide better barriers to imitationand better margins. But as noted earlier, this strategymay only be available to one or two market leaders.


9.1.2. Open standardsFor many IT vendors, the use of proprietary plat-

form strategy becomes infeasible for some combi-nation of technical and economic reasons, and theymodify their platforms to incorporate open standardsthat are shared with one or more competitors. Amongthe motivations:13

• market share lower than the minimum efficient scalenecessary to support proprietary R&D;

• not enough market power to resist buyer demandsfor open standards;

• “tipping” of the standards contest in favor of theopen standard, making it infeasible to establish (ormaintain) a proprietary standard;

• a decision to accept commodization of the particulararchitectural layer and shift competitive advantageto another architectural layer.

These criteria are consistent withvon Burg’s (2001)analysis of the adoption of Ethernet as the preferrednetworking technology by both proprietary and opensystems vendors.

While shifting to such shared platforms may be themost cost-effective solution, it can be difficult when itruns contrary to the corporate culture and previouslyvalued core competencies. The experience of Apple,IBM and Sun suggests that shifting to even a partly-open architecture may require a major external shockto force firms to relinquish previous innovation-drivendifferentiation strategies.

The shift also contains unexpected pitfalls. Firmswith a successful proprietary architecture are able tosimplify their technical and business decisions, be-cause they control their environment and do not haveto interoperate with the rest of the world. When theproprietary strategy fails, firms are forced to workwith open standards to achieve interoperability, andsuch interoperability both requires additional techni-cal efforts and also reduces the lock-in of existingcustomers. For example, faced with plummeting mar-ket share, Apple abandoned its proprietary peripheralinterface standards and switched to industrywide stan-dards, discontinuing most of the proprietary peripher-

13 In the case of the PC industry, the shared multivendor archi-tectural layers are proprietary technologies provided by Microsoftand Intel, which addresses some but not all of the pressures foropen multivendor standards.

als that once accounted for much of its revenues (West,2000).

Having lost various platform battles with Microsoft,both Apple and IBM have been forced more than everbefore to shift from proprietary to open standards.Sun’s business model had always required co-existingwith open standards, but now has relinquished con-trol of more platform standards to “compete onimplementations”.

Without innovation and proprietary lock-in to pro-vide barriers to entry and imitation, invariably firmswill find it difficult to achieve competitive advantagewith these new strategies. Among the functional strate-gies that the three firms used include marketing, cus-tomer service, product design, engineering efficiencyand leveraging previously establish brand name repu-tations; the long-term viability of all these strategieshave yet to be proven.

9.1.3. Open sourcesThe transition to an open source platform strategy

is a continuation of that to open systems, driven bythe many of the same factors. Open source, however,eliminates the ability of vendors to compete based onimplementations since the details of an implementa-tion are visible to all.

A vendor’s decision to disclose technology is anirrevocable waiver of its ability to appropriate the re-turns from that technology. The use of hybrid strate-gies suggests that proprietary vendors are aware of thecompetitive risks of such an appropriability waiver andare thus experimenting to find the right compromisebetween totally proprietary platforms (which would berejected by the market) and totally open ones (whichwould eliminate all competitive advantage). So far, thetwo hybrid strategies have been (Fig. 2):

• opening parts—waving control of commoditylayer(s) of the platform, while retaining full con-trol of other layers that presumably provide greateropportunities for differentiation;

• partly open—disclosing technology under such re-strictions that it provides value to customers whilemaking it difficult for it to be directly employed bycompetitors.

The former strategy is important as an offensivestrategy to speed adoption of a new platform-relatedstandard or a particular implementation of such a


Fig. 2. User rights under open and quasi-open source licenses.

standard. Waiving intellectual property rights makesthe standard (or implementation) more attractive tocompetitors and key users, priming the positive-feedback bandwagon effects that can accrue to earlymarket leaders. It also increases the number of prod-ucts that are interoperable with the vendor’s products,particularly important for networking and other com-munications standards.

Both approaches allow sophisticated users (such aslarge business enterprises, universities or IT indus-try suppliers) to help improve the products they use,consistent with the long-identified role of technicallyknowledgeable industrial users (von Hippel, 1976).

9.2. Future platform strategies

The study of standards and standards architecturecompetition has focused on the following three basicapproaches:

• vertically integrated proprietary systems, as repre-sented by the IBM 360 (Chandler, 1997; Moschella,1997);

• platforms assembled from proprietary layers that arefreely licensed to all, such as “Wintel” architecture(Morris and Ferguson, 1993; Grove, 1996);

• de jure standards not sponsored by any single firmbut shared by all, epitomized by “open systems” andEurope’s GSM digital telephone standard (Gabel,1987; Funk and Methé, 2001).14

Open source standards differ from other unspon-sored open standards mainly in degree, to the extentthat the entry and imitation barriers are dramati-cally lower. But the idea of a shared standard—with the associated implications for governance anddifferentiation—is not fundamentally different be-tween the open source Linux or FreeBSD and its opensystems (Unix clone) ancestors.

To a lesser degree, hybrid platform strategies haveexisted for decades, driven by the ever-increasingneed for systems interoperability between or withinorganizations. Even the most proprietary platform in-corporates open industrywide standards such as ISOcharacter sets, ANSI C, Ethernet or TCP/IP. Otherfirms (notably IBM and Microsoft) have taken por-tions of their platforms and gotten them adopted asindustrywide standards.

14 Note, however, that the nominally open GSM standardizationeffort led by Nokia and Ericsson built upon patent portfolios thatwere used to exclude Japanese vendors from the European market(Bekkers et al., 2002).


The hybrid strategies of Sun and Apple blur the linesbetween the proprietary and unsponsored standards.By retaining an element of control, they retain manyof the competitive benefits of sponsorship. However,by reducing duplicative R&D they can create sharedcommunities that in many ways are indistinguishablein practice from nominally unsponsored standards—assuming that the sponsors move aggressively enoughto build sizable communities of adopter/collaborators.

The open source strategies studied also call atten-tion to the use of platform extension as a strategy todeal with commoditization of lower-level platformlayers. For computer platforms, such extension nor-mally involves developing additional application or“middleware” as the highest level standards layers ofan architecture. While Apple had from the beginningdifferentiated its operating system through its ease ofuse, after that advantage disappeared in 2001, Applebegan bundling consumer applications to differentiateits platform among PC buyers. Microsoft began suchbundling even earlier, when it included its InternetExplorer application with its Windows 95 operatingsystem.

Such vertical integration into applications suggestsat least a partial re-examination of the assumption thatplatforms succeed through their ability to attract asupply of third-party applications.Gallagher and Park(2002) have shown that in-house applications devel-opment was crucial in deciding a success of platformcontests in the videogame console industry. If thispattern is more generally applicable, then it suggestsfirms need to garner the financial resources to supplya complete (or at least basic) supply of complemen-tary assets expected by adopters, rather than buildingearly market share perceptions to attract third-partysuppliers of such assets.

In other cases, the attempt to differentiate may con-tinue not to higher architectural layers, but with sys-tem integration or design. In November 2001, Nokiaannounced a plan to license its PDA/mobile handsetapplications to rivals, either for use with their ownOS, or to run on a multi-vendor OS developed by theSymbian joint venture (Nokia, 2001).

9.3. Implications for open source development

How open is open enough? Open source providesfew direct benefits to the vast number of users who

lack the requisite technical skills to do their own de-velopment, but instead is best suited for technicallyproficient users (such as Internet service providers)with strong motivations for customization (West andDedrick, 2001).15 The degree to which open sourceadds value beyond this niche depends on how much itenables other attributes more directly valued by users,such as greater reliability, lower cost or expanded va-riety of complementary assets.

An example of such indirect benefits is the provi-sion of complementary assets. Normally, the provisionof applications for an operating system is controlledby the formal, published interfaces (Langlois andRobertson, 1995; West and Dedrick, 2000). However,in an open source system, a third-party software sup-plier can add its own interfaces as needed to providefunctionality unanticipated by the original author ofthe OS. Apple specifically opened the lowest layersof its Mac OS X architecture to enable user supportof unusual third-party hardware configurations.

Another postulated indirect user benefit of opensource systems is increased reliability through the con-current debugging efforts of a widely distributed com-munity of user-programmers (Raymond, 1999). Suchactivity appeared to be an important goal for all threefirms studied, as the proprietary vendors sought vol-unteer labor to find and correct some of the gaps intheir systems.Kogut and Metiu (2001)report that morethan 70% of the Linux and Apache contributors hadmade only one change to the source code tree. Thispattern is consistent with users getting involved onlywhen there is a problem of great concern to them.

Research on large, successful open source projectssuch as Linux and Apache assumes away variancein what may be a key independent variable: size ofthe user-programmer community. Anecdotal evidencesuggests that the major reason open source projectsfail is a lack of user-contributors to do the work. Inthis case, sponsors of open source projects (whetherorganizations or individuals) vendors face a particu-larly important adoption challenge: to attract enough

15 Direct benefit from access to open source code would appear torequire some combination of programming skill, (personal or pro-fessional) motivation and (personal or organizational) slack time.In their study of Apache users,Franke and von Hippel (2003)found highly heterogeneous requirements among users (motivat-ing customization), and also that professional skill predicted cus-tomization activities.


of the right sort of users early enough to improve thequality and features of the software.16

How applicable are these benefits to the hybridstrategies? For the “opening parts” strategy, must theopen part of the platform have value on its own towin enough user-programmers? Or is it enough thatit be part of a larger system of crucial importance,as with Apple’s release of the Darwin portion of itsmainstream Mac OS X operating system?

A “partly-open” strategy—such as Sun’s Commu-nity Source License or Microsoft’s Shared Source—must also attract attracting user-programmers. In thiscase, the question is whether the strategy provides astable enough allocation of the returns of innovationbetween software vendors and users. Such strategiespresume that there is an intermediate level of disclo-sure and granting of rights (between fully open andfully proprietary extremes) that will be valuable tousers without compromising the IPR owners’ competi-tive concerns. One such intermediate point—the GNUPublic License which grants nearly all rights exceptthe use in competing proprietary products—has highvalue to users because of the complete and irrevocabledisclosure.17 But the other forms used thus far seem tobe discounted by most users (particularly those withmore fully open options) and thus provide little if anyadoption incentive.

9.4. Future research

The hybrid open source strategies of proprietaryplatform vendors suggest that additional research isnecessary on a crucial trade-off in technological inno-vation: resolving the conflicting imperatives of mak-

16 In the adoption typology ofRogers (1995), sponsors wouldwant to attract innovators as the user-programmers, then earlyadopters as non-programming beta testers who would be tolerantof bugs and missing features, so that a complete solution couldbe developed suitable for the early majority.17 I recognize that advocates of the GNU-style license would

argue that their license is more “free” than the BSD alternative,it that guarantees that all derivatives will also be free. However,such perpetual freedom is enforced by restricting the rights grantedwith the software, while the BSD-style licensing has few if anyrestrictions. An economic analog is the choice between giving achild a trust fund or cash; the former assures that the original goalwill always be met, while the latter gives the recipient full rightto do as (s)he sees fit.

ing an innovation successful and profiting from thatsuccess.

In his analysis of this trade-off,Teece (1986)fo-cuses on the case where firms face weak appropriabil-ity regimes and thus must share the returns of theirinnovation. Subsequent analyses largely assume thatstrong appropriability is good and to be sought, whilelack of appropriability is a less desirable condition.Strategists consider how firms should share the eco-nomic surplus they have generated, but not the possi-bility that firms should irrevocably abandon some orall of that surplus by waiving all future appropriabilityfrom a given innovation.

However, proprietary software enjoys one of thetightest appropriability regimes available, at least incountries that enforce IPR laws. Meanwhile, the threedecades since the invention of the microprocessor of-fer numerous examples where innovators enjoyed tightappropriability, but the lack of adoption of their inno-vation meant that there were no returns to appropriate.

The conversion of proprietary software to opensource by IBM, Apple and Sun—forfeiting a portionof their IPR—suggests that the more general questionof voluntarily waiving appropriability bears furtherstudy. Among the issues that might be considered:

• Is forfeiting IPR more or less desirable in caseswhere competitors (or substitutes) have weak ap-propriability?

• Is such a differentiation strategy more effectivewhen competing with an organization with tightIPR control? Or does it have general applicabilityas a strategy to pre-empt adoption of competingtechnologies?

• Is it the effectiveness dependent on the nature ofthe technology, its use, or the importance of com-plementary assets? Are there any other adoptionprocess characteristics relevant to deciding on suchstrategies?

Other possible areas for future study of open stan-dards include:

• Are there any conditions which are sufficient forpredicting whether a vendor should switch fromproprietary to open standards? In particular, will thepressure for openness remain confined to less suc-cessful vendors, or will it eventually reach all firms?

• Are there categories of standards (e.g. communica-tions infrastructure) that will always be open? Are


there any (e.g. document internal file formats) thatwill always be closed?

Research on open source strategies by commer-cial firms might include:

• Under what conditions will open standards lead tothe widespread adoption of open source implemen-tations by commercial vendors?

• How durable are various approaches (includingopening parts, partly open) for creating barriers toimitation using open source software? Are someless likely to create competitive advantage becausethey do not add perceived customer value, or con-versely provide too much aid to competitors?

• Is the decision between open source and proprietarystrategies a matter of managerial discretion? Or isthere a normative “best practice” for similar situatedfirms that dictates the appropriate choice for eachcontext?

• When firms select a “partly-open” strategy, whatis the appropriate governance for vendor sponsoredopen source communities? Can the conflicting goalsof the two parties be reconciled?

Acknowledgements

I would like to thank Jason Dedrick, Tineke Egyedi,Scott Ensign and two anonymous reviewers for help-ful suggestions and comments, as well as seminar par-ticipants at Case Western’s Weatherhead School ofManagement and the 2002 Academy of Managementannual meeting. I am especially grateful to the specialissue editors for advice and encouragement that wereinstrumental in developing the paper. My appreciationgoes to the representatives of Apple, IBM and Sunwho generously shared their time to both explain var-ious complex technologies and also the institutionalrelationships behind those technologies. The remain-ing errors are of course my own.

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How open is open enough? Melding proprietary and open ...in953/lectures/papers/RES POL JUL... · 1997). The one exception to IBM’s dominance was in Japan, where by the 1990s IBM