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How to Compete with Free Software

Commercial-software developers can compete with free alternatives if they act with speed and flexibility.

Divide and Conquer: Competing with Free Technology Under Network Effects

Deishin Lee and Haim Mendelson

Production and Operations Management, Vol. 17, No. 1

Date Published: 
January/February 2008

In today’s software industry, many companies must learn how to compete against products that are given away at no cost. Whether it’s the Linux operating system or Apache Web server software, the open source development community has created an array of high-quality software products that compete with expensive, commercially available software developed by Microsoft, Oracle, and other large technology companies. The authors suggest that commercial-software creators can compete with open source software if they focus on introducing their software early and building a large user base of early adopters. By moving aggressively before an open source alternative is available, a company like Microsoft can establish an insurmountable lead, and can then leverage that lead to attract mainstream customers whose purchase decisions are based on a product’s popularity. If an open source product is first to market, however, the commercial developer must make its product compatible with the free alternative and provide additional functionality if it hopes to attract customers.

Bottom Line:
Commercial-software developers can compete with free alternatives if they act with speed and flexibility. When first to market, they should focus on saturation, but if there is already an open source alternative available, they should instead focus on compatibility and improved functionality.


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