Source: InfoWorld 
Author: Matt Asay

I'm reading a research paper [PDF] by Nicholas Economides (NYU) and Evangelos Katsamakas (Fordham) called "Linux vs. Windows: A comparison of application and platform innovation incentives for open source and proprietary software platforms." Long title, but the conclusion of the paper is relatively brief:

In our model, firms and developers invest to improve the quality of the platform or the application and expand the demand by users of these software products. When the operating system is proprietary, the platform provider and the application provider invest only in their own product to maximize their profit. When the operating system is open source, there is no platform provider firm, but the users invest in the platform to maximize their user surplus and their development reputation, which depends on the success of the platform measured by its adoption. (2)

Here's the gist. When a platform (like Windows) is proprietary, only the vendor can/will invest in its innovation. No one else will derive financial benefit (or reputational benefit) from doing so. So, the product is as good (or bad) as the proprietary vendor makes it.

With an open source platform, the users of the system may have strong reputational incentives to develop it, potentially leading to much higher levels of involvement and innovation than any one company can generate. But, as the authors suggest, this finding is ambiguous, because the platform may not offer the reputational benefits (See page 15).

What is less ambiguous is the application providers' incentive to help develop the platform, just as IBM, Oracle, Novell, Red Hat, HP, etc. have done with Linux:

The application provider for the open source operating system invests more than the application provider for the proprietary operating system, because the first has a larger marginal profit for all levels of investment. This is because the open source operating system is adopted by users for free, enabling the application provider to set a larger price and capture a larger profit than the application provider for the proprietary operating system.

This would just be idle academia if it hadn't been shown to work in many instances, with the number (and importance) of these instances growing all the time. Linux. Apache. Eclipse. Xen. MySQL (SAP's investment of money and resources, among others'). Etc. Open source gives third parties the means and the incentives to innovate on others' platforms, be it an operating system, database, content management system, or whatever.

No proprietary platform can match that.