Open Source software strikes at the heart of Microsoft – its value add to the economy. Open Source offers for free the software that Microsoft sells and that is the basis for its enormous revenue stream.
I think the relationship between Microsoft and Open Source is a Gambler's Ruin Competition. This is a rivalry between two parties, one with a large, well established position and the other with a small position but able to compete effectively on individual transactions. The classic example is a casino versus a professional gambler who has a system (also known as a martingale) that enables them to win more than 50% of the time.
Microsoft might see a rapid reversal of fortune if a few strategic buyers go Linux. These would be big enough Open Source wins that they reverse the over-dominating share, the house advantage Microsoft holds in the market.
ISVs would then become interested in Linux; additionally, Linux vendors could extend the purchase price advantage into a clear TCO advantage by improving usability and administrative services; end-users and help desks begin training on Linux.
The key strategy for Microsoft is to keep that from happening. Keep the “strategic buyers” in Windows. Government and large corporate buyers - they are far and away the most important publics.
For a more comprehensive analysis, see Redmond Review Gamblers
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