The businesses based on open source software compete on services. Making the software free levels the playing field and forces businesses to compete on serving the customer better. This is capitalism at its best.
Proprietary software on the other hand thrives on vendor lock-in. Microsoft wouldn’t be a (near?) monopoly today if they hadn’t squashed Netscape and Novell by aggressively embracing and extending those companies technologies in a way that locked them out of the market.
That being said, businesses based on open source software are still refining their business models and figuring things out. Its a new model in a very tough market to penetrate. My fear is that open source will never gain widespread acceptance beyond the “bottom of the stack” (the frameworks, compilers, operating system, server software, etc.).