I don't think they are at a point of diminishing returns. There are still advancements in hardware and drivers, and that's where the investment really pays off.

I don't think they are at a point of diminishing returns. There are still advancements in hardware and drivers, and that's where the investment really pays off. Microsoft has historically been really good at designing APIs for this stuff that developers actually want to use. The vertical integration with shipping the whole OS really pays off for them. In Linux, it's extremely difficult to make any changes because you have to plumb everything through several layers of the stack which are all in separate disconnected projects. Only a few wealthy companies can really do it well and those tend to have a narrow focus on a specific vertical (Google, Red Hat, etc). Price competition on the OS doesn't actually matter, as you have noted the market has moved towards additional services. When you say "98% as good for 0% of the price" you're not factoring in all the additional paid services that the company wants (and needs) to sell. I can tell you that Canonical certainly does not charge 0% of the price for everything, if they are taking a customer from Microsoft then they would probably like to gain 100% or more of that price from any given customer. I have seen nothing to show that developers will prefer any Valve APIs, a lot of the games still seem to be running in Proton which actually shows that most developers still prefer to use the Microsoft stack and tooling. I should have mentioned this earlier but Visual Studio (the original, not VS Code) is also extremely important and entrenched, game developers are not just going to all switch to Vim and Emacs because Valve sold a product with Linux on it.