Pull the rug out from under them. Linux does it by making Microsoft's major revenue stream obsolete. The price the customer pays covers the manufacturing cost plus some extra. A software product, on the other hand, has basically zero manufacturing cost. The media, manuals, etc., can be viewed as accessories, or marketing materials.
Development is the only significant cost.
Yet, traditional software companies, Microsoft included, are built on the idea of selling software. Not software development, but the software itself. Open Source shifts the focus from selling software to selling software development. It was as if, all this time, Ford paid nothing to manufacture the cars they sell, and all of a sudden, someone sat up and asked why they had to pay for it anyway. I don't blame Microsoft for being scared.