Leasing and selling: optimal marketing strategies for a durable goods firm
Management Science
Pricing for a Durable-Goods Monopolist Under Rapid Sequential Innovation
Management Science
Information Goods and Vertical Differentiation
Journal of Management Information Systems
Comparison of Software Quality Under Perpetual Licensing and Software as a Service
Journal of Management Information Systems
Pricing Strategies for Information Technology Services: A Value-Based Approach
HICSS '09 Proceedings of the 42nd Hawaii International Conference on System Sciences
Hi-index | 0.00 |
We discuss the optimal way for a software vendor to license software: a perpetual license at a posted price, a subscription contract that subscribers receive automatic updates for periodic payment, or a hybrid approach that involves both. By addressing specific issues in the software market such as network effects, quality uncertainty, upgrade compatibility, and the vendor's ability to commit to future prices in a dynamic environment, we demonstrate how a software vendor can manage the trade-offs of perpetual licensing and subscription to optimize profit, as well as the corresponding welfare effect on consumers. Although the subscription model helps the vendor lock in consumers so as to increase profit when there is great uncertainty associated with the next version software, it destroys the path dependence in creating network externalities. Therefore, when the network effect is sufficiently large, it is more profitable for a software vendor to provide both perpetual licensing and subscription.