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Short-term and long-term competition between providers of shrink-wrap software and software as a service

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  • Fan, Ming
  • Kumar, Subodha
  • Whinston, Andrew B.
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    Abstract

    Software as a service (SaaS) has moved quickly from a peripheral idea to a mainstream phenomenon. By bundling a software product with delivery and maintenance service, SaaS providers can effectively differentiate their products with traditional shrink-wrap software (SWS). This research uses a game theoretical approach to examine short- and long-term competition between SaaS and SWS providers. We analyze the factors that affect equilibrium outcomes, including user implementation costs, SaaS provider's operation efficiency, and quality improvement over time. Bundling software with service lowers software implementation cost for users, and our results suggest that it increases equilibrium prices. In providing software services, SaaS providers have to incur significant operation cost. In the long run, service operation cost may significantly affect SaaS firm's ability to improve its software quality.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 196 (2009)
    Issue (Month): 2 (July)
    Pages: 661-671

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    Handle: RePEc:eee:ejores:v:196:y:2009:i:2:p:661-671

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Pricing Economics Quality competition Software as a service Differential game;

    References

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    Cited by:
    1. Arne Katzmarzik, 2011. "Product Differentiation for Software-as-a-Service Providers," Business & Information Systems Engineering, Springer, vol. 3(1), pages 19-31, February.
    2. Dragos Marian Mangiuc, 2009. "Software: From Product To Service The Evolution Of A Model," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(11), pages 8.

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