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Optimal Software Free Trial Strategy: The Impact of Network Externalities and Consumer Uncertainty

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  • Hsing Kenneth Cheng

    () (Department of Information Systems and Operations Management, Warrington College of Business Administration, University of Florida, Gainesville, Florida 32611)

  • Yipeng Liu

    () (Department of Operations and Information Management, Kania School of Management, University of Scranton, Scranton, Pennsylvania 18510)

Abstract

Many software firms offer a fully functional version of their products free of charge, for a limited trial period, to ease consumers' uncertainty about the functionalities of their products and to help the diffusion of their new software. This paper examines the trade-off between the effects of reduced uncertainty and demand cannibalization, uncovers the condition under which software firms should introduce the time-locked free trial software, and finds the optimal free trial time. As software firms have the option of providing free trial software with full functionalities but a limited trial time or limited functionalities for an unlimited trial time, we develop a unified framework to provide useful guidelines for deciding which free trial strategy is preferred in the presence of network externalities and consumer uncertainty.

Suggested Citation

  • Hsing Kenneth Cheng & Yipeng Liu, 2012. "Optimal Software Free Trial Strategy: The Impact of Network Externalities and Consumer Uncertainty," Information Systems Research, INFORMS, vol. 23(2), pages 488-504, June.
  • Handle: RePEc:inm:orisre:v:23:y:2012:i:2:p:488-504
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    File URL: http://dx.doi.org/10.1287/isre.1110.0348
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:jomega:v:80:y:2018:i:c:p:192-208 is not listed on IDEAS
    2. Marius F. Niculescu & D. J. Wu, 2014. "Economics of Free Under Perpetual Licensing: Implications for the Software Industry," Information Systems Research, INFORMS, vol. 25(1), pages 173-199, March.
    3. Guofang Nan & Xingtao Li & Zan Zhang & Minqiang Li, 0. "Optimal pricing for new product entry under free strategy," Information Technology and Management, Springer, vol. 0, pages 1-19.
    4. repec:eee:ijrema:v:33:y:2016:i:4:p:881-895 is not listed on IDEAS
    5. repec:spr:elcore:v:18:y:2018:i:1:d:10.1007_s10660-017-9264-9 is not listed on IDEAS

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