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A Cost-Benefit-Based Analytical Model for Finding the Optimal Offering of Software Services

Listed author(s):
  • Khin Swe Latt


  • Jorn Altmann


    (Technology Management, Economics, and Policy Program (TEMEP), Seoul National University)

In this paper, we introduce an analytical model for maximizing social welfare, which can be used for finding the optimal offering of a set of software services. The analytical model also explains the impact of service flexibility on customer¡¯s selection of business services and on the revenue of service providers. The analytical model is based on a utility model and a cost model. The cost model uses the number of lines of code as the basic measure for cost and applies linear and polynomial cost functions. The utility model is derived from a customer-provider relationship model, which relates the user¡¯s utility to the functionality of business services. The result of the analytical model shows that the distribution of functions of an existing business service to a large number of new business services does not generate any additional revenues for the service provider from existing customers. Instead, additional revenue is generated through the offering of business services with fewer functions at lower price. This business services attract customers, which could not afford the original software service of the provider. The result of the analytical model also shows that there is an optimal number of business services that maximizes the net utility of customers.

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Paper provided by Seoul National University; Technology Management, Economics, and Policy Program (TEMEP) in its series TEMEP Discussion Papers with number 201070.

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Length: 26 pages
Date of creation: Dec 2010
Date of revision: Dec 2010
Publication status: Published in WI2011, Zuerich, Switzerland, February 2011
Handle: RePEc:snv:dp2009:201070
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  1. Juthasit Rohitratana & Jorn Altmann, 2010. "Agent-Based Simulations of the Software Market under Different Pricing Schemes for Software-as-a-Service and Perpetual Software," TEMEP Discussion Papers 201064, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Jul 2010.
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