Optimal pricing strategies for Internet-based software dissemination

H Gurnani () and K Karlapalem ()
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H Gurnani: Hong Kong University of Science and Technology
K Karlapalem: Hong Kong University of Science and Technology

Journal of the Operational Research Society, 2001, vol. 52, issue 1, 64-70

Abstract: Abstract In the recent past, there have been several initiatives by major software companies, such as Microsoft, to lead the industry towards electronic software distribution. In this paper, we use a monopoly pricing model to examine the optimal pricing strategies for ‘selling’ and ‘pay-per-use’ licensing of packaged software over the Internet. Traditionally, software distribution included outright sale as well as short/long term renting. With the Internet fast becoming a prevalent mode for disseminating software, a customer can download and use software on a need-by-need basis. For the software vendor, offering the pay-per-use option to the consumer provides for a steady source of revenue and obviates the need for physical distribution, purchasing and inventory management mishaps. We examine the following issues in this paper: (i) what are the extra benefits to the software vendor for providing the pay-per-use option?; and (ii) does the market size change? The contribution of this paper is to show that pay-per-use is a viable alternative for a large number of customers, and that judicious pricing for pay-per-use is profitable for the software vendor.

Keywords: software dissemination; information systems; purchasing; optimization (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (5)

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DOI: 10.1057/palgrave.jors.2601046

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