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

Khin Swe Latt () and Jörn Altmann

No 201070, TEMEP Discussion Papers from Seoul National University; Technology Management, Economics, and Policy Program (TEMEP)

Abstract: 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.

Keywords: Service-oriented architectures; economics of digital products; business process analysis; business service; customer satisfaction model; software services; service science; customer preferences; social welfare maximization and profit maximization of software service development; cost modeling; economics of service decomposition and service composition. (search for similar items in EconPapers)
JEL-codes: C61 D24 L15 L23 L86 M11 M15 M21 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2010-12, Revised 2010-12
New Economics Papers: this item is included in nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in WI2011, Zuerich, Switzerland, February 2011

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Persistent link: https://EconPapers.repec.org/RePEc:snv:dp2009:201070

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