Description

This study examines the competition between an independent software vendor (ISV) who offers standard but customizable software and a cloud software vendor (CSV) who charges users based on actual software usage and features requested. Using a game theoretic approach, we set up a duopoly model to derive the optimal pricing and product feature choice strategies for both the ISV and the CSV in a market characterized with heterogeneous consumer preferences. We also examine the consumer’s decision in the presence of security risk for using the cloud software, and the vendor's software upgrade strategies in such a competitive game. The results of our study will provide important implications to vendors and consumers in software markets where the Software-as-a-Service (SaaS) business model prevails and contribute to the growing literature on economics of cloud computing.

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Competitive Strategies for Software Vendors amid Software-as-a-Service Business Model

This study examines the competition between an independent software vendor (ISV) who offers standard but customizable software and a cloud software vendor (CSV) who charges users based on actual software usage and features requested. Using a game theoretic approach, we set up a duopoly model to derive the optimal pricing and product feature choice strategies for both the ISV and the CSV in a market characterized with heterogeneous consumer preferences. We also examine the consumer’s decision in the presence of security risk for using the cloud software, and the vendor's software upgrade strategies in such a competitive game. The results of our study will provide important implications to vendors and consumers in software markets where the Software-as-a-Service (SaaS) business model prevails and contribute to the growing literature on economics of cloud computing.