An interesting phenomenon often observed is the availability of free software. The benefits resulting from network externality have been discussed in the related literature. However, the effect of a free software offer on new software diffusion has not been formally analyzed. We show in this study that even if other benefits do not exist, a software firm can still benefit from giving away fully functional software at the beginning period of the marketing process. This is due to the accelerated diffusion process and subsequently the increased NPV of future cash flows. The analysis is based on the well-known Bass diffusion model.
Jiang, Zhengrui and Sarkar, Sumit, "Free Software Offer and Software Diffusion: The Monopolist Case" (2003). ICIS 2003 Proceedings. 81.