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However, it should be noted that these characteristics of digital goods cannot be transferred to all of the software providers’ products (or components).

Software as a product is usually marked by relatively high fixed costs for the software provider, while the costs for each additional unit tend to zero ( Varian 1997, p. 1 Fishburn and Odlyzko 1999, p. 447). Copying digital goods is possible without a loss of quality and at low cost ( Choi et al. Reproducibility of digital goods is another important feature which may be considered in terms of pricing model design. This is particularly important in terms of price discrimination strategies (cf. However, this does not exclude a possible loss of value over time ( Zhang and Seidmann 2003, p. 277).Īs a result of the transmutability characteristic, digital goods can be modified with little effort allowing for a cost-effective generation of variants. Indestructibility becomes apparent by the unascertainable difference between new and used digital goods – there is no loss of quality as a result of using the good. As software is a digital good, the economic theory of digital products provides a first starting point for the development of pricing strategies for software providers.įundamental characteristics of digital goods are indestructibility, transmutability, and reproducibility ( Choi et al. The design of a pricing model requires the consideration of the characteristics of the product to be sold and the market conditions in the respective industry. The paper concludes with a summary and an outlook. In section 4 we present empirical results on the topic of software pricing models.

In section 3 we provide an overview of the possible parameters of pricing models for software products and their various characteristics. In the following sections we will first analyze the general conditions and characteristics of the software industry which are relevant to pricing. The interviews were based on a structured guideline. In terms of size we interviewed companies with 800 to 260.000 employees. As this is an exploratory study, we chose companies from different industries and of different sizes. We interviewed ten CIOs from companies deploying standard application software for ERP. The results are based on literature research and empirical studies, including interviews with experts conducted in November and December 2007 in order to analyze the user perspective. Moreover, we will introduce the views of providers and users and their assessment of different pricing models. As in that case the design of pricing models does not relate to software, we do not intend to dwell on this type of software in more detail.Īgainst this background, the aim of this paper is to identify various fundamental pricing models for software and to examine their specific implications for the software industry. As software in business models of open-source software providers is usually free, in most cases sales are realized by supplementary services, such as consulting, implementation, documentation, and maintenance ( Hecker 1999).

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In addition to proprietary solutions also free and open source software (FOSS) exists.

ADOBE CREATIVE CLOUD PHOTOGRAPHY PLAN CONCURRENT USERS INSTALL

In so-called software as a service (SaaS) solutions the user purchases standard software via the Internet without the need to install the software locally ( Buxmann et al. With regard to the provisioning of software, we can today observe an increasing trend towards on-demand solutions besides traditional on-premise software. This might cause lock-in effects on the customer side that also create new opportunities with regard to pricing models.įurthermore, we have to take into account that software is offered or obtained in various ways. For example, the software industry is often characterized by network effects ( Shy 2001, p. 1) influencing the value of a product for customers through its prevalence rate ( Katz and Shapiro 1985, p. 424). The reason is that the software industry is subject to economic rules fundamentally different to other industries ( Buxmann et al. Traditional pricing concepts, however, cannot easily be applied to software products ( Bontis and Chung 2000, p. 246). In this paper, we examine pricing strategies of software vendors. Despite this high importance, a multitude of deficiencies regarding pricing models can often be identified, including rationality deficits in form of ad hoc or arbitrary decisions ( Florissen 2008, p. 85). In case of erroneous decisions, the company’s reputation and customer relations can be at risk.

It directly determines the turnover level and thus in the long term also the achieved returns. Pricing takes a central role in the strategy of most companies ( Simon 1992, p. 7 Diller 2008, p. 21–22 Rullkötter 2008, p. 93).

Adobe creative cloud photography plan concurrent users