Advertisement

The Pricing Strategy Analysis for the “Software-as-a-Service” Business Model

  • Dan Ma
  • Abraham Seidmann
Part of the Lecture Notes in Computer Science book series (LNCS, volume 5206)

Abstract

The Software-as-a-Service (SaaS) model is a novel way of delivering software applications. In this paper, we present an analytical model to study the competition between the SaaS and the traditional COTS (Commercial off-the-shelf) software. The main research goal is to analyze the pricing strategy of the SaaS in a competitive setting. The model captures the most salient differences between the SaaS and COTS, including their distinct pricing structures, user initial setup costs, system customization levels, and delivery channels. We find that the two could coexist in a competitive market in the long run, and more importantly, we show how the SaaS could gradually take over the whole market even when its quality is inferior. Surprisingly, our analysis shows that the SaaS should raise (reduce) its prices when its software quality declines (increases) over time (in the relative sense).

Keywords

the SaaS business model pricing strategy competition the COTS software 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    Bednarz, A.: Manufacturers Eye on On-Demand Software. Network World, April 24 (2006)Google Scholar
  2. 2.
    Cheng, H.K., Koehler, G.J.: Optimal Pricing Policies of Web-enabled Application Services. working paper (2002)Google Scholar
  3. 3.
    Cowley, S.: Salesforce.com Makes Platform Move with AppExchange. InfoWorld (September 2005)Google Scholar
  4. 4.
    Hickins, M.: Oracle: On-demand is Now On The Grid. Enterprise (April 2007)Google Scholar
  5. 5.
    Kuchinskas, S.: Salesforce Finally Ships AppExchange. Ecommerce, January 17 (2006)Google Scholar
  6. 6.
    Lacy, S.: The On-Demand Software Scrum. Business Week, April 17 (2006)Google Scholar
  7. 7.
    Proponents of Software as a service say it will wipe out traditional software. The Economist, April 21 (2006)Google Scholar
  8. 8.
    Pallatto, J.: IBM Recruiting IS vs. Partners to SaaS. Channel Insider, Feburary 23 (2006)Google Scholar
  9. 9.
    Software as a Service (Research Report). InformationWeek (March 2007)Google Scholar
  10. 10.
    Susarla, A., Barua, A., Whinston, A.: Understanding the Service Component of Application Service Provision: An Empirical Analysis of Satisfaction with ASP Services. MIS Quarterly 27, 123–919 (2003)Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2008

Authors and Affiliations

  • Dan Ma
    • 1
  • Abraham Seidmann
    • 2
  1. 1.School of Information SystemsSingapore Management University, SingaporeSingapore
  2. 2.University of RochesterUnited States

Personalised recommendations