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Short-term and long-term competition between providers of shrink-wrap software and software as a service

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  • Fan, Ming
  • Kumar, Subodha
  • Whinston, Andrew B.

Abstract

Software as a service (SaaS) has moved quickly from a peripheral idea to a mainstream phenomenon. By bundling a software product with delivery and maintenance service, SaaS providers can effectively differentiate their products with traditional shrink-wrap software (SWS). This research uses a game theoretical approach to examine short- and long-term competition between SaaS and SWS providers. We analyze the factors that affect equilibrium outcomes, including user implementation costs, SaaS provider's operation efficiency, and quality improvement over time. Bundling software with service lowers software implementation cost for users, and our results suggest that it increases equilibrium prices. In providing software services, SaaS providers have to incur significant operation cost. In the long run, service operation cost may significantly affect SaaS firm's ability to improve its software quality.

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  • Fan, Ming & Kumar, Subodha & Whinston, Andrew B., 2009. "Short-term and long-term competition between providers of shrink-wrap software and software as a service," European Journal of Operational Research, Elsevier, vol. 196(2), pages 661-671, July.
    • Handle: RePEc:eee:ejores:v:196:y:2009:i:2:p:661-671
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    11. Vincent Cho & Aman Chan, 2015. "An integrative framework of comparing SaaS adoption for core and non-core business operations: An empirical study on Hong Kong industries," Information Systems Frontiers, Springer, vol. 17(3), pages 629-644, June.
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    14. Li, Gang & Huang, Feng Feng & Cheng, T.C.E. & Zheng, Quan & Ji, Ping, 2014. "Make-or-buy service capacity decision in a supply chain providing after-sales service," European Journal of Operational Research, Elsevier, vol. 239(2), pages 377-388.
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    16. Yang, Bibo & Ng, C.T., 2010. "Pricing problem in wireless telecommunication product and service bundling," European Journal of Operational Research, Elsevier, vol. 207(1), pages 473-480, November.
    17. Foubert, Bram & Gijsbrechts, Els, 2010. "Please or Squeeze? Brand performance implications of constrained and unconstrained multi-item promotions," European Journal of Operational Research, Elsevier, vol. 202(3), pages 880-892, May.
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    19. Wang, Qingwei & Zheng, Meimei & Lee, Ka-Man & Shi, Xiaoqian & Shen, Yichi & Pan, Ershun, 2024. "Optimal product and after-sales service decisions considering risk attitudes under price-dependent uncertain demand," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 182(C).
    20. Aaqif Afzaal Abbasi & Hai Jin, 2018. "v-Mapper: An Application-Aware Resource Consolidation Scheme for Cloud Data Centers," Future Internet, MDPI, vol. 10(9), pages 1-17, September.
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