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Optimal versioning strategies for software firms in the competitive environment

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  • Yangyang Sun
  • Chuangyin Dang
  • Gengzhong Feng

Abstract

Software-as-a-service (SaaS) is gaining tremendous popularity in the enterprise software releases, which has brought the growing challenge for the incumbent used to adopt the on-premise licensing model. In this paper, we focus on the optimal versioning strategy problem of the incumbent when he faces the competition from the entrant who releases the SaaS software. He can choose from providing the upgraded on-premise software, turning to offer the SaaS version of the software, and releasing both the versions. We indicate that releasing both versions won't be the optimal choice in the competitive environment. When the upgrade cost is above a certain value, and the gap of value is below a threshold positively linear correlated with the upgrade cost, the incumbent prefers the SaaS strategy. Otherwise, the on-premise strategy generates the highest profit. A special case is that in the medium switching cost environment, the SaaS strategy can be optimal for all possible values of upgrade cost. Finally, We consider the problem in the presence of network effect and in the uncovered market setting. The results provide effective managerial insights into the strategy selection for the incumbent.

Suggested Citation

  • Yangyang Sun & Chuangyin Dang & Gengzhong Feng, 2021. "Optimal versioning strategies for software firms in the competitive environment," International Journal of Production Research, Taylor & Francis Journals, vol. 59(22), pages 6881-6897, November.
    • Handle: RePEc:taf:tprsxx:v:59:y:2021:i:22:p:6881-6897
    DOI: 10.1080/00207543.2020.1828641
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    Cited by:

    1. Zhujun Wang & Qin Su & Bi Wang & Jie Wang, 2023. "Improving Lithium-Ion Battery Supply Chain Information Security by User Behavior Monitoring Algorithm Incorporated in Cloud Enterprise Resource Planning," Sustainability, MDPI, vol. 15(4), pages 1-14, February.
    2. Peng, Shuxia & Li, Bo & Zheng, Wei, 2024. "Impact of consumer valuation updating in a competitive software market," Omega, Elsevier, vol. 123(C).

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