Speed Matters: The Role of Free Software Offer in Software Diffusion
Journal of Management Information SystemsPublished 1 December 2009
Zhengrui Jiang, Sumit Sarkar
Citations66
SJR quartileQ1
SJR score3.65
SNIP2.08
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TL;DR
It is shown in this study that even if other benefits do not exist, a software firm can still benefit from giving away fully functioning software, due to the accelerated diffusion process and subsequently the increased net present value of future sales.
Abstract
Abstract Many software products are available free of charge. While the benefits resulting from network externality have been examined in the related literature, the effect of free offer on the diffusion of new software 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 functioning software. This is due to the accelerated diffusion process and subsequently the increased net present value of future sales. By adapting the Bass diffusion model to capture the impact of free software offer, we provide a methodology to determine the optimal number of free adopters. We show that the optimal free offer solution depends on the discount rate, the length of the demand window, and the ratio of low-valuation to high-valuation free adopters. Our methodology is shown to be applicable for both fixed and dynamic pricing strategies. Keywords: Bass modeldiffusion of innovationsdynamic pricingfree software
Keywords
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