Network externality, piracy and software bundling in the cloud-based era

雲時代 : 網絡外部性, 盜版和軟件捆綁

Student thesis: Doctoral Thesis

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  • Xiong ZHANG

Related Research Unit(s)


Awarding Institution
Award date2 Oct 2015


The emergence of cloud computing has revolutionized the software industry; instead of only selling software as a product, software is increasingly being sold as a service. Such a Software as a Service (SaaS) model has great implications to software industry. This dissertation investigates the implications based on three interesting developments: (1) software vendors can control piracy better under the SaaS model, (2) cloud based software service is being developed to complement on-premises software, and (3) cloud based software services can be extended and utilized as an Integrated Platform for software products and services. For software vendors, these three emerging cloud-based developments present new and interesting economic tradeoffs which could have significant implications with respect to selling policies. It is not immediately clear how the software vendors should optimally react to those emerging developments. This dissertation focuses on addressing those issues. Specifically, we study the problem from a bundling strategy perspective, in which a software vendor determines how to sell different software products and services using different bundling strategies, such as pure component, pure bundling or mixed bundling. In the first essay, we first consider the bundling decisions of a monopolist software vendor facing software product piracy. In our model, the software product in question is assumed to be susceptible to piracy whereas software service is free of it. Furthermore, software product incurs zero marginal cost whereas software service is associated with constant marginal cost. Under each bundling selling strategy, the software vendor will choose optimal prices and piracy deterrence levels. We find that mixed bundling is the optimal strategy because it can internalize the piracy issue. By adopting this strategy, vendors would choose a selling strategy that comes with a high requirement for fighting piracy; indicating that the software vendor would tolerate piracy for high profit. We then extend the model in the first essay to include the complementary effect between software product and service. This model aims to capture the emerging development in the contemporary software industry where software products and services by the same software vendor are increasingly being designed to complement each other. We find that, with the presence of the complementary effect, the outcome of using pure component selling strategy would be similar to using mixed bundling strategy, and that both strategies will serve as the optimal strategy. Finally, we model the integration effect between software product and service in the second essay. The model reflects the emerging Integrated Platform as a Service phenomenon (iPaaS), which has the effect on linking the users for both software product and service, thus creating network effects. We examine the impact of the integration effect on the monopolist software vendor’s bundling decisions. We find that, counterintuitively, when software product and software service are more interconnected, the optimal selling strategy could be selling the software products and services separately ─ especially when the integration effect is strong. The findings deepen our understanding of the emergence of cloud-based phenomena in the software industry, especially by providing managers in the emerging cloud-based era with better insights on their software selling policies. Our findings also contribute to the current digital product bundling literature as well as other literature pertaining to the software industry on issues such as software piracy, network externality, and software complementarity effects.

    Research areas

  • Computer software industry., Software piracy, Computer networks, Cloud computing