Software as service pricing: A game theory perspective

Abstract

Software as Service (SaS) is an emerging business model for software sales and distribution. How pricing mechanism will be changed under such new business model is analyzed in this paper with principle-agent model. The analysis shows that cost structure and externality are two key differences between product and service pricing. Due to low marginal cost of SaS, consumers' affordability will become a key determinant in SaS pricing. There may be free even pay-for-consuming service if externality is large enough. Consumer heterogeneity is also a key factor in software pricing. But numeric experiments show that the impact is heavily dependent on consumer type distribution. © 2006 IEEE.