Software licensing in the case of no network effects

Abstract

Traditionally, consumers purchase software by paying the price upfront and install the software on their computers. However, allowing consumers "pay as you go" by subscribing to the software has become increasingly popular. The two licensing models are referred to as "on-premises model" and "Software as a Service (SaaS) model" respectively. This paper studies the software vendor's choice of the two models considering consumers' uncertainty on the software quality and the software upgrading issue. © 2012 Springer-Verlag Berlin Heidelberg.