Journal of Management Information Systems

Volume 27 Number 1 2010 pp. 39-38

Perpetual Versus Subscription Licensing Under Quality Uncertainty and Network Externality Effects

Zhang, Jie and Seidmann, Abraham

ABSTRACT: The article analyzes the optimal way for software vendors to license software, in the context of social aspects of information systems. The relative merits of perpetual licensing or subscription models are discussed, and issues such as software upgrade compatibility, uncertainty regarding quality, network effects and price forecasting are addressed. Evidence is presented that software vendors should use a hybrid of perpetual licensing and subscription models in order to optimize both their own profits and the satisfaction of their customers.

Key words and phrases: compatibility, network externalities, price discrimination, quality uncertainty, software licensing, upgrades