Optimal Software Delivery Strategy Of Software Providers In A Competitive Environment

With the advent of the Internet,it is increasingly popular for enterprise software firms to provide their software to customers directly through the Internet,usually under the Software as a Service(SaaS)delivery model.By providing a standard software product,SaaS providers effectively differentiate their products with traditional shrink-wrap software(SWS)providers.Customers buying SWS are able to customize the software while there remains performance gap between the SaaS applications and the SWS applications.Based on the above practical background,this paper studies the selection of software delivery mode by software providers in a competitive environment.This research analyzes the optimal distribution strategy of enterprise software by taking into account the distinct features of enterprise software for both the short-run problem,in which the software quality is fixed,and the long-run problem,in which the software quality becomes part of the strategic decisions.We consider a competition model with two players: Firm 1 and firm 2.Each Firm can choose to provide software products under SWS delivery mode or SaaS delivery mode.This research uses a game theoretical approach to examine short-and long-term competition between SaaS and SWS.We develop four game theoretical based on the different delivery modes choice of the two competitors.We solve them by using the reverse induction,and then make two-party comparisons by theoretical analysis and characterize the influence of unfit cost under SaaS and implementation cost under SWS on the equilibrium outcomes.Our results provide important managerial implications on competitive strategies and operation policies for software companies.The result shows that the unfit cost under SaaS and the implementation cost have an important impact on firms' delivery mode selection.In the short-term competition between SaaS and SWS,when the cost of unit quality improvement is very high and the unfit cost is high,both providers will choose the SWS mode;when the matching unfit cost is low,the balance strategy is affected by the implementation cost,if the implementation cost is low,both providers will choose the SWS mode,if the implementation cost is moderate,asymmetric delivery mode competition will be formed,if the implementation cost is high,both providers will choose SaaS mode.In the long-term competition between SaaS and SWS,the equilibrium under high quality improvement cost is consistent with the conclusion.When the quality cost coefficient is small,only when the unfit cost under SaaS is high,there exits an equilibrium strategy.At this time,both sides of the competition choose asymmetric delivery mode to compete.When the quality cost coefficient is large,the quality improvement of both sides is affected by the SaaS matching degree.If the matching degree is high,both sides will improve the quality.If the matching degree is moderate,only SaaS mode providers will improve the quality.If the matching degree is small,neither will improve the quality.When the quality cost coefficient is moderate and the unfit cost under SaaS is low,both providers will always choose the SaaS mode.