Optimal adoptions of freemium version and patching strategy: Network and security externalities
The freemium pricing model has become mainstream in the software industry. A large user base can induce positive network effects while expanding security risks associated with unpatched users. This study explores a two-stage decision problem faced by software vendors that involves a freemium version...
| Main Authors: | , , , , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
KeAi Communications Co., Ltd.
2022-03-01
|
| Series: | Journal of Management Science and Engineering |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2096232021000640 |
| _version_ | 1811248846772109312 |
|---|---|
| author | Nan Feng Hanyue Zhang Changqing Dong Jie Zhang Minqiang Li Jing Xie |
| author_facet | Nan Feng Hanyue Zhang Changqing Dong Jie Zhang Minqiang Li Jing Xie |
| author_sort | Nan Feng |
| collection | DOAJ |
| description | The freemium pricing model has become mainstream in the software industry. A large user base can induce positive network effects while expanding security risks associated with unpatched users. This study explores a two-stage decision problem faced by software vendors that involves a freemium versioning strategy and a subsequent security-patching strategy when taking both the positive network externality and negative security externality into consideration. It is noteworthy that a joint effect of the two externalities on the vendor’s management decisions exists. First, we analytically derive three patching strategies for the vendor: PS1 (rebates all users), PS2 (rebates only freeware users), and PS3 (rebates no users). Our results indicate that, if the strength of the positive network externality is relatively low, the optimal security-patching strategy will be significantly affected by the negative security externality. Specifically, when the intensity of the negative security externality is low, the vendor’s optimal patching strategy will be PS1. However, with the increase in the negative security externality, the optimal patching strategy changes to PS2 and then to PS3, whereas the strategy spaces of PS1 and PS2 decrease in the positive network externality to zero. Nevertheless, if the strength of the positive network externality is relatively high, the vendor is better off selecting PS1 when the negative security externality is low. However, when the negative security externality is high, PS3 is optimal. Furthermore, based on optimal patching strategies, we reveal the optimal conditions required for the vendor to adopt the freemium model compared with commercial only. Of interest, we find that the vendor adopting the freemium version is also influenced by the interaction of the two externalities. Finally, through numerical experiments, we find that the vendor and social planner’s interests can be aligned under certain conditions. However, this is not always the case. |
| first_indexed | 2024-04-12T15:35:11Z |
| format | Article |
| id | doaj.art-026459bb15844af89c7109147e0f1efd |
| institution | Directory Open Access Journal |
| issn | 2096-2320 |
| language | English |
| last_indexed | 2024-04-12T15:35:11Z |
| publishDate | 2022-03-01 |
| publisher | KeAi Communications Co., Ltd. |
| record_format | Article |
| series | Journal of Management Science and Engineering |
| spelling | doaj.art-026459bb15844af89c7109147e0f1efd2022-12-22T03:26:58ZengKeAi Communications Co., Ltd.Journal of Management Science and Engineering2096-23202022-03-0171107132Optimal adoptions of freemium version and patching strategy: Network and security externalitiesNan Feng0Hanyue Zhang1Changqing Dong2Jie Zhang3Minqiang Li4Jing Xie5College of Management and Economics, Tianjin University, Tianjin, 300072, ChinaCollege of Management and Economics, Tianjin University, Tianjin, 300072, ChinaCollege of Management and Economics, Tianjin University, Tianjin, 300072, China; Corresponding author.College of Business Administration, University of Texas at Arlington, Arlington, TX, 76019, USACollege of Management and Economics, Tianjin University, Tianjin, 300072, ChinaCollege of Management and Economics, Tianjin University, Tianjin, 300072, ChinaThe freemium pricing model has become mainstream in the software industry. A large user base can induce positive network effects while expanding security risks associated with unpatched users. This study explores a two-stage decision problem faced by software vendors that involves a freemium versioning strategy and a subsequent security-patching strategy when taking both the positive network externality and negative security externality into consideration. It is noteworthy that a joint effect of the two externalities on the vendor’s management decisions exists. First, we analytically derive three patching strategies for the vendor: PS1 (rebates all users), PS2 (rebates only freeware users), and PS3 (rebates no users). Our results indicate that, if the strength of the positive network externality is relatively low, the optimal security-patching strategy will be significantly affected by the negative security externality. Specifically, when the intensity of the negative security externality is low, the vendor’s optimal patching strategy will be PS1. However, with the increase in the negative security externality, the optimal patching strategy changes to PS2 and then to PS3, whereas the strategy spaces of PS1 and PS2 decrease in the positive network externality to zero. Nevertheless, if the strength of the positive network externality is relatively high, the vendor is better off selecting PS1 when the negative security externality is low. However, when the negative security externality is high, PS3 is optimal. Furthermore, based on optimal patching strategies, we reveal the optimal conditions required for the vendor to adopt the freemium model compared with commercial only. Of interest, we find that the vendor adopting the freemium version is also influenced by the interaction of the two externalities. Finally, through numerical experiments, we find that the vendor and social planner’s interests can be aligned under certain conditions. However, this is not always the case.http://www.sciencedirect.com/science/article/pii/S2096232021000640FreemiumPositive network externalityNegative security externalityPatching strategy |
| spellingShingle | Nan Feng Hanyue Zhang Changqing Dong Jie Zhang Minqiang Li Jing Xie Optimal adoptions of freemium version and patching strategy: Network and security externalities Journal of Management Science and Engineering Freemium Positive network externality Negative security externality Patching strategy |
| title | Optimal adoptions of freemium version and patching strategy: Network and security externalities |
| title_full | Optimal adoptions of freemium version and patching strategy: Network and security externalities |
| title_fullStr | Optimal adoptions of freemium version and patching strategy: Network and security externalities |
| title_full_unstemmed | Optimal adoptions of freemium version and patching strategy: Network and security externalities |
| title_short | Optimal adoptions of freemium version and patching strategy: Network and security externalities |
| title_sort | optimal adoptions of freemium version and patching strategy network and security externalities |
| topic | Freemium Positive network externality Negative security externality Patching strategy |
| url | http://www.sciencedirect.com/science/article/pii/S2096232021000640 |
| work_keys_str_mv | AT nanfeng optimaladoptionsoffreemiumversionandpatchingstrategynetworkandsecurityexternalities AT hanyuezhang optimaladoptionsoffreemiumversionandpatchingstrategynetworkandsecurityexternalities AT changqingdong optimaladoptionsoffreemiumversionandpatchingstrategynetworkandsecurityexternalities AT jiezhang optimaladoptionsoffreemiumversionandpatchingstrategynetworkandsecurityexternalities AT minqiangli optimaladoptionsoffreemiumversionandpatchingstrategynetworkandsecurityexternalities AT jingxie optimaladoptionsoffreemiumversionandpatchingstrategynetworkandsecurityexternalities |