The Influence of Software Process Maturity and Customer Error Reporting on Software Release and Pricing

TitleThe Influence of Software Process Maturity and Customer Error Reporting on Software Release and Pricing

Time 2011-12-16 9:30-11:00am

LocationWeilun 453Tsinghua SEM

LanguageEnglish

Abstract

Software producers are making greater use of customer error reporting to discover defects and improve the quality of their products. We study how software development differences among producers (e.g., varying process maturity) and software class and functionality differences (e.g., operating system versus productivity software) affect how these producers coordinate software release timing and pricing to optimally harness error reporting contributions from users. In settings where prices are fixed, we characterize informative bounds on release timing and demonstrate why in some cases it can actually be preferable to delay release when customer error reporting rates increase. We also find that as a firm gains more price control, it will tend to release its product to the market earlier. Generally, firms with greater software process maturity should release earlier than firms with lower maturity, however, when a low maturity firm can set an optimal price trajectory, it will also prefer to release as soon as its product has sufficient quality to induce adoption. When an increase in software functionality dilutes customer error reporting, higher process maturity firms have incentives to delay release and raise prices. In contrast, firms with lower process maturity should release earlier and charge lower prices. Increasing the effective size of a beta testing population leads to similar conclusions. Finally, in settings where the producer has full price control, we establish that a higher process maturity firm targeting a market with low error reporting rates should employ a price skimming strategy toward the end of its product sales horizon and only consider a penetration pricing strategy early on if the discount rate is not too small. Such penetration strategies are also found to be preferable by lower maturity firms producing software characterized by high user error reporting rates.