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Cited by 152Digital Platforms and EconomicsConsumer Market Behavior and PricingCopyright and Intellectual Property

The DOI matches its Crossref record; 69 of the 71 references it cites were found in a registry or an index.

Economics of Free Under Perpetual Licensing: Implications for the Software Industry

Niculescu, Marius F., Wu, D. J.·2014·Information Systems Research
DOI 10.1287/isre.2013.0508
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Abstract

In this paper, we explore the economics of free under perpetual licensing. In particular, we focus on two emerging software business models that involve a free component: feature-limited freemium (FLF) and uniform seeding (S). Under FLF, the firm offers the basic software version for free, while charging for premium features. Under S, the firm gives away for free the full product to a percentage of the addressable market uniformly across consumer types. We benchmark their performance against a conventional business model under which software is sold as a bundle (labeled as “charge for everything” or CE) without free offers. In the context of consumer bounded rationality and information asymmetry, we develop a unified two-period consumer valuation learning framework that accounts for both word-of-mouth (WOM) effects and experience-based learning, and use it to compare and contrast the three business models. Under both constant and dynamic pricing, for moderate strength of WOM signals, we derive the equilibria for each model and identify optimality regions. In particular, S is optimal when consumers significantly underestimate the value of functionality and cross-module synergies are weak. When either cross-module synergies are stronger or initial priors are higher, the firm decides between CE and FLF. Furthermore, we identify nontrivial switching dynamics from one optimality region to another depending on the initial consumer beliefs about the value of the embedded functionali…

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Citations

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Research works printed but not linked: 12

  1. 10.1037/0022-3514.39.5.752 · DOI · Paper page
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  5. Miller CC, 2009, New York Times
  6. Osborne MJ, 1998, Amer. Econom. Rev., 88, 834
  7. Radner R, 2013, Proc. Natl. Acad. Sci. USA
  8. Riggins FJ, 2003, J. Management Inform. Systems, 19, 69
  9. 10.2139/ssrn.1962189 · DOI
  10. Simon HA, 1972, Decision Organ., 1, 161
  11. Spiegler R, 2006, Theoret. Econom., 1, 207
  12. Whittaker Z, 2013, WWDC'13: Apple Keynote, by the Numbers

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Metadata

Authors
Niculescu, M. F., & Wu, D. J.
Affiliations
Georgia Institute of Technology (US)
ORCID
Venue
Information Systems Research
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Published
2014-03
Volume
25
Issue
1
Pages
173-199
ISSN
  • 1047-7047 (ISSN-L)
  • 1526-5536
DOI
10.1287/isre.2013.0508
OpenAlex
W3123695987
Cited by
151
References
71
Citations by year
2026: 11 · 2025: 11 · 2024: 9 · 2023: 9 · 2022: 11 · 2021: 13 · 2020: 17 · 2019: 19 · 2018: 12 · 2017: 14 · 2016: 13 · 2015: 5 · 2014: 3
FWCI
35.83
Type
journal article
Language
en
Open access
closed
Locations
Information Systems Research (publishedVersion)
Topics
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Digital Platforms and Economics
  • Social Sciences › Business, Management and Accounting › Marketing › Consumer Market Behavior and Pricing
  • Social Sciences › Business, Management and Accounting › Marketing › Copyright and Intellectual Property
Keywords
freemium model, software business models, bounded rationality, information asymmetry, word-of-mouth effect, experiential learning, price skimming, penetration pricing, dynamic pricing, software pricing

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