Impact of pricing schemes on a market for Software-as-a-Service and perpetual software

In this paper, we present an agent-based simulation system that allows modeling the interactions between software buyers and vendors in a software market. The market offers Software-as-a-Service (SaaS) and perpetual software (PS) licenses under different pricing schemes. Four dynamic pricing schemes are analyzed: derivative-follower pricing, demand-driven pricing, skimming pricing, and penetration pricing. Customer (buyer) agents respond to these prices by selecting the most appropriate software license scheme based on four criteria using the Analytic Hierarchy Process (AHP) decision support mechanism. The four decision criteria relate to finance, software capability, organization, and vendor. The simulation results show that the demand-driven pricing scheme is the most effective method but hard to implement since it requires perfect knowledge about market conditions. As an alternative, penetration pricing and skimming pricing could be used. In addition to this, it can be stated that SaaS is most attractive for small enterprises while PS is attractive for large enterprises.

► Agent-based simulation of interactions between software buyers and vendors is used. ► We compare derivative-follower, demand-driven, penetration, and skimming pricing. ► Demand-driven pricing is the most effective pricing but difficult to implement. ► Penetration and skimming pricing are good alternatives to demand-driven pricing. ► SaaS is attractive to SMEs while perpetual software is attractive to large firms.