Optimal pricing strategies for Internet-based software dissemination

In the recent past, there have been several initiatives by major software c ompanies, such as Microsoft, to lead the industry towards electronic softwa re distribution, in this paper, we use a monopoly pricing model to examine the optimal pricing strategies for 'selling' and 'pay-per-use' licensing of packaged software over the Internet. Traditionally, software distribution included outright sale as well as short/long term renting. With the Interne t fast becoming a prevalent mode for disseminating software, a customer can download and use software on a need-by-need basis. For the software vendor , offering the pay-per-use option to the consumer provides for a steady sou rce of revenue and obviates the need for physical distribution, purchasing and inventory management mishaps. We examine the following issues in this p aper: (i) what are the extra benefits to the software vendor for providing the pay-per-use option?; and (ii) does the market size change? The contribu tion of this paper is to show that pay-per-use is a viable alternative for a large number of customers, and that judicious pricing for pay-per-use is profitable for the software vendor.