Adjusting Software Revenue and Pricing Strategies in the Era of Cloud Computing

Abstract

Recent research has recognized cloud computing as a new paradigm of servitization in which software products are offered based on service contracts. Thus, instead of selling software licenses, software vendors can rent software as a service to customers. However, it is still unclear how software providers can use software renting as a competitive strategy in the software market. Based on 37 interviews with software professionals from five case firms, this paper focuses on the connection between competitive forces and the factors influencing the selection of a pricing model. The findings indicate that servitization of the software offering makes it possible to adjust revenue and pricing strategies relative to market competition. Depending on the competitive situation in the market, firms apply mixed revenue models, or else a hybrid pricing mechanism, to protect their business against rivalry and substitutes. The software renting model has several advantages which significantly help software vendors to expand their business opportunities. However, in some cases, powerful customers are able to limit the revenue and pricing options. The findings also indicate that software renting is related to cost leadership and differentiation strategies, whereas software licensing is linked to a focus strategy.