Network Effects on Standard Software Markets: A Simulation Model to examine Pricing Strategies

Transcription

1 Nework Effecs on Sandard Sofware Markes Page Nework Effecs on Sandard Sofware Markes: A Smulaon Model o examne Prcng Sraeges Peer Buxmann Absrac Ths paper examnes sraeges of sandard sofware vendors, n vew of he exsence of nework effecs on sandard sofware markes. In parcular, we analyze f and under whch condons peneraon prcng can be consdered as a promsng sraegy. Our work s based on a smulaon model, whch provdes he opporuny o examne he mpac of alernave prcng sraeges on he dsrbuon of sofware sysems. Furhermore, he paper provdes some emprcal resuls from he perspecve of he users. Prof. Dr. Peer Buxmann, Freberg Unversy of Technology, Char of Informaon Managemen, Lessngsr. 45, Fre berg, Germany, buxmann@bwl.u-freberg.de

2 Nework Effecs on Sandard Sofware Markes Page I Inroducon Today, more and more sofware can be downloaded from he Inerne for free. Ths sofware ncludes Web Browsers, dfferen ools for sofware developmen as well as an operang sysem LINUX whch has been developed by an Inerne communy. The company Sar gave away s producs, frs o prvae cusomers and laer on also o busness enerprses unl he company was aken over by Sun Mcrosysems. Does hs mean ha sofware wll be free n he fuure? Ths paper dscusses prcng sraeges for sandard sofware vendors. In parcular, we examne under whch condons peneraon prcng [Shapro/Varan (998, 4] can be a promsng sraegy. Thereby, he exsence of nework effecs plays a key role. The analyss s based on a smulaon model. Furhermore, we conduced an emprcal survey among users. Secon wo provdes a shor nroducon o he heory of nework effecs and s applcaon o sandard sofware. In secon hree an overvew of sraeges of sandard sofware vendors s gven. Usng a smulaon model, alernave prcng sraeges wll be examned n secon four. The resuls of he smulaon model wll be compared o he fndngs of emprcal sudes.

3 Nework Effecs on Sandard Sofware Markes Page 3 II Nework Effecs on Sandard Sofware Markes. Bascs of Nework Effecs Le us frs defne nework effecs: The uly of some goods depends on he number of people usng hese goods. We dsngush beween drec and ndrec nework effecs [Kaz/Shapro (985, 44]: Drec nework effecs resul from compably beween sysem elemens. For example, he uly of an e-mal sysem s ncreasng wh he number of users also usng. Furher examples are Inerne as well as moble phone sandards. Indrec nework effecs assume a posve dependency beween he spreadng of a echnology or a sandard and approprae offers of complemenary goods. For example, he spreadng of an operang sysem plays an mporan par n deermnng he supply of compable applcaon sofware. Anoher example s he exensve varey of applcaon programs for Wndows. Moreover, we can make a dsncon beween hese nework effec ules and he basc uly of a good. A ex processng program, for example, s offerng boh basc uly and nework effec uly. The basc uly resuls from s funconales, e.g. specal opons for ex formang, negraon of graphcs, auomac ndex creaon ec. In conras, he nework effec uly resuls from he possbles of exchangng fles wh oher users (drec nework effec, or recevng advces for handlng he sysem (ndrec nework effec. On he oher hand, an e-mal sysem s an example for a good whch only leads o a nework effec uly. Wha can a sngle user do wh such a sysem? To measure he srengh of nework effec uly n relaon o basc uly, we nroduce a nework effec facor Q. Hereby, c defnes he nework effec uly and b he basc uly. The nework effec facor s defned as follows: Q = c c + b Q has a value beween zero and one. The hgher Q, he more mporan s he nework effec n comparson o he basc uly. To gve an example, an e-mal sysem wll have a nework effec facor of. The exsence of hese nework effecs can be he reason why he bes echncal sysem mgh no be adoped by he users. Therefore, ofen, a lock n no an nferor echnology can be observed [Davd (985, Lebowz/Margols (994]. Thus, an enerprse havng an nsalled base on a nework effec marke has a subsanal compeve advanage whch can hardly be caugh up by compeors. Accordng o Farrell/Saloner, he nsalled base ofen avods he swch o a superor sandard due o coordnaon problems [Farrell/Saloner (985]. Ther argumenaon s he followng: The oal uly of all marke users could be ncreased, f all marke users decded for a change o a new, echncally superor sandard. However, because of nformaon asymmeres s unceran wheher such a ranson acually akes place

4 Nework Effecs on Sandard Sofware Markes Page 4 [Farrell/Saloner (985, 75-79]. Due o mperfec nformaon, he poenal swcher has he problem ha oher marke users may no follow. Then, he ncrease of basc uly mgh no compensae he los nework effec uly. Ths uncerany concernng oher marke users can lead o he fac ha enerprses reman n her curren saus. Ths coordnaon problem s called pengun effec [Farrell/Saloner (987, 3-4]. The followng analogy s he bass for he namng: Hungry penguns are a he edge of an ce floe. From fear of fshes of prey hey hope ha oher penguns jump no he waer frs, so hey can plumb he assocaed rsk. As soon as some of he penguns dare he jump, he danger for he free rder penguns s reduced and hey follow. For ha reason, on nework effec markes we fnd ofen only a few vendors esablshed [Besen/Farrell (994], offerng hgh nework effec uly o her clens. A consequence s ha nnovaons are prevened snce new vendors encouner problems enerng he marke. From he vewpon of he users s sll dspued wheher hs consellaon s problemac, due o a relavely small nnovang rae, or f s favorable because of a hgh compably [Lebowz/Margols (994].. The Marke For Busness Sandard Sofware In wha respec are nework effecs relevan on sandard sofware markes? Here, we concenrae on busness sandard sofware ha suppors for example funconales lke fnancal accounng, producon plannng, conrollng or busness processes. The followng fgure shows he dsrbuon of he mos mporan sandard sofware sysems n Germany and he USA [Wesarp/Buxmann/Wezel/Köng (999]: 00 Germany 00 USA % of companes SAP R/3 SAP R/ Oracle-Appl. Baan-Tron % of companes Appl. SAP R/3 SAP R/ Oracle- Peoplesof Baan- Tron JD. Edwards Fgure : Spreadng of Sandard Sofware n he German Federal Republc and he USA The German marke s clearly domnaed by SAP sofware. 77% of he nervewees use SAP R/3 and 48% use he predecessor SAP R/. In conras o hs, only 6% of he nervewed enerprses are usng Oracle Applcaon and 3% Baan Tron. In he USA, Peoplesof s he broades sysem (5%, followed by SAP R/3 (40%, SAP R/ (4%, Oracle Applcaon (36%, J.D. Edwards (% and fnally Baan Tron (9%. These resuls are based on an emprcal survey carred ou n he summer of 998. A quesonnare wh abou 30 quesons was sen o he 000 larges companes boh n Germany and he Uned Saes. 50 quesonnares were reurned n Germany (5%, and 0 n he US (0,%.

5 Nework Effecs on Sandard Sofware Markes Page 5 In accordance wh he dsncon nroduced n secon., drec nework effecs are presen on markes for sandard sofware o he exend ha users of he same sandard sofware can cooperae more easly. For example, wh a common use of he SAP R/3 sysem, documens lke sales orders or nvoces on he base of he so called Idoc sandard (SAP can be easer exchanged, as f each company uses a dfferen sysem. Lkewse s possble o fnd ndrec nework effecs n he sandard sofware marke. These could be complemenary sofware supples, nerfaces or consulng offers. We wll reurn o ha n he followng paragraph. Apar from hs nework effec uly, sandard sofware offers a basc uly. Ths resuls from he suppor of busness processes and s, by defnon, ndependen of he use of sofware by oher enerprses. III Sraeges of Sandard Sofware Vendors: An Overvew In he prevous secon we already descrbed how dffcul s for a new vendor o ener a marke wh esablshed vendors. On nework effec markes he nsalled base plays a key role n ganng a compeve advanage, so boh new and esablshed vendors wll am a ncreasng her nsalled base. Ths n mnd, we brefly wan o examne sraeges for hese sandard sofware vendors. Thereby, we use he common dsncon beween produc sraeges, communcaon sraeges, dsrbuon sraeges, prcng sraeges. In hs secon we wll brefly dscuss he frs hree menoned. In he followng secon we wll examne prcng sraeges n more deal. Le us frs consder he produc sraegy on sandard sofware markes. Snce we wan o concenrae on sraeges concernng nework effecs we wll neglec general sofware qualy crera lke relably, ec. For he produc sraegy he desgn of nerfaces s of specal mporance regardng he creaon of nework effecs. The exsence of hese nerfaces n he long run deermnes he ably of users of he sysems o communcae among each oher. Thereby, a rend away from vendor-specfc o open and hus vendorndependen nerfaces can be observed [Shapro/Varan (998, 06]. Tha s, sofware vendors offer nerfaces enablng communcaon wh oher sysems. Thus, for nsance, he common web sandards Java, XML, COBRA, TCP/IP or HTTP are par of he sysems of vendors lke Baan, J.D. Edwards, Oracle, and SAP. Besdes hese open nerfaces, vendors offer propreary nerfaces as dfferenaon feaure carryng dfferen names lke BOI (Busness Objec Inerface, API (Applcaon Programmng Inerface or BAPI (Busness Applcaon Programmng Inerface. Regardng he communcaon sraegy large sandard sofware vendors offer he classcal reperore of acves. These nclude press releases, drec malng, ads, web ses ec. The announcemen polcy s of specal mporance on nework effec markes [Farrell/Saloner (986]. Le us magne a large sofware vendor who s able o offer hs clens a hgh nework effec uly n addon o he basc uly. If a new sofware

6 Nework Effecs on Sandard Sofware Markes Page 6 vendor, wh a soluon offerng a hgher basc uly due o an ncreased funconaly, s enerng he marke, he clens wll have he pengun problem descrbed earler: shall hey buy he new sofware? If he esablshed vendor now announces ha hs nex verson provdes a leas he same funconales as he new vendor does, he clens wll make her decson owards he esablshed vendor. The soluon of he new vendor wll no ener he marke. Thus he objecve of he communcaon sraegy consss of convncng he user of a fuure spreadng of he own sysem. If he users beleve ha a ceran sysem wll become generally acceped, hs wll occur [Kaz/Shapro (986 or Shapro/Varan (998, 4]. The dsrbuon sraegy on he sandard sofware marke s parcularly characerzed by cooperaon. Sandard sofware vendors are makng parnershps wh hardware vendors as well as oher sofware vendors. In hs case, managemen consulances are of specal mporance because sandard sofware usually has o be cusomzed before s used n he enerprses. The parnershps creae ndrec nework effecs. Afer hs overvew of produc, communcaon and dsrbuon sraeges we wan o dscuss prcng sraeges n more deal. IV Prcng Sraeges of Sandard Sofware Vendors: A Smulaon Model In he nroducon we already menoned examples of sandard sofware vendors gvng away her producs. In hs secon we wan o examne under whch condons peneraon prcng s a promsng sraegy. Therefore, we developed a smulaon model o analyze he nfluence of alernave prcng sraeges of sandard sofware vendors on he dsrbuon of her sysems. 4. Bass of he Smulaon Model The basc assumpons are:. On he marke here are wo vendors of sandard sofware sysems, beng ncompable o each oher.. We wll analyze a me horzon of T perods. The prcng sraegy of vendor s gven as a prce vecor whch s well-known by vendor. The elemens of he prce vecor show he prces n he perods 0 o T-. Now we examne alernave prcng sraeges for vendor (p 0, p,... p T-. 3. N = {,,..., n} s a se of poenal users, whereby everyone makes a decson n perod = 0 o = T- concernng he applcaon of one of he wo sysems on he bass of he ne presen value. Thereby, he consders one-me and runnng coss as

7 Nework Effecs on Sandard Sofware Markes Page 7 well as basc and nework effec ules. Expenses of former perods are consdered as sunk coss. Now, he ne presen value model wll be developed. Frs, we assume he purchase prce for a user beng me-dependen. Besdes he vendors can sell her sysems o consumers a dfferen prces snce he prces are usually no ransparen. Furhermore, le p (p be he purchase prce user N has o pay for sysem ( n perod. A specfc feaure nroducng sandard sofware s he fac ha he user has o pay he purchase prce as well as nroducon coss. These arse predomnanly from he necessy of a muual adjusmen beween he busness processes and he sandard sofware. Smlarly, le a (a be he nroducon coss for user n perod for sysem (. Boh coss, acquson as well as nroducon coss, come up a he begn. I s necessary o dsngush beween acquson and nroducon coss, because only he frs menoned wll be revenue for he sofware vendor. The nroducon coss are personnel coss, coss for ranngs, and fees for managemen consulances. Apar from hese one-me coss, users also have o bear curren coss for runnng he sysem, lke personnel coss. These coss for user for sysem ( n perod are defned as k (k. Concernng he uly, we wll negrae n he model he dsncon beween basc uly and nework effec uly whch has already been addressed n secons wo and hree. We assume he gan user receves of an nvesmen n sysem ( s medependen and occurs from pon n me + up o he end of plannng horzon T. Boh basc uly and nework effec uly can be expressed n moneary uns and cash flows are dscouned by he facor r. To llusrae basc and nework effec uly, we magne he users as a nework, whch s llusraed usng nodes and edges. The users are represened by nodes whle he edges represen he relaonshps beween hese nodes. Because of beng ndependen of he sysems dsrbuon, we model he basc uly n he nodes. The basc uly of user applyng sysem ( n perod s gven by b (b. In conras o he basc uly, he nework effec uly depends on he dsrbuon of he sysem and hus on he user s decson. We can assgn he nework effec uly o he edges and defne as c j (c j. We only ake drec nework effecs no consderaon. Snce he nework effec can be user specfc, ha means profs more n communcang wh j hen he oher way round, he edges wll be modeled bdreconal.

8 Nework Effecs on Sandard Sofware Markes Page 8 b j b j c j c j Fgure : Basc and Nework Effec Uly n he Model To develop he ne presen value model, we need a bnary varable x j (x j whch shows f sysem ( s used by j n perod. We assume ha user, usng sysem (, receves n perod a nework effec uly ogeher wh user j havng a value of c j (c j, f x j (x j becomes [Buxmann/Wezel/Wesarp/Köng (999]. Tha wll be he case f j uses he same sysem. Ths modellng mples he assumpon of eher complee compably or ncompably of he sysems. Lkewse we assume ha he presenly nsalled base also forms he bass for fuure expecaons. These fuure expecaons are checked permanenly. In each perod he user makes a new decson concernng he applcaon of he sysem. We dfferenae beween wo scenaros. In he frs scenaro no sysem has been mplemened ye. In hs case he user wll selec he sysem gvng he maxmum ne presen value, f hs ne presen value has a posve value. If ne presen values are negave, he wll no nves. Therefore he crera for makng decsons s from he perspecve of (max(k, K,0 = 0 o = T- wh ( ( ( = + = = j j r k x c b a p K T n j ( ( ( = + = = j j r k x c b a p K T n j In he second scenaro a sysem s already nsalled. Now he user has o decde f he lkes o swch o he oher sysem. Assumng ha he already mplemened sysem, he decson changes as follows: 3 ( ( ( = + = = j j r k x c b a p K T n j 3 If sysem s mplemened, hen he ndces for sysem and sysem have o be swched n he equaons. ( ( ( + + = + = = j j r k x c b K T n j

9 Nework Effecs on Sandard Sofware Markes Page 9 The coss for sysem, ha already occured n former perods, are no modeled, snce we consder hem as sunk coss. 4. Implemenaon and Applcaon of he Smulaon Model Now we wll ake he model developed n he prevous secon as a bass for several smulaon runs. The goal s o examne alernave prcng sraeges regardng her effecs on he dsrbuon of he sysems. In parcular we analyze o wha exend hese sraeges depend on he nework effec facor Q, he nsalled base of he sysems, he produc polcy whch s represened n hs case as he basc uly. For our smulaon analyss we proceed from he followng magnary daa:. Two vendors of sandard sofware face n=0 users.. Plannng horzon T=5 perods. 3. Calculaon neres rae s 5% (r=0, Inroducon coss for boh sysems are dencal for each user, ha means a = a = 900 (=0,...=T-. 5. Runnng coss are dencal for boh sysems as well as consan n he long run. We assume he followng values: k = k = 300 (=,...=T. 6. Furhermore, we assume one sysem havng a hgher funconaly. Ths funconaly s represened by a hgher basc uly. Basc ules are dependen from he users. For hs reason s possble ha one user can receve a hgher basc uly wh he same sysem han anoher user. In order o llusrae user specfc varaon of he basc uly, he program assgns a random value o each user. These basc ules are consan over he me wh µ (b = 900, µ (b = 800, he random numbers are generaed usng a unform dsrbuon wh [0,800] for sysem and [0,600] for sysem. 7. The value of he nework effec uly s deermned by he basc uly and he nework effec facor Q. If, for example, Q has a value of 0,5 and he generaor for random numbers gves each user a basc uly b =80, he expeced value of he nework effec uly for each edge wll be µ (c j =90. 4 Ths process wll be realzed usng a smulaon program by generang a random number for each edge comng ou of [0,80]. On he bass of hese daa several smulaon runs are execued. In he frs sep, we assume ha no nsalled bass exss,.e. no user s usng one of he sysems. Prcng 4 If Q=0.5, he nework effec wll equal he basc uly. If n=0 users, each user s havng nne poenal communcaon parners. If we produce for each ou-gong edge of user a nework effec uly by random havng an expeced value of 90, he nework effec uly wll equal he basc uly of 80.

10 Nework Effecs on Sandard Sofware Markes Page 0 sraeges are dencal for each suppler and gven by prce vecors (300, 300, 300, 300, 300. The followng fgure shows he spreadng of he sysem resulng from he users decsons: Fgure 3: Sysem wh a hgher basc uly becomes generally acceped In he frs perod all users decde for sysem. The sysem wh he hgher basc uly becomes generally acceped. How wll he resuls change f an nsalled bass exss? Le us assume, ha sysem has a marke share of 50%. The nework effec facor s assumed o be Q=0,5. Agan, prcng sraeges are dencal. Users who dd no mplemen he sysem ye, wll decde for he sysem wh he nsalled bass because offers a nework effec uly rgh from he sar. Due o a smlar suaon, Apple-MacInosh was no able o esablsh n he marke.

11 Nework Effecs on Sandard Sofware Markes Page Fgure 4: Sysem wh an nsalled bass becomes generally acceped Wha can vendor do n a suaon n whch he compeor has an nsalled base? In hs case, peneraon prcng, as already menoned above, could be a possble sraegy. Assumng vendor eners he marke wh a prce vecor of (0, 00, 00, 300, 400. However, afer he frs perod he wll receve a share of 30% as shown n fgure 5.

12 Nework Effecs on Sandard Sofware Markes Page Fgure 5: Usng Peneraon Prcng, sysem receves a 30% share Nex, we assume he same prcng sraeges and nsalled base as n our las scenaro, bu a hgher nework effec facor. Thus, compared o he basc uly, nework effecs are more mporan. Le us assume a nework effec facor of Q=0,75. Even f vendor mplemens a low prcng sraegy, he wll no be able o ener he marke. The sysem wh an nsalled bass becomes generally acceped agan.

13 Nework Effecs on Sandard Sofware Markes Page 3 Fgure 6: Alhough havng a low prcng sraegy, sysem s no able o ener he marke The peneraon prcng sraegy s success s obvously dependng on he nework effec facor. Wha can vendor do now? One possble reacon could be an exreme peneraon prcng sraegy: a so called payng exra sraegy. Le us assume ha vendor pays s cusomers 5000 moneary uns durng he frs perod. The prce vecor s assumed beng (-5000, 0, 00, 00, 300. As shown n fgure 7, sysem s able o ener he marke. In he frs perod, we observe a share of 50% for boh sysems. Aferwards sysem becomes generally acceped.

14 Nework Effecs on Sandard Sofware Markes Page 4 Fgure 7: As a consequence of a Payng Exra Sraegy, sysem becomes generally acceped 4.3 Dscusson of Resuls Acually he presened resuls are only vald for values used n he sauaed examples. However, expermens wh dfferen values lead o smlar fndngs. Thus, our resuls reveal he followng endences: On he one hand, a peneraon prcng sraegy s always necessary f a sofware vendor wans o ener a marke wh an nsalled base of a compeor s sysem. In some cases, even a payng exra sraegy s necessary. Furhermore, he success of peneraon prcng depends on he nework effec facor. The hgher he nework effec facor, he more necessary are low prcng sraeges. However, peneraon prcng s no he only possble way o ener nework effec markes. For example, a possble alernave o peneraon prcng for a new vendor could be o mprove he funconaly. Ths way, s possble o ncrease he basc uly. In order o examne he chances of success of such a sraegy, we execued furher smulaon runs. Sarng pon was he already nroduced scenaro n whch vendor has a marke share of 50%. Agan, he smulaon resuls show a hgh sensvy as a funcon of he nework effec facor. Gven a nework effec facor of Q=0,5, s suffcen for vendor o ncrease he basc uly from 900 o approxmaely 000, o be able o ener he marke. However, assumng a nework effec facor of Q=0,75, vendor has o offer a leas a basc uly of 00. Ths means ha on a marke wh a hgh nework effec facor s especally dffcul for new vendors o

15 Nework Effecs on Sandard Sofware Markes Page 5 buld up an nsalled base by ncreasng he basc uly of her producs. Addonally, we have o keep n mnd ha such a sraegy wll be very me-consumng. On he one hand, hs me facor wll lead o los revenues. On he oher hand, he esablshed vendor n he meanme can ncrease hs nsalled base. Ths fac makes he suaon for he new vendor even worse. Usng our model, s possble o explan and undersand he behavor of sandard sofware vendors as well as marke rends. For example, afer frs underesmang he Inerne boom, Mcrosof was able o reach a hgh marke share wh Web Browsers and Web Servers by applyng a peneraon prcng sraegy. On he oher hand, Sar was no able o compee agans Mcrosof even hough he company gave away s producs. The reason was ha Mcrosof s nsalled base had been oo large. The queson, wheher a payng exra sraegy, as proposed n he smulaon runs, would have been successful, remans hypohecally. Furhermore, s no clear for how long a payng exra sraegy could have been mplemened. However, no peneraon prcng sraegy for busness sandard sofware can be observed on he busness sandard sofware markes n he US and n Germany, n spe of SAP s domnang poson. All of our four nervewed enerprses (Baan, J.D. Edwards, Oracle and SAP negaed mplemenng such a sraegy. How can hs be explaned? A possble answer on he bass of our model s ha he nework effec facor Q s relavely small on hs marke. To esmae he meanng of boh basc uly and nework effec uly, we rased several quesons n our emprcal survey menoned above. Thereby, we dfferenaed busness sandard sofware, offce sandard sofware, and EDI. 5 A scale from =very mporan o 5=less mporan, was gven. Fgure 8 shows he profles of nework effec uly and basc uly. Busness Sandard Sofware Offce Sandard Sofware EDI The soluons funconaly mees he requremens (basc uly. Our busness parners use he same soluon (nework effec uly. The soluon s generally wde spread (nework effec uly. In he fuure, we expec a wde spreadng (nework effec uly. Germany USA =very mporan mporanmporan 5=less mporan Fgure 8: Profle of Basc and Nework Effec Uly for dfferen Sofware Types 5 EDI (Elecronc Daa Inerchange defnes he elecronc nerchange of busness documens lke orders or nvoces.

16 Nework Effecs on Sandard Sofware Markes Page 6 The resuls show ha n he caegory busness sandard sofware he basc uly s mos mporan whle nework effec uly does no play such an mporan role. Here we fnd hgh smlares beween he evaluaon of German and US Amercan enerprses. The relavely low nework effec facor s a reason for no mplemenng low prcng sraeges n hs marke. However, we could no conclude he exac value of he nework effec facor ou of he emprcal sudy. Thus, he smulaon model helps o explan ceran phenomenon on he sofware marke. However, he followng exensons seem o be reasonable for fuure work:. The model proceeds from sac expecaons of he users,.e. he curren sae s he bass for esmang he dsrbuon of sandards n he fuure. Exensons should ry o model expecaons dependng on produc, communcaon, prcng, and dsrbuon sraeges of vendors.. In he curren sae of he model, we assume he prce vecor of one vendor as gven and only he oher vendor can make prcng decsons. In realy, however, boh vendors wll observe he prcng sraeges of he compeors and wll make her prce decsons based on hese observaons. Game-heory allows o develop models permng he vendors o reac on compeve sraeges. 3. A subsanal aspec of he prcng sraeges concerns produc and prce bundlng. Ths aspec deals wh he queson, under whch crcumsances s favorable sellng goods as a bundle [Olderog/Skera (000]. Ths sraegy s especally neresng for sandard sofware vendors, because models show ha he lower he varable coss, he more favorable prce bundlng [Bakos/Brynjolfsson (000]. Mcrosof pursues such a bundlng sraegy by offerng MS Offce. V Conclusons Ths paper examned prcng sraeges of sandard sofware vendors on nework effec markes. The focus was he developmen and applcaon of a smulaon model. I showed he effecs of alernave prcng sraeges on he dsrbuon of sandards. In parcular, we analyzed under whch crcumsances peneraon prcng sraeges wll be necessary. The man resuls are he followng: Peneraon prcng sraeges are as more mporan, he larger he nsalled bass of alernave sandard sofware sysems. Peneraon prcng sraeges are as more mporan for new vendors, he hgher he mporance of nework effecs,.e. he hgher he nework effec facor Q. If an alernave sandard sofware sysem s wde spread and f has srong nework effecs, could be useful even o nroduce a payng exra sraegy o buld up an nsalled bass. Wll sandard sofware be free n he fuure? Today a free download s possble for a lo of sofware sysems. I also was shown ha gvng away sofware or even nroducng a payng exra sraegy can be helpful for a new vendor ryng o ener a nework effec marke. On he oher hand, our smulaon model showed ha s easy for an esablshed vendor o sell producs. Alogeher, for he choce of a prcng sraegy on a nework effec marke s decsve wheher a vendor has an nsalled base or no. We

17 Nework Effecs on Sandard Sofware Markes Page 7 do beleve ha due o cooperaon beween enerprses he mporance of nework effecs on sandard sofware markes wll ncrease. Therefore, vendors offerng her cusomers an nsalled bass wll no have o gve away sofware. For hs reason, we beleve ha sandard sofware and nework effecs wll no be free n he near fuure. References Arhur, W. B. (989: Compeng echnologes, ncreasng reurns, and lock-n by hsorcal evens, n: The Economc Journal, 99 (March 989, pp Bakos, Y.; Brynjolfsson, E. (000: Bundlng and Compeon on he Inerne: Aggregaon Sraeges for Informaon Goods, n: Markeng Scence, hp:// Besen, S.; Farrell, J. (994: Choosng How o Compee: Sraeges and Taccs n Sandardzaon, n: Journal of Economc Perspecves, Vol. 8, No., pp Buxmann, P.; Wezel, T.; Wesarp, F.; Köng, W. (999: The Sandardzaon Problem An Economc Analyss of Sandards n Informaon Sysems, n: Proceedngs of he s IEEE Conference on Sandardzaon and Innovaon n Informaon Technology SIIT 99, pp Davd, P. A. (985: Clo and he economcs of QWERTY, Amercan Economc Revew, Papers and Proceedngs, Vol. 75, 985, pp Farrell, J.; Saloner, G. (985: Sandardzaon, Compably, and Innovaon, n: Rand Journal of Economcs 6, pp , 985. Farrell, J.; Saloner, G. (986: Insalled Base and Compably: Innovaon, Produc Preannouncemens, and Predaon, n: Amercan Economc Revew 76, pp Farrell, J.; Saloner, G. (987: Compeon, Compably and Sandards: The Economcs of Horses, Penguns and Lemmngs, n: H. Lands Gabel (ed.: Produc Sandardzaon and Compeve Sraegy, 987. Kaz, M. L.; Shapro, C. (985: Nework Exernales, Compeon, and Compably, n: Amercan Economc Revew 75, pp Kaz, M. L.; Shapro, C. (986: Technology adopon n he presence of nework exernales, n: Journal of Polcal Economy, Vol. 94, pp Kaz, M. L./Shapro, C. (994: Sysems Compeon and Nework Effecs, Journal of Economc Perspecves, Sprng, 8, pp

18 Nework Effecs on Sandard Sofware Markes Page 8 Lebowz; S.J.; Margols, S. (994: Nework exernaly: An uncommon Tragedy, n: Journal of Economc Perspecves, Vol. 8; No., pp Olderog, T.; Skera, B. (000: "The Benefs of Bundlng Sraeges", n: Schmalenbach Busness Revew, Vol., pp Shapro, C.; Varan, H. (998: Informaon Rules: A Sraegc Gude o he Nework Economy, 998. Wesarp, F.; Buxmann, P.; Wezel, T.; Köng, W. (999: The Managemen of Sofware Sandards n Enerprses Resuls of an Emprcal Sudy n Germany and he US, SFB 403 Workng Paper (99-7. Wesarp, F.; Wezel, T.; Buxmann, P.; Köng, W. (999: The Sandardzaon Problem n Neworks A General Framework, n: Jakobs, K. (ed.: Sandards and Sandardzaon: A Global Perspecve, Idea Publshng Group, 999.