Type of Document	Master's Thesis
Author	Ratnarajah, Thanujan
Author's Email Address	thanujan@vt.edu
URN	etd-02072008-122814
Title	Modeling the dynamics of software competition to find appropriate openness and pricing strategy
Degree	Master of Science
Department	Industrial and Systems Engineering
Advisory Committee	Advisor Name Title Rahmandad, Hazhir Committee Chair Koelling, Charles Patrick Committee Member Triantis, Konstantinos P. Committee Member
Keywords	Dynamic pricing Constant pricing Systems dynamics Optimization Proprietary software Open source Software
Date of Defense	2008-01-25
Availability	unrestricted
Abstract Software firms can use open source development model combined with proprietary development model to increase their profitability. Open source development models can help software firms create products with better technical features at a lower price. Since open source development is a community based development method the popularity of the software among customers will also increase. Using open source development method with proprietary method will also require firms to sell the product at a lower price. This creates a challenge for the firms to find the optimal price and level of openness to maximize their profit. Using the systems dynamics methodology, development, employment and customer choice for a typical software firm was captured in a simulation model to understand the dynamics of the software firm in a competitive market and to find the optimal level of openness and price. The model was built based on previous research literature, various software models and from the author’s understanding of the software industry. Our analysis suggests that in a fast evolving market where customers spend less time researching and shopping for a software product (Antivirus market VS Operating Systems market), companies should maintain lower level of openness and higher proprietary type development to increase the Net Present Value of the organization. The software firm could benefit from a higher level of openness in a market where the customers base their purchasing decision on the popularity and compatibility of the software and strong network effects are present (e.g. Business intelligence software).
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