Revenue Maximization for Consumer Software: Subscription or Perpetual License? Ludwig Dierks and Sven Seuken Department of Informatics, University of Zurich fdierks,
[email protected] Abstract. We study the revenue maximization problem of a publisher selling consumer software. We assume that the publisher sells either traditional perpet- ual licenses, subscription licenses, or both. For our analysis, we employ a game- theoretic model, which enables us to derive the users' equilibrium strategies and the publisher's optimal pricing strategy. Via extensive numerical evaluations, we then demonstrate the sizable impact different pricing strategies have on the publisher's revenue, and we provide comparative statics for the most impor- tant settings parameters. Although in practice, many publishers still only sell perceptual licenses, we find that offering a subscription license in addition to a perpetual license typically (but not always) leads to significantly higher revenue than only selling either type of license on its own. Keywords: Revenue Management · Pricing · Consumer Software· Subscription · Product Differentiation 1 Introduction Consumer software, particularly video games, is a multi-billion dollar industry [13,10]. Originally sold on physical media like CDs or DvDs, the rise of fast network connections has allowed software markets to become increasingly digital, eschewing any physical medium. This has brought with it a proliferation of new business models, for example microtransactions (i.e., the sale of many mini-upgrades for small amounts of money), lootboxes (i.e., randomized microtransactions [2]) or in-game advertisement [1]. In this paper, we analyze the revenue maximization problem of a software publisher who, while still focused on selling licenses for his product, is open to do this either in the form of perpetual or subscription licenses.