Revenue Maximization for Consumer Software: Subscription or Perpetual License?

TL;DR

This paper analyzes how publishers can maximize revenue by choosing between perpetual licenses, subscriptions, or a combination, using a game-theoretic model to compare strategies and their impacts.

Contribution

It introduces a game-theoretic framework to compare revenue outcomes of different licensing strategies for consumer software.

Findings

Offering both subscription and perpetual licenses generally increases revenue.

Subscription licenses can significantly boost revenue compared to perpetual licenses alone.

The impact of licensing strategies varies with key market parameters.

Abstract

We study the revenue maximization problem of a publisher selling consumer software. We assume that the publisher sells either traditional perpetual 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 important 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.