A Cost-Benefit-Based Analytical Model for Finding the Optimal Offering of Software Services
Khin Swe Latt, Jörn Altmann · RePEc: Research Papers in Economics · 2010
In this paper, we introduce an analytical model for maximizingsocial welfare, which can be used for finding the optimal offeringof a set of software services. The analytical model also explainsthe impact of service flexibility on customer’s selection ofbusiness services and on the revenue of service providers. Theanalytical model is based on a utility model and a cost model. Thecost model uses the number of lines of code as the basic measurefor cost and applies linear and polynomial cost functions. Theutility model is derived from a customer-provider relationshipmodel, which relates the user’s utility to the functionality ofbusiness services. The result of the analytical model shows thatthe distribution of functions of an existing business service to alarge number of new business services does not generate anyadditional revenues for the service provider from existingcustomers. Instead, additional revenue is generated through theoffering of business services with fewer functions at lower price.This business services attract customers, which could not affordthe original software service of the provider. The result of theanalytical model also shows that there is an optimal number ofbusiness services that maximizes the net utility of customers.