The Influence of Software Process Maturity and Customer Error Reporting on Software Release and Pricing

Abstract

Software producers are making greater use of customer error reporting to discover defects and improve the quality of their products. We study how software development differences among producers (e.g., varying levels of process maturity) and software class and functionality differences (e.g., operating system versus productivity software) affect how these producers coordinate software release timing and pricing to optimally harness error reporting contributions from users. In settings where prices are fixed, we characterize the optimal release time and demonstrate why in some cases it can actually be preferable to delay release when customer error reporting rates increase. The manner in which a firm's optimal release time responds to increases in software functionality critically hinges on whether the added functionality enhances or dilutes user error reporting; in both cases, the effect of added functionality on release timing can go in either direction, depending on both firm and product market characteristics. For example, when processing costs are relatively large compared to goodwill costs, firms with lower process maturity will release earlier when per module error reporting contributions become diluted and release later when these contributions become enhanced. We also examine how a firm adapts price with changes in error reporting levels and software functionality, and finally provide implications of how beta testing influences release timing.

Keywords: software quality, software reliability, software economics, software process maturity, network effects, software error reporting, diffusion of innovation, CMM, software release, software pricing

JEL Classification: D20, E20, L11, L15, L86