Dynamic Quality Decisions of Software-as-a-Service Providers Based on Customer Perception

Abstract

Software-as-a-service (SaaS) allows customers to use software over the Internet by paying a subscription fee rather than by buying shrink-wrapped software and installing it on their computers. To maintain customer interests in SaaS, the provider's dynamic quality decision is important. Thus, we consider a dynamic programming model that assumes demand is quality sensitive and influenced by customer perception. In both finite and infinite planning horizons, we show that a unique optimal policy exists for the SaaS provider to set quality periodically. We demonstrate that the SaaS provider may have a constrained opportunistic behavior towards its quality decisions when considering customer perception. This behavior results in a transient fluctuating quality decision path before it converges to a steady state. We find that the software's initial quality plays a critical role in long term decisions, and that customers' expectations of quality improvement positively affect the quality, although the actual improvement may not meet their expectations.

Keywords: SaaS, customer perception, quality sensitive demand, dynamic programming