Support Forums and Software Vendor’s Pricing Strategy

This research develops a microeconomic model to study the impact of support forums on the software industry. Motivated by the rapid growth of forums such as Stack Exchange, Quora, and Yahoo! Answers, we examine what impact they could have on a software vendor’s pricing strategy. Because these forums provide an alternative, free source for obtaining software support, one might suspect that the shadow competition from them would eat into the profit the vendor makes from selling support services. We find that, although such a conclusion could be right at the forum’s initial and formative stages, it may not hold later, especially if the forum generates enough momentum. This is because forums, besides playing a substitutive role, also have a complementary effect. At the initial stages, the substitutive role of the forum dominates. However, if and when the forum grows sufficiently, the complementary role eventually takes control. In the meantime, the vendor can try to mitigate the immediate losses and find temporary relief by adopting a strategy of bundling support services with the product.