Software as a Service and the Pricing Strategy for Vendors

Background

’Software’ is a general term used to describe the computer programs, procedures, rules, and the associated documentation, in relation to the operation of a computer system which are stored in a read/write memory unit as part of the digital system (Langholz, et al., 1998; Wordreference.com, 2009). This term was first introduced by Tukey (1958), and has become an integral element of the English language and has been included in many other languages. At that time, when the computer era began, the manufacturer sold the computer as a physical machine, which included the operating system and rudimentary software at no additional cost. This situation has changed after IBM announced on June 23, 1969, that it would unbundle the hardware and software in the future. Later on, this has been seen as the birth date of the software industry as we know today (Kittlaus & Clough, 2009). Within a few decades the software market has dramatically grown.

From that time until today, in most situations, customers are required to buy the software license, install and run the software on their local computer or server before they can use it. The installation files can be stored on CDs or other storage devices like diskettes, USB sticks, etc. The licenses and CDs are usually sold by software vendors. Since this type of software is installed on the premises (in the building) of the users rather than on a remote facility, it also commonly known as ‘on-premise software’. Also, because this type of software has been used for ages compared to the new software phenomenon, it is also known as traditional software.