Optimal releasing strategy of enterprise software firms facing the competition from cloud providers

In the contemporary enterprise software market, there has been a notable surge in the utilization of SaaS products. This trend has prompted certain upstream suppliers of cloud resources, commonly referred to as cloud providers, to introduce their own SaaS offerings, thereby augmenting the competition within the industry. The matter of optimal releasing strategy encountered by software firms in this industry has been scarcely addressed in prior literature. Therefore, the present study employs the Hotelling model to depict the market segmentation in the context of a software firm's selection among three distinct strategies, namely on-premise, SaaS, and dual version strategies, to effectively manage competition. Through an examination of the optimal pricing and profit for each strategy, and a subsequent analysis of the resulting profits, we have managed to arrive at conclusive recommendations for optimal strategy selection. Based on the analytical findings, it can be inferred that the selection of the optimal strategy can be classified into two distinct scenarios, which are contingent upon the magnitude of the unit cloud rental fee. In a high-cost rental environment, the optimal release strategy shifts from the SaaS strategy and dual version strategy to the on-premise strategy, as the disparity in value between on-premise and SaaS versions increases. In a context of low rental fee and a widening value gap, the optimal strategy choice sequence is as follows: SaaS, on-premise, dual version, on-premise, dual version, and ultimately on-premise. Furthermore, we analyze and reveal the impact of various factors on the maximum profit that software companies can achieve. The findings we have derived have significant implications for software companies' decision-making in the face of the challenge posed by highly centralized public cloud supply.