Support Forums and Software Vendor's Pricing Strategy

This research develops a micro-economic 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. Since these forums provide an alternative, free source for obtaining software support, one might suspect that this "shadow" competition may eat into the profits of the vendor. We find that, while such a conclusion could be right in the short run --- that is, at the initial stages of the forum's entry into the market --- it may not be true in the long. This is because forums, besides playing a substitutive role, may also have a complementary effect. In the short run, the substitutive role dominates, whereas the complementary role takes control in the long. Interestingly, in the mean time, the vendor can try to mitigate the short-run losses and find temporary relief by adopting a strategy of bundling support services with the product.