Campus Units

Supply Chain and Information Systems

Document Type

Article

Publication Version

Accepted Manuscript

Publication Date

2017

Journal or Book Title

Decision Sciences

Volume

48

Issue

1

First Page

150

Last Page

175

DOI

10.1111/deci.12221

Abstract

A growing number of software firms now rely on public beta testing to improve the quality of their products before commercial release. While the benefits resulting from improved software reliability are well recognized, some important market-related benefits have not been studied. Through word-of-mouth, public beta testers can accelerate the diffusion of a software product after its release. Additionally, because of network effects, public beta testers can increase users’ valuation of a product. In this study, we consider both reliability-related and market-related benefits, and develop models to determine the optimal number of public beta testers and the optimal duration of testing. Our analyses show that public beta testing can be profitable even if word-of-mouth and network effects are the only benefits. Furthermore, when both benefits are considered, there is significant “economies of scope”—the net profit increases at a faster rate when both word-of-mouth and network effects are significant than when only one benefit is present. Finally, our sensitivity analyses demonstrate that public beta testing remains highly valuable to software firms over a wide range of testing and market conditions. In particular, firms will realize greater profits when recruiting public beta testers who are interested in the software but unable to afford it.

Comments

This is an accepted manuscript of an article published as Jiang , Z., K. P. Scheibe, S. Nilakanta, X. Qu. "The Economics of Public Beta Testing." Decision Sciences,2017; 48(1); 150-175. 10.1111/deci.12221. Posted with permission.

Copyright Owner

Wiley Online

Language

en

File Format

application/pdf

Available for download on Friday, February 01, 2019

Published Version

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