Case Summary

Title: Willingness to Pay in an Open Source Software Environment
Author: T.S. Raghu, R. Sinha, A. Vinze, and O. Burton
Information Systems Research

1. Theme:
Scope: This paper investigates the competition and challenges that open source software and free software (OSS/ FS) has brought to the proprietary software market. OSS/FS alternatives, proposing a public good business model, force proprietary software producers to rethink strategies to jointly counter piracy.

Literature reviews:
Piracy controls have often limited the flexibility of usage for a legal user, which have not been well received.
The piracy of proprietary software and related information goods impacts on seller profits.
Sharing conveys a corresponding benefit: consumers are likely to be willing to pay (WTP) for software that can be shared or traded with others. The impact and importance of user base have been further confirmed.
Gap: Past research has focused more on the producers’ perspective; the consumers’ response to such strategies is neglected.

The objective to this study: to better understand consumers’ reactions to changes in the software market introduced through the availability of OSS/FS alternatives and the concurrent use of protection strategies.

Research method:
The willingness to pay for this study is evaluated in a controlled experimental setting. The main variables of interest are presence of an open source alternative to the commercial product (MS office) and piracy control measures.

Data for the complete study were collected form a population of 1076 undergraduate and graduate business school students. Most data were collected from a large, public university system; a small comparison sample was collected as a test case from a smaller private university. There were 803 usable responses in the sample.

Hypotheses testing:
H1: The presence of OSS/FS significantly lowers WTP for proprietary software.

Past research results of OSS/FS Impacting on WTP
Cost and functional similarities are two major factors that influence the impact of OSS/FS on the consumer’s utility function. However, researches show that the decisive factor for many purchasers has had little to do with price, features or even compatibility.

From business consumers’ perspective, the cost of transition (product knowledge, training, rewriting applications) may far outweigh other factors.
Intuitively, a free software alternative should reduce the average WTP of the consumer market.
When switching costs are considered, it is not easy to conclude that whether open office reduce average WTP.

Finding
Partially supported; reduces WTP by $13.46 when controlling for PC and DC. Usefulness covariate makes OSS/FS impact insignificant.
The finding suggests that perceptions of usefulness have a greater impact than OSS/FS availability on WTP. When switching costs (including learning, document format changes or uncertainties) are considered, the impact of OSS/FS may be lesser. This finding could explain why OSS/FS products have still not penetrated the mainstream market segments.

H2: The presence of preventive controls increases WTP for proprietary software.
Past research results of preventive controls
1. Adopting technology-based control strategies increase the difficulty and cost of engaging in acts of piracy. Preventive controls serve to highlight intellectual property rights of the producers.
2. Preventing controls can be effective at increasing the costs of pirating, while also making salient moral and ethical issues, thereby increasing the pressure on “pirates” to make legitimate software purchases.

Finding
Supported; increases WTP by $34.29 when controlling for PC and DC
The finding suggests the most effective piracy control strategy in an OSS/FS environment is the use of preventive controls without social deterrence.
The models strongly support the significance of social norms in copyright enforcement.

H3: The presence of social deterrence controls increase WTP for proprietary software.
Past research results of deterrence controls
Past research suggests a higher likelihood of success for preventing software piracy through social awareness, which has common led to the suggestions on ethical education.
The “threat of guilt feelings or shame” and “embarrassment or socially imposed punishment” are important factors in crime deterrence. Social deterrence is not solely contingent upon the severity or certainty of legal sanctions. The role of social norms is especially relevant.

Finding
Not supported; only significant with PC * DC

H4: The combined use of piracy prevention and social deterrence controls reduces WTP for proprietary software (in comparison to the settings where only a single control is used)
Past research results of the combined effect of prevention and deterrence controls
Some recent studies point out a “backlash” against stricter piracy control measures. Even legitimate users may view excessive piracy controls as an invasion of their rights to use the digital product.
Control strategies should pursue “gentle nudges” as opposed to “hard shoves”.

Finding
Supported; when PC=0, DC increases WTP by $47.18; when pc=1, DC increases WTP by only $8.81
The strong negative interaction effect of PC and DC indicates the consumer backlash to increased piracy controls.
This result resonates with the Siponen and Vartianen(2004) proposition that excessive application of Stage1 solution (punishment and obedience) and stage 3 solution (good boy/nice girl orientation) could lead to curtailment of autonomy of individuals.

H5: The presence of OSS/FS and piracy prevention controls decreases the WTP for proprietary software.
Past research results of the joint impact of OSS/FS, prevention, and Deterrence controls.
Consumer’s willingness to pay for proprietary software could be significantly reduced in an OSS/FS environment.
With users objecting to the new licensing conditions imposed by proprietary software producers, the availability of a viable alternative could position OSS/FS as valuable to users and reduce willing to pay for proprietary software.

Finding
Not supported

H6: The presence of OSS/FS and social deterrence controls decreases the WTP for proprietary software.

Finding
Not supported
This finding suggests that piracy controls can continue to be effective even in the presence of OSS/FS alternatives.
In experiment, subjected were willing to pay a price of $98.95, which is less than the retail educational price. Reasons for this finding could include underutilization of software application functionality, monopolistic pricing approach, and a belief that software is a public good.



Conclusion:
The results indicate that the availability of an OSS/FS alternative has little impact on willingness to pay for MS Office. However, piracy controls significantly increase willingness to pay for MS Office, even in the presence of OSS/FS alternative.
The results also demonstrate that when both piracy prevention and deterrence controls are applied simultaneously by software producers it can cause a consumer backlash.
The implication is that software developers are faced with the dilemma of protecting a private investment in software that operates under the auspices of public property.
The results suggest significant impact of perceived usefulness of software on the WTP. It may also imply that open source efforts should continue to focus on feature enhancements and usability issues.