Many software firms offer a fully functional version of their products free of charge, for a limited trial period, to ease consumers' uncertainty about the functionalities of their products and to help the diffusion of their new software. This paper examines the trade-off between the effects of reduced uncertainty and demand cannibalization, uncovers the condition under which software firms should introduce the time-locked free trial software, and finds the optimal free trial time. As software firms have the option of providing free trial software with full functionalities but a limited trial time or limited functionalities for an unlimited trial time, we develop a unified framework to provide useful guidelines for deciding which free trial strategy is preferred in the presence of network externalities and consumer uncertainty.
In this paper, we build analytical models to examine the impact of network externalities on the competition between open source software (OSS) and proprietary software. We investigate the competing OSS and proprietary software products with comparable functionalities in four different scenarios depending on whether they are compatible with each other and whether the underlying market is fully covered (i.e., all consumers adopt one of the two products). Furthermore, we study which party has the most incentive to make its product compatible with its counterpart. When the market is fully covered, the installed base and the profit of proprietary software increase at the expense of a decreasing user base for OSS in the presence of network externalities. This competitive imbalance becomes more pronounced when OSS and proprietary software are incompatible and the market is partially covered. Finally, we find that in the presence of network externalities, being compatible with its rival is not desirable for the proprietary software, but highly beneficial to the OSS community.