Growth of late entrant firms of the software industry: a model of multigenerational product diffusion with network effects

Abstract

This article presents a growth model of two firms -Pioneer and Late Entrant- (hereinafter ET) in standardized software markets. The proposed model is defined based on the dynamic behavior of sales of multiple product generations, subject to network effects. In the validation, the simulations of the model are compared with the historical ones of two Pioneers: ANSYS INC. and SYMANTEC Corp. and two ETs: CIMATRON Group and Check Point Software Technologies Ltd .. It is concluded that the strategies for a Late Entrant to survive in the market are: i) invest in R&D to spread successive generations of products; ii) increase the installed base by strengthening network effects; and iii) control delays in the entry of its products compared to those of Pionera.

Keywords

• simulation
• multigenerational diffusion
• network effects
• software firm growth
• late entry
• systems modeling