Optimal strategies of IT consulting firms

Abstract

In this paper, we develop an economic model to study the impact of commercial software and open source codes on the solutions offered by IT consulting firms. Robust support and trust are the most important assets of the IT solution built on commercial software, whereas cost savings is the major reason for adopting the IT solution developed by open source codes. The study aims to characterize the difference between the IT solutions by the demand for the number of licenses and the distribution of IT knowledge level. We find that the distribution of IT knowledge level on the pricing strategy of the IT consulting firm offering the solution built on open source codes is not monotonic. Moreover, from the viewpoint of efficiency and profit maximization, we find that IT consulting firm should help enterprise customers enhance their IT knowledge as it can offer the solutions built on different software packages.