Truth or Consequences: An Analysis of Vaporware and New Product Announcements

Abstract

The software industry practice of announcing new products well in advance of actual market availability has led to allegations that firms are intentionally engaging in vaporware. The possible predatory and anticompetitive implications of this behavior recently surfaced in the antitrust case United States v. Microsoft Corporation. Taking the perspective that a new product announcement is a strategic signal among firms, the authors consider the possibility that intentional vaporware is a way to dissuade competitors from developing similar new products. An examination of empirical data for the software industry suggests that some firms use vaporware in a strategic manner. The authors then formulate and analyze the preannouncement and introduction timing decisions in a game-theoretic model of two competing firms. They find that vaporware can be a way for a dominant firm to signal its product development costs and that intentional vaporware can deter entry. The authors also show that there is a curvilinear relationship between development costs and announcement accuracy; that is, firms with high or very low product development costs make accurate product announcements, whereas firms with intermediate product development costs intentionally engage in vaporware. Empirical support for these theoretical results is also found in the software industry data. Finally, the authors discuss the beneficial and harmful consequences of vaporware and the associated implications.

Strategic Product Pre-Announcements in Markets with Network Effects

“…For instance, Bayus, et al (2001) present a model in which product preannouncement is used as a strategic signal for rival firms. In the paper, intentional vaporware is used as a way to dissuade competitors from developing their own competing products.…”

“…Our proposal, in contrast, intends to analyze a communication channel between the firm and consumers. Thus, the purpose of product preannouncement in Bayus, et al (2001) is entry deterrence, whereas the purpose of our model is to persuade consumers to wait until the arrival of its new product. 3 Also, Bayus, et al adopt an ad hoc assumption that making a false announcement is costly, without any micro-foundation for penalty costs associated with false announcements.…”

A Diffusion Model for Preannounced Products

“…For instance, Wu, Balasubramanian, and Mahajan [40] found that 70 % of key informants in the computer hardware, software, and telecommunications industries had encountered some delay when introducing a preannounced product and launched it several weeks after the announced date. Forty-seven percent of a sample of software products studied by Bayus, Jain, and Rao [21] has been launched with a delay over 3 months compared to their announced release date. Whether the company intends to announce a vaporware or originally intends to launch the product at the announced date but has experienced some delay in the new product development, the frequent preannouncement delays induce consumers to question the chances that the launch will actually occur at the launch date.…”

“…Firms preannouncing their new products choose very different timing strategies, from a few weeks to several years before market introduction [21,45,46]. As Lilly and Walters [47] note, even though the announcement timing can significantly affect a new product's success, the marketing and economics literature provides few insights and guidelines on this component of a launching strategy.…”

“…An early announcement appears as a competitive signal that might preempt competition and deter entry [19][20][21][22]. It also creates a favorable marketing environment for the new product [23].…”