Versioning and Quality Distortion in Software? Evidence from E-Commerce Panel Data

Abstract

We present a framework for measuring software quality using pricing and demand data, and empirical estimates that quantify the extent of quality degradation associated with software versioning. Using a 7-month, 108-product panel of software sales from Amazon.com, we document the extent to which quality varies across di¤erent software versions, estimating quality degradation that ranges from as little as 8% to as much as 56% below that of the corresponding ‡agship version. Consistent with prescriptions from the theory of vertical di¤erentiation, we also …nd that an increase in the total number of versions is associated with an increase in the di¤erence in quality between the highest and lowest quality versions, and a decrease in the quality di¤erence between "neighboring" versions. We compare our estimates with those derived from two sets of subjective measures of quality, based on CNET editorial ratings and Amazon.com user reviews, and discuss competing interpretations of the signi…cant di¤erences that emerge from this comparison. As the …rst empirical study of software versioning that is based on both subjective and econometrically estimated measures of quality, this paper provides a framework for testing a wide variety of results in IS that are based on related models of vertical di¤erentiation, and its …ndings have important implications for studies that treat web-based user ratings as cardinal data.

Research Note—When Is Versioning Optimal for Information Goods?

“…Versioning is recognized as a critical business strategy for information goods (Shapiro and Varian 1998, Varian 1998, Wei and Nault 2007, and several researchers have demonstrated its usefulness in IT problems such as caching (Hosanagar et al 2005), network externalities (Jing 2007), intermediation (Bhargava and Choudhary 2004), software piracy (Wu et al 2003, Sundararajan 2004a, music distribution (Snir 2003), and software versioning (Ghose andSundararajan 2005, Raghunathan 2000). Versioning is an attractive strategy for information goods such as software, music, movies, and satellite images, because the firm can create low-quality variants at little additional cost.…”