Implications of Negative Network Effect in the Security Software Market

The market for security software has witnessed an unprecedented growth in recent years. A closer examination of this market reveals certain idiosyncrasies that are not observed in a traditional software market. For example, it is a highly competitive market involving many vendors, often with a very aggressive pricing strategy adopted by new entrants. Yet, the market coverage seems to be quite low. Prior research has not attempted to explain what aspects of security software make this market deviate from the traditional ones. In this paper, we develop a quantitative model to study this market. Our model identifies a possible reason behind this behavior--that of a negative network effect, which pulls the market in exactly the opposite direction when compared to the positive network effect observed in traditional software markets. Overall, our results highlight the unique nature of the security software market, furnish rigorous explanation for several counter-intuitive observations in the real world, and provide managerial insights for vendors on market competition and product development strategies.