The advent of the Internet has brought many fundamental changes to the way business is conducted. Among others, a growing number of software firms are relying on public beta testing to improve the quality of their products before release. While the benefits resulting from improved software reliability have been widely recognized, the influences of public beta testers on the diffusion of a new software product have not been documented. Through their word-of-mouth effect, public beta testers can speed up the diffusion of a software product after release, and hence increase the time-discounted revenue per adopter. In this research, we take into consideration both the reliability-side and the diffusion-side of the benefits, and develop methodologies to help firms decide the optimal number of public beta testers and the optimal duration of public beta testing. Numerical results show the firm’s profit can increase substantially by taking advantage of the world-of-mouth of public beta testers. This benefit is more significant if firms recruit beta testers from those who can benefit from a software product but cannot afford it.