Firm-Level Productivity Analysis for Software as a Service Companies

Software-as-a-service (SaaS) is a relatively new software delivery business model and has been one of the fastest growing segments of the information technology industry in recent years. In this study, we investigate the relationship between the SaaS software delivery model and the productivity of software vendors. We explore scale economies of pure-SaaS firms, non-SaaS firms, and mixed-SaaS firms (firms delivering products by dual models) by examining 179 publicly listed software companies in the United States. We use a Cobb- Douglas production function to model the functional relationship between inputs and outputs and employ the feasible generalized least squares method to evaluate the marginal product of each input factor. The input factors examined include capital, labor, R&D expenses, and marketing expenses. The most surprising result is the presence of significant diseconomies of scale in pure-SaaS firms. Also, SaaS firms are more productive only in utilizing capital assets.

[1]  K. Kraemer,et al.  : Evidence from , 2022 .

[2]  Andrew B. Whinston,et al.  Short-term and long-term competition between providers of shrink-wrap software and software as a service , 2009, Eur. J. Oper. Res..

[3]  Qing Hu.  Evaluating Alternative Software Production Functions , 1997, IEEE Trans. Software Eng..

[4]  B. R. Nault,et al.  Investments in Information Technology: Indirect Effects and Information Technology Intensity , 2006 .

[5]  Wendy L. Currie,et al.  Value creation in web services: An integrative model , 2006, J. Strateg. Inf. Syst..

[6]  Stephan Kudyba,et al.  Research Report: Increasing Returns to Information Technology , 2002, Inf. Syst. Res..

[7]  Qingxiong Ma,et al.  An exploratory study into factors of service quality for application service providers , 2005, Inf. Manag..

[8]  E. Brynjolfsson,et al.  Paradox Lost? Firm-Level Evidence on the Returns to Information Systems Spending , 1996 .

[9]  Ram L. Kumar,et al.  A theory of application service provider (ASP) use from a client perspective , 2004, Inf. Manag..

[10]  Vijay Gurbaxani,et al.  An Integrative Model of Information Systems Spending Growth , 1990, Inf. Syst. Res..

[11]  Lorin M. Hitt,et al.  Productivity, Business Profitability, and Consumer Surplus: Three Different Measures of Information Technology Value , 1996, MIS Q..

[12]  Vijay Gurbaxani,et al.  An empirical analysis of software and hardware spending , 1992, Decis. Support Syst..

[13]  T. Allen,et al.  Information Technology and the Corporation of the 1990s: Research Studies , 1994 .

[14]  Hsing Kenneth Cheng,et al.  Optimal pricing policies of web-enabled application services , 2003, Decis. Support Syst..

[15]  Rajiv D. Banker,et al.  A Field Study of Scale Economies in Software Maintenance , 1997 .

[16]  Kenneth L. Kraemer,et al.  Note: An Economic Analysis of IS Budgets , 1997 .

[17]  Hal R. Varian,et al.  Information rules - a strategic guide to the network economy , 1999 .

[18]  Parag C. Pendharkar,et al.  Scale economies and production function estimation for object-oriented software component and source code documentation size , 2006, Eur. J. Oper. Res..

[19]  Rajiv D. Banker,et al.  Evidence on economies of scale in software development , 1994, Inf. Softw. Technol..

[20]  Kenneth R. Walsh,et al.  Analyzing the application ASP concept: technologies, economies, and strategies , 2003, CACM.

[21]  Kenneth L. Kraemer,et al.  The Production of Information Services: A Firm-Level Analysis of Information Systems Budgets , 2000, Inf. Syst. Res..

[22]  Andrew B. Whinston,et al.  Understanding the Service Component of Application Service Provision: An Empirical Analysis of Satisfaction with ASP Services , 2003, MIS Q..

[23]  Vidyanand Choudhary,et al.  Comparison of Software Quality Under Perpetual Licensing and Software as a Service , 2007, J. Manag. Inf. Syst..

[24]  Hemant K. Bhargava,et al.  Computing as Utility: Managing Availability, Commitment, and Pricing Through Contingent Bid Auctions , 2004, J. Manag. Inf. Syst..

[25]  Haluk Demirkan,et al.  The risk and information sharing of application services supply chain , 2008, Eur. J. Oper. Res..

[26]  Barrie R. Nault,et al.  Industry Level Supplier-Driven it Spillovers , 2006, Manag. Sci..

[27]  Vijay Gurbaxani,et al.  Software and Hardware in Data Processing Budgets , 1987, IEEE Transactions on Software Engineering.

[28]  M. Sääksjärvi,et al.  EVALUATING THE SOFTWARE AS A SERVICE BUSINESS MODEL: FROM CPU TIME-SHARING TO ONLINE INNOVATION SHARING , 2005 .

[29]  Chung-ki Min,et al.  The substitution of information technology for other factors of production: a Firm Level Analysis , 1997 .

[30]  N. Carr.  The end of corporate computing , 2005 .