A state-transition approach to application service provider client-vendor relationship development

Application Services Providers (ASPs) exploit the economics of delivering commercial off-the-shelf software over the Internet to many dispersed users. This form of outsourcing differs from traditional ones on attributes of vendors and clients, contract terms, customization, and functionality. We develop a state-transition model for ASP client-vendor relationship development reflecting that shorter contract terms affect the nature, strength, and timing of interactions ASP vendors have with their clients and the resulting patterns of information flows and mutual learning that lead to relationship outcomes. Using marketing and economic theories, we put forward factors originating in pre-contract exposure and diffuse sources (i.e., credibility, capability, expectation-capability match) and those arising from the direct collaboration experience (i.e., communications, trust, dependence, conflict-resolution). In addition to providing a solid foundation for vendor relationship research, this paper rectifies a bias of prior work by considering both the vendor and the client's perspectives on relationship development. By using contract status, the state-transition approach offered here mitigates a number of problems arising from indistinct stage boundaries and the reliance of stage membership on multiple characteristics.