Publication Type

Conference Paper

Publication Date

6-2007

Abstract

In the recent years, the emergence of the Softwareas-a-Service (SaaS) business model has attracted great attentions from both researchers and practitioners. Under the SaaS business model, vendors deliver on-demand information processing services to user firms, and thus offering computing utility rather than the standalone software itself. The SaaS has become an attractive alternative to the traditional software delivery model, which typically requires users to purchase, install, and maintain software systems by themselves. In this work, we propose an analytical model to study the competition between the SaaS and the traditional COTS (Commercial off-the-shelf) solution for software applications. The competitive model considers heterogeneous users who differ in terms of their transaction volume, while the SaaS and COTS vendors differ in terms of their pricing structure, setup cost, and system customization. We conclude that when commercial software becomes more open, modulated, and standardized, the SaaS business model will take a significant market share. In the extreme case, it may dominate the whole software industry and drives the traditional software out of the market. We also show that it is never optimal for the SaaS vendors to exert their full lock-in power through harsh software contracts. Under certain conditions, we suggest SaaS vendors to offer their existing users an easy exit option rather than to establish switching barriers to lock them in.

Discipline

Databases and Information Systems | Geographic Information Sciences | Library and Information Science

Publisher

INFORMS Marketing Science

City or Country

Singapore

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