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ERIC Number: ED535847
Record Type: Non-Journal
Publication Date: 2009
Pages: 113
Abstractor: As Provided
ISBN: ISBN-978-1-1245-6196-7
From Product- to Service-Oriented Strategies in the Enterprise Software Market
Xin, Mingdi
ProQuest LLC, Ph.D. Dissertation, New York University, Graduate School of Business Administration
The enterprise software market is seeing the rise of a new business model--selling Software-as-a-Service (SaaS), in which a standard piece of software is owned and managed remotely by the vendor and delivered as a service over the Internet. Despite the hype, questions remain regarding the rise of this new service model and how it would impact the software and services market. My dissertation is dedicated to understanding the motivation of adopting the SaaS model. It consists of two essays. In the first, I study software vendors' motivation to offer the lease-based Software-as-a-Service (SaaS) model as an alternative to perpetual licensing, taking into account two well-known characteristics of enterprise software adoption: upfront implementation costs and clients' uncertainty about their valuation for the software before its use. I consider a standard discrete-time overlapping generations (OLG) model, in which clients do not know but receive a noisy signal about their true valuation for the software prior to adoption and only learn their true valuation after using the application, which requires a sunk implementation cost. I focus on the steady-state equilibria of this game. The model indicates that the existence of customers' value uncertainty changes the standard results of durable goods pricing theories. In particular, leasing does not strictly dominate selling in this model, and under certain conditions concurrent selling and leasing strictly dominates pure selling or pure leasing. Lease-based pricing gives customers an opportunity to make sequential adoption decisions. This is especially relevant when customers do not know their true valuation for the software prior to adoption, as they can learn their valuation through initial usage without making a significant upfront investment and make more informed adoption decisions later on. This learning process may or may not be profit-improving for the vendor, however. The findings suggest a new mechanism, lease-based pricing, that can be used by vendors in durable experience goods markets to improve product/service adoption when customers have incomplete information about their valuation for the product/service before using them. I characterize the conditions under which alternative pricing strategies are optimal. Due to the tractability limitations of theoretical modeling, a number of other relevant factors have been left out of the game theoretical model. The second essay of my dissertation focuses on understanding customers' motivation to adopt the SaaS model. Although this exploratory study is not a direct test of my game theoretical results, it provides supporting evidence for the model and helps suggest interesting variables that can be studied in future theoretical modeling. The SaaS model largely replaced the Application Service Providers (ASPs) model, by employing a new architectural approach--the multitenant architecture involving a single instance of the common code base and set of data definitions shared among all clients. As a result, clients' options for customization of the standard software application are largely constrained. Client-specific customizations can be made and are maintained by clients through application programming interfaces (APIs) that are defined and maintained by SaaS vendors. In contrast, in the early ASP model a separate client-specific instance of the application is created on the vendor's server, and customizations are maintained by the vendor. Finally, SaaS gives more control over future developments of the application to the vendor, as clients have no choice but to accept all changes to the application if they continue using the service. The unique features of the SaaS model change some standard IS outsourcing theories' predictions regarding clients' adoption of this outsourcing service. Drawing on economics, strategic management, and IS theories, I develop a framework of client-side determinants of SaaS adoption. By integrating diverse literature streams, I am able to develop a more elaborate view of uncertainty differentiating demand uncertainty about service volume from uncertainty about functionality needed. This study is also one of the first to draw on IS governance theory to establish a connection between clients' enterprise architecture maturity and their adoption of SaaS. I have derived hypotheses and measures for the constructs. A pilot study using data collected from an online survey shows that the measures are reliable and robust, and provides interesting suggestive results on the theoretical framework. [The dissertation citations contained here are published with the permission of ProQuest LLC. Further reproduction is prohibited without permission. Copies of dissertations may be obtained by Telephone (800) 1-800-521-0600. Web page:]
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Publication Type: Dissertations/Theses - Doctoral Dissertations
Education Level: N/A
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A