Coordination Strategies in an SaaS Supply Chain

Authors:
Haluk Demirkan;Hsing Cheng;Subhajyoti Bandyopadhyay
Affiliations:
Center for Services Leadership at the W.P. Carey School of Business, Arizona State University;Department of Information Systems and Operations Management of Warrington College of Business Administration, University of Florida, Gainesville;Department of Information Systems and Operations Management, University of Florida, Gainesville
Venue:
Journal of Management Information Systems
Year:
2010

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Abstract

The computing industry is gradually evolving to cater to the demand for software-as-a-service (SaaS). Two core competencies that have emerged over the past few years are that of the application service providers (ASPs) and the application infrastructure providers (AIPs). The arrangements between them result in system dynamics that is typical in supply chain networks. We examine the performance of an SaaS set up under different coordination strategies between these two players. Our analysis indicates that coordination between the monopoly ASP and the AIP can result in an outcome with the same overall surplus as can be achieved by a central planner. Even though the players have an incentive to deviate, it is possible to create the right incentives so that the economically efficient outcome is also the Nash equilibrium. The results of the analysis have significant implications for the coordination strategies for providers in the burgeoning business model of delivering software services over the Internet.