DOI: 10.5176/978-981-08-5837-7_195
Authors: Oleksiy Mazhelis, Eetu Luoma
Abstract:
For decades, software systems supporting organizations’ business processes were mainly deployed inside the premises of these organizations. As both the complexity and the efforts needed for operating and managing these software have increased dramatically, other forms of software provisioning and deployment have emerged. In particular, the managed services (MS) and the software-as-a-service (SaaS) have been introduced, with the aim of enabling the organizations to reduce their software ownership costs. This paper is aimed at comparing the likely adoption of the MS and SaaS by software vendors. In the paper, the vendor’s choice between adopting SaaS and MS is considered as a noncooperative game, where software vendors are seen as attempting to maximize their payoffs (revenues). According to the analysis, Nash equilibrium is achieved when either two large vendors both adopt SaaS, or when a small vendor offers SaaS, while the large does not. The type of the equilibrium depends on the relative size of the vendors in terms of their revenues; the boundary conditions for the vendor’s size, by exceeding which the Nash equilibrium tips to the SaaS adoption strategy, are defined in the paper. The analysis in the paper is further applied to the case of the operations/business support systems (OSS/BSS) used by telecom operators to support their operations. The results of the analysis appear to contradict the current situation observed in the OSS/BSS market, where multiple large vendors are providing MS rather than SaaS. This proliferation of MS may be partly attributed to the asset specificity of the OSS/BSS software making it difficult to provide as a standardized service. Besides, the reluctance of the vendors to adopt SaaS may be seen as a manifestation of the tacit collusion phenomenon, whereby large vendors try to avoid likely decline in revenues due to transition to SaaS.
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