Cost efficiency strategy in the software-as-a-service market: Modeling results and related implementation issues

Abstract

We model competition between software-as-a-service (SaaS) vendors by focusing on several key features of SaaS. These include: differences in vendor offerings; incomplete information for the clients side about the vendor's capability to offer well-fitting services, and the clients' learning costs and options to switch. Our findings suggest pricing strategies that will be effective for the SaaS vendor. High cost efficiency in the operations of the SaaS business model is key for the vendor to gain leverage to retain the client by making its switching costs too high, and to achieve high profitability in the process by implementing the appropriate strategies in the appropriate customer segments. We also extend the analysis by considering a broader set of implementation issues related to mechanism design choices in the SaaS market that arise around our modeling approach. © 2013 Springer International Publishing.