Coordination Strategies in a SaaS Supply Chain

* Haluk Demirkan, Arizona State University
Hsing K. Cheng, University of Florida
Subhajyoti Bandyopadhyay, University of Florida

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 ASP and the AIP. The arrangements between them result in system dynamics that is typical in supply chain networks. We examine the performance of a SaaS setup 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 that 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.


* Corresponding Author

Demirkan, H., Cheng, Hsing K. and Bandyopadhyay, S. (2010) “Coordination Strategies in a SaaS Supply Chain,” Journal of Management Information Systems, 26 (4), 121–146, Spring.