Analyzing the operation of cloud supply chain: adoption barriers and business model

Abstract

Although on-demand cloud services are considered to be cost-saving solution for small and medium-sized enterprises, data security and cloud interoperability remain the major barriers for the adoption of cloud services. In addition, the operation of a cloud supply chain consisting of an independent software vendor (ISV) and Software-as-a-service provider may be inefficient without an automatic centralized platform for bundling and delivering ISVs' applications to subscribers. In fact, these concerns can be resolved if all applications follow the same procedures to work together. Therefore, this study examines the operation of a cloud supply chain in which an intermediary offers a packaging service. The service helps ISVs wrap their applications according to a specific industry standard. This can reduce cost and time needed for deploying and updating applications. By examining an ISV's channel selection and an intermediary's pricing offer, our approach helps identify the conditions under which the selling channel is more profitable for the ISV. In addition, the importance of dual channel is highlighted when the intermediary becomes the ISV's cloud partner. However, the adoption of dual channel does not lead to the highest profit if the quality of the software product is inadequate. We also find that the intermediary has to lower the service fee when there are lots of barriers to cloud adoption, even if the importance of the packaging service increases with the adoption cost. Finally, we find that the R&D for reducing adoption barriers implemented by the ISV may increase or damage the profit of the intermediary, which depends upon the benefits gained from its packaging service.