Strategic Position and Value Implication of Cloud Computing

Abstract

In this paper, we examine the determinants and consequences of adopting cloud computing technologies. Using text-based measures of cloud computing and business strategies obtained from 10-K filings, we show that firms focusing on a product differentiation strategy are more likely to adopt cloud computing technologies. We also document that the contemporaneous stock market values the adoption of cloud computing positively. This positive valuation is higher for firms adopting a product differentiation strategy than for those adopting a cost leadership strategy. We further show that cloud-computing-adopters focusing on a product differentiation strategy earn higher future excess returns than those focusing a cost leadership strategy, suggesting that investors fail to fully recognize the value created by cloud computing technology adopted by differentiators. Additional analyses suggest that cloud-computing-adopters with a differentiation strategy exhibit an increase in return on asset and profit margin, while those adopters with a cost leadership strategy do not experience such an improvement. Overall, our study suggests that a company’s strategic positioning affects the adoption decision and the value implication of cloud computing technologies.