Firm-Level Productivity Analysis for Software as a Service Companies

Software-as-a-service (SaaS) is a relatively new software delivery business model and has been one of the fastest growing segments of the information technology industry in recent years. In this study, we investigate the relationship between the SaaS software delivery model and the productivity of software vendors. We explore scale economies of pure-SaaS firms, non-SaaS firms, and mixed-SaaS firms (firms delivering products by dual models) by examining 179 publicly listed software companies in the United States. We use a CobbDouglas production function to model the functional relationship between inputs and outputs and employ the feasible generalized least squares method to evaluate the marginal product of each input factor. The input factors examined include capital, labor, R&D expenses, and marketing expenses. The most surprising result is the presence of significant diseconomies of scale in pure-SaaS firms. Also, SaaS firms are more productive only in utilizing capital assets.