Emerging Capabilities and Firm Performance in the Cloud Computing Environment

Abstract

New capabilities required to succeed in the new Cloud environment represent a radical change for software companies, which have to transition from selling on-the-premises software products to providing subscription-based cloud services (aka Software-as-a-Service or SaaS). While emerging SaaS vendors have led the exponential growth of the market, the traditional software industry has been disrupted. The purpose of this research paper is to analyze which capabilities are driving the performance of software firms in today’s cloud-computing environment by leveraging the resource based view (RBV) of the firm. What is the optimum spending among the various capabilities (e.g., service delivery, R&D, marketing and sales) to maximize financial performance? This study focuses initially on publicly-traded SaaS companies using publicly-available information from financial databases, corporate investor relations materials, and industry research. The study contributes to RBV theory and provides useful insights to help assess the quality of execution of SaaS growth strategies and improve financial planning and performance in the software industry. Although our results come from firms in the SaaS industry, we propose that the findings from this study could cautiously generalize to firms in other emerging technology industries.

Keywords: Cloud, Software, SaaS, capabilities, spending patterns, firm performance