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Adoption of Open Source Software and
Software-as-a- Service Models in the
Telecommunication Industry
Conference Paper in Lecture Notes in Business Information Processing · June 2011
DOI: 10.1007/978-3-642-21544-5_7 · Source: DBLP
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Adoption of Open Source Software and Software-as-aService models in the Telecommunication Industry
Eetu Luoma1, Nina Helander2, Lauri Frank1
1
University of Jyväskylä, Department of Computer Science and Information Systems,
P.O. Box 35 (Agora), FI-40014 University of Jyväskylä, Finland
{eetu.luoma, lauri.frank}@jyu.fi
2
Tampere University of Technology, Dept. of Business Information Management and Logistics
P.O. Box 527, FI-33101 Tampere, Finland
nina.helander@tut.fi
Abstract. A case research is carried out on adoption of open source software (OSS)
and software-as-a-service (SaaS) in the telecommunication industry. The study was
conducted to examine the types of software deployed as OSS and SaaS and the
conditions of adopting OSS and SaaS. Findings of the case study indicate that
industry-specific software is not developed as OSS or deployed in SaaS mode.
Based on the findings, we also arrive at conclusion: Adoption is hindered by
specificity of processes and technology interfaces.
Keywords: Open source software, Software-as-a-Service, Telecommunication,
Vertical Software Industries.
1 Introduction
Examining software business from the perspective of information systems (IS)
science, software business is all about outsourcing the IS function. In the context of
vertical software industry 1, software business takes place in dyadic relationship
between a vertical industry enterprise and a vendor providing software products or
services [1]. The vertical industry enterprise usually has its own unit or employees to
produce certain parts of the IS function itself [2]. Alternatively, the enterprise may
find it more efficient to outsource software development, deployment and operating to
an external vendor. Nelson et al. [3] have provided an examination on which types of
information systems are being outsourced. They found that common applications
based on common technology are more likely to be acquired as packaged software,
whereas specialized and unique applications require custom software development.
1
Vertical software industry comprises of vertical industry enterprises (secondary software
companies and software vendors (primary software companies), producing software products
and services for the specific needs of the vertical industry. Vertical industry (e.g.
telecommunication) has a clear specialization and limited transferability of skills and
knowledge outside its own domain. Later, the term industry-specific software is used to
describe software, which cannot be easily redeployed in other vertical industries than its
original domain, as opposed to producing horizontal (general-purpose) software.
Further, unique applications based on common technology are more likely to be
insourced and common application based on advanced technology are rather
outsourced. The common development in the vertical software industries is that once
unique and differentiating software depreciate into commodity [1, 4].
The software business setting in vertical software industries is also relevant when
investigating the adoption of open source software and software-as-a-service. To
facilitate such examination below, we define the concept based on contemporary
literature as follows. Open source software (OSS) refers to product software, which is
produced in collaborative manner and made available royalty free and with relaxed
license terms. The terms allow to running, distributing and modifying the source code,
for both commercial and non-commercial use. [5–8]. Software-as-a-Service (SaaS) is
a type of software-based service where a service provided offers access to the
functionalities of a commodity software over the Internet to several end-users,
running a single instance of the particular software on top of multi-tenant
infrastructure [9–11]. These definitions imply that OSS is a model for organizing
software development and maintenance and, in turn, SaaS is a model for orchestrating
software deployment and operating. Further, both OSS and SaaS can be treated as
means to outsource software-related activities from vertical industry enterprise to
external vendor.
The utilization of OSS has increased remarkably in the last decade. In the
development of software programs and even large software systems, open source has
become a serious alternative for the utilization of proprietary software [5, 6]. As one
of the manifestations of cloud computing, even higher expectations are set to SaaS
offerings. Primarily for established software vendors, SaaS presents an opportunity to
add value in form of service offering, even as the product business declines [12].
Customers are also offered economic, flexibility and strategic benefits [11]. Against
this background, it is interesting to examine why OSS and SaaS have not become
widespread in industry-specific software. Conducted literature review reveals that this
question has not been addressed before with regard to the two models.
Consequently, the following questions are of particular interest in this study: 1)
Which types of software do the vertical industry enterprises deploy using OSS and
SaaS models? 2) Do the vertical industry enterprises perceive value of OSS and SaaS
differently? 3) Which factors drive and inhibit adoption of OSS and SaaS offering in
vertical industry enterprises? These questions are set with the intention to generate an
overview to the adoption of OSS and SaaS models and to compare these models to
other business models in software business (e.g. with bespoke software) through their
benefits and problems. We seek answers to the questions by adopting an exploratory
approach and, therefore, the aim of our study was to arrive at a hypothesis on the
factors affecting the OSS and SaaS adoption.
Our empirical investigation is conducted in the context of telecommunication
software, where communication service providers (CSP) and software vendors
serving them form the vertical software industry. Software specific to this industry
supports CSP’s day-to-day processes for service fulfillment, service assurance and
billing as well as infrastructure development processes. Specifically, two types of
software are considered to fall under this definition. First, operations support systems
are software systems supporting telecommunication network management processes
such as maintaining network inventory, provisioning services, configuring network
components, collecting and mediating usage information and managing faults [13].
Second, business support systems are software systems supporting customer
management processes including taking orders, providing customer service,
processing bills and collecting payments [13]. This definition of telecommunication
software excludes e.g. software used in mobile terminals, where OSS is used in
different forms and to a different extent. Telecommunication software industry was
chosen as the context for investigation for its plurality: operation support systems
were assumed to incorporate specific knowledge that cannot be redeployed in other
industries, whereas business support systems support processes common to many
vertical industries.
The article has four further sections. Next section gives an overview on relevant
literature concerning the OSS and SaaS adoption. Section three introduces the case
study methodology applied. In section four, we present the findings made in the
empirical study about the context of the particular vertical software industry, and
about the current OSS and SaaS adoption in the industry. In the concluding section,
we discuss the findings against the research questions and present two hypothesis for
further studies.
2
Literature Review
2.1
Open Source Software Adoption
The research on OSS has progressed in the last decade. Most of the earlier literature
focused on the motivations of individuals to contribute to the communities, open
source project management issues and on general descriptions of the model [5]. More
recent studies have additionally aimed at observing the adoption of OSS in
organizations, through clarifying the benefits and problems of OSS adoption [5, 14–
21] through examining which kind of OSS are deployed [5, 17, 18] and through
studying the antecedents of adoption [5, 22, 23].
Ajila and Wu [14] suggest that the benefits of OSS are associated with reuse:
customers receive added value from reduced time to market, reduced product
development costs, improved process predictability and increased product quality.
Their study also indicates that when organizations perform OSS component reuse in a
systematic manner, organizations can attain economic benefits, increased productivity
and increased quality. These observations are in line with many other similar research
results, which often state lower costs, higher quality, adaptability and reduced
dependency on vendor as the main benefits of OSS [14, 16, 18, 19]. The papers
reporting on OSS adoption [21, 22] analogously ascertain that the decision making in
organizations culminates on assessing potential cost benefits, on opportunities to
exploit communities' resources and knowledge, and on functionalities and maturity of
the software under consideration. Maturity is stressed by [20, 21] stating that both the
customers and the vendors may hold their actions until dominant design emerges, and
act only when peers are deploying OSS. To conclude, important determinants for
adoption are, uniformly to general IS outsourcing, economics of the offering,
capabilities and commodification.
There are fewer studies questioning the claimed benefits [5, 19, 22]. Ven et al. [19]
raise several arguments, for instance OSS itself may be for free, but the switching
costs as well as total costs are unclear. Performing customization and modifications to
the source code may also turn out impractical in case the organization is missing
required skills [5, 16]. Finally, whereas using OSS reduces vendor lock-in in software
development, dependency on the vendor providing supporting services may increase
[5, 19].
The advantages of OSS are examined in the literature mainly from the viewpoint of
software intensive enterprise. To our knowledge, there are also studies targeting
vertical industry enterprises [16, 22, 23] and a single study with focus solely on
secondary software enterprises [15], in which the authors interviewed representatives
of 13 companies from different vertical industries. They found that incentive to
innovate and collaborate (by virtue of access to source code) reduced vendor lock-in
and diminished costs were the most important business-related benefits. Technical
benefits included various elements of software quality such as performance, security,
flexibility and interoperability, and the respondents of the study indicated that these
outweigh the drawbacks (lack of OSS expertise and poor documentation). As
business-related problems, the study lists e.g. lack of ownership and support, which
denotes that the vertical industry enterprises may find it difficult to find a service
provider taking responsibility over support. While [5, 16, 22, 23] lists several other
qualities in favor of and against OSS, and also some which do not usually appear in
OSS literature, none of authors did explicitly compare motivations of secondary
software enterprises to general findings across OSS literature. Overall, there appears
to be a paucity of published empirical research on how motivations to deploy OSS
differ in vertical industry enterprises.
Studies on industry-specific software developed in open source communities
further seem non-existent. Current academic literature concerns horizontal
infrastructure software [5, 17, 18, 23] almost exclusively and the industry-specific
OSS may perhaps come forth in next wave of publications [8]. It seems that proper
business models are missing in provisioning of OSS for vertical industries [16].
2.2
Software-as-a-Service Adoption
Contemporary academic literature is mostly limited to describing the architectural and
technical properties of the SaaS offering and, in terms of adoption, suggesting
advantages and downsides of the model. [11] and [24] were among the first to
introduce claimed value propositions: less need for internal IT resources, and lower
initial and total costs. These economic benefits are associated with the deployment
and distribution model of SaaS, enabling service provider to achieve economies of
scale [11, 25]. In addition to the economic value, customers may gain flexibility
advantages such as prompt deployment, scalability, easily accessible updates and
patches and, additionally, strategic benefits like increased bargaining power over
vendors [11, 24–28]. Offering and using SaaS may also create problems compared to
traditional means of deploying software systems. Using SaaS, customer is exposed to
risks of losing control of business-critical data [24, 25, 29], thus not being able to
access the service or experience inferior performance owing to the distribution of the
service over the Internet [24, 27, 29]. Extensive integration and need for
customizations may also reduce the attainable benefits compared to other business
models in software business [30].
Similarly to OSS, well-known examples of SaaS are horizontal and employed in
multiple industries [25, 29]. Excluding infrastructure software (which are rather part
of platform-as-a-service offering), in services to business customers, SaaS model is
mostly applied to email, customer relationship management, human resources
management and financial management applications. In services to individual
consumers, SaaS is applied to social media applications (e.g. Blogger, Facebook) and
to storage and office applications (e.g. Dropbox, Google Apps).
Despite the enthusiasm towards SaaS model, relatively limited amount of research
on the actual volume, reasons and experiences of adoption is available. However, few
insightful studies can be found. Xin and Levina [31], reporting a research in progress,
hypothesize that customization and need for client-specific functionalities, required
service volume, internal IT capabilities among few other factors derived from IS
outsourcing literature would be determinants for SaaS adoption. Benlian et al. [32]
examined adoption of different types of applications using SaaS model. Applying
transaction cost theory, resource-based view of firm, and theory of planned behavior,
the authors found that in office applications attitude towards SaaS adoption and SaaS
adoption can be explained by subjective norm, by low level of specificity and low
level of adoption uncertainty. Correspondingly, when analyzing ERP systems, SaaS
adoption is explained by higher adoption uncertainty, higher strategic value of
application and higher application inimitability. This result can be interpreted in a
way that standard applications and applications which are not supporting core
processes of the enterprise may be offered and adopted using SaaS model.
3
Research Method
Using empirical data, this study examines the adoption of OSS and SaaS model in the
telecommunication industry. Specifically, present study analyzes why adoption takes
place, which factors drive and which inhibit adoption of OSS and SaaS. Moreover, we
examine how adoption occurs in the companies of the specific industry, both on the
client-side and on the vendor-side. This study applies exploratory approach [33] and
case research [34] including a total of eight companies. Out of the total, six are
communication service providers (CSP) and two are companies producing software
products and services. The case study approach was chosen because of the lack of
previous research and explanations on limited adoption of OSS and SaaS in industryspecific software. Therefore, motivation to conduct case research was to increase
understanding on the specific context of vertical software industries [35].
Furthermore, case research has been argued to apply for initial identification of causeeffect relationships and forming hypothesis for further studies [34].
Telecommunication industry was selected as the target domain, since it clearly
exhibits characteristics of a vertical industry that were thought also to affect the
software business setting. First, software systems in this domain are required to
interface with telecommunication networks. In addition, software systems are
required to support processes specific to the industry. Furthermore, analyzing the
properties of operations support systems and business support systems used in the
domain, it was assumed that the domain would have both industry-specific and
horizontal software systems, facilitating more insightful analysis on adoption of OSS
and SaaS. The set of companies was selected to the case study through both purposive
and convenience sampling [36]. For the former part, the sampling frame consisted of
finding case companies of different sizes and breadth of operations and finding
markets within telecommunication industry with different phases of maturity.
Consequently, European and Chinese communication service providers were first
selected as the target group of this study. Secondly, we also wanted to incorporate the
software vendor's viewpoint into the study and, therefore, the inquiry was targeted to
software vendors serving the communication service providers. These vendors are
typically well aware of the customer needs and trends, and often push the adoption of
new technologies and models.
The present study was executed in 2010, using two main sources of information:
public documents and interviews. We initiated the study by gathering general
background information on the case companies from their own and other public web
pages. Case company details are summarized in Table 1, including company type,
geographical area, and company size measured by revenue in the year 2009. With
regards to the company type and revenue, it is noteworthy that they are defined based
on the primary source of information, namely the respondents organizational unit.
The interviews were conducted as semi-structure interviews consisting of both
fixed and open-ended questions. The questions covered operational environment,
software acquisition strategies and adoption of OSS and SaaS in particular. Questions
concerning operational environment attempted to prioritize between certain focus
areas and capabilities: increasing customer base, network technologies and their
development, operational efficiency and new services making possible new sources of
revenue. It was hypothesized that business focus would affect software acquisitions
strategies, i.e. whether software-related activities are insourced or outsourced, or
whether CSP would prefer to acquire bespoke software or software product. These
aspects were asked from CSPs through ratio of spending between internal versus
outsourced development and bespoke versus product software, respectively.
Additionally, the reasons for the selected strategy were asked. Further, both business
focus and software acquisition strategy were seen as associated with OSS and SaaS
adoption. Both the OSS mode of development and the SaaS mode of deployment
assume outsourcing and relatively high level of commodification. Therefore, the more
CSPs outsource there is function and utilize product software, the more OSS and SaaS
should become a viable alternative. The questions on OSS and SaaS adoption simply
comprised of open-ended questions on whether, how and why the models were
adopted in the CSP software systems. All the respondents were asked essentially the
same questions.
The interviews were mostly accomplished by the authors. The interviews were
digitally recorded and transcribed. A Chinese scholar interviewed the service
providers E and F. For these interviews, the questions were first translated into local
language and Chinese scholar was instructed in performing the interviews. Later,
responses were later translated to English. Due to confidentiality reasons, these
interviews were not recorded, but the interviewer made notes on the questionnaire
form.
As presented in the Table 1, the interviewees represented different positions in
their organization. The main criterion for interviewed persons among the CSPs was
that they were actively involved in their firm’s decision-making regarding acquisition
and deployment of software systems. In the software companies, we selected
respondents who were frequently in contact with their customers and were
consequently acquainted with their customers’ needs, decision-making criteria and
actions. Also, we interviewed those employees responsible of development of
software products.
Table 1. Details of the case companies.
Company type
Area
Revenue in
2009 (Euros)
Respondent
Mode
Service
provider A
Group of 28
regional
operators
Europe
consolidated,
450 million
CEO
In-depth
interview
Service
provider B
Affiliate of
global CSP
Europe
close to 1
billion
IT manager
Focused
interview
Service
provider C
National,
incumbent CSP
Europe
over 12
billion
IT manager
Focused
interview
Service
provider D
Affiliate of
global CSP
Europe
over 1,5
billion
Director, R&D
In-depth
interview
Service
provider E
Provincial
branch of
national CSP
China
estimated 450
million
IT manager
Focused
interview
Service
provider F
Provincial
branch of
national CSP
China
estimated 750
million
Business
manager
Focused
interview
Software
vendor A
Global telecom
software vendor
Europe
consolidated
sales over 12
billion
R&D managers
Two focused
interviews
Software
vendor B
Global telecom
software vendor
China
consolidated
sales over 12
billion
Account and
R&D manager
Two focused
interviews
Software
vendor C
Global system
integrator
Europe
consolidated,
close to 75
billion
Account
manager
Focused
interview
With the software vendor producing software especially for telecommunication, we
had the possibility to carry out two interviews in both Europe and China. In China,
these interviews complemented the answers by the CSPs and enabled verifying
certain aspects regarding the operational environment. While most of the interviews
were so called focused interviews, we also conducted two in-depth interviews with
informants. By focused interviews, we refer to a single interview [34], which in the
present study usually took approximately two hours. By in-depth interview, we refer
to an interaction with the informant over longer period of time involving at least two
interview sessions [34]. This enabled asking more detailed questions and confirming
initial observations.
Data analysis followed the principles of qualitative research on parallel data
reduction, data display and drawing conclusions [36]. First, the data was organized by
identifying unique patterns in each case on the basis of interview themes and research
questions. These themes were operating environment, software acquisition, and
adoption of OSS and SaaS. Pattern matching [34, p. 136] enabled analyzing factors
within the cases. Next cross-case synthesis technique was employed, enabling
comparing the cases and aggregating the data [34, p. 156]. Overall, particular
emphasis was on aspects explaining adoption of OSS and SaaS across the cases, on
comparing customers and vendors viewpoints and on potential connections between
the context (operating environment and software procurement) and adoption of OSS
and SaaS.
4
Research Findings
In the following, the observations made in the empirical study are presented by
categorizing them according to the interview themes. The operational environment
and general alignments in developing, deploying and operating software should be
treated as the context, where the contemporary models of software business may be
examined.
Properties of the operational environment were realized through examination of
communication service providers' business focus and required organizational
capabilities. Surprisingly, there was much variety among European CSPs. Service
providers A and B saw increasing customer base as most important focus area. In
contrary, service providers C and D perceived operational efficiency and new service
development as most critical. While this may be due to the positions of the companies
in their market (market leaders and challengers), respondent in CSP C highlighted that
the telecommunication market is already saturated and that developing new services is
possible only through understanding customer needs. In China, the market is still
growing and service providers focus on customer acquisition and improving quality of
their network services.
Both the European and Chinese service providers suggested that the capability of
being able to customize standard technologies to match the customer needs will be
critical in the future. Overall, CSPs seem to be transforming from technologyorientated to customer-orientated companies. One of the interviewees from service
provider C described this change:
"We started out as a true technicians' company. We had an advantage because we
were the only operator so selling your services was easy. That changed with the
competition from cable companies around two years ago. We said ok, the customer is
the central of our world and technology is a way to attract the customer."
Software procurement activity in the service provider firms was investigated
through outsourcing viewpoint. Questions on this topic focused on reasons to
outsource and spending on software related activities. Currently, majority of software
development and deployment is outsourced. Chinese CSPs estimated the ratio of
expenditures between internal work and outsourcing expenses to be around one to
nine. In European CSPs, the ratio varies. For example, CSP B told that these activities
are solely in the hands of the vendors, whereas firms C and D estimated the
outsourcing ratio to be between 60 to 70 percent.
The European interviewees stated cost-efficiency to be the most important reason
for outsourcing. In China, outsourcing may additionally be explained by a lack of
high-end capability. One informant from software vendor B explained this as follows:
"Chinese operators do not have capabilities to develop software themselves. CSPs
and ISVs co-operate in developing and deploying their operations support systems
and business support systems, making it almost all tailor-made... Operating is mostly
organized by the CSP."
We also asked the ratio of spending between bespoke systems and software
products. Chinese CSPs reported that their software systems, specifically used in
producing telecommunication services, are fully bespoke. European CSPs (B, C, D) in
turn attempt to employ software products as much as possible. However, the reality
with all the CSPs is that company-specific legacy systems cannot be replaced.
Reasons for this include complex network interfaces, company-specific procedures
and sunk costs. The situation is different between business support systems (for
customer management and billing) and in operation support systems (for
provisioning, ticketing and mediation). Replacing business support systems with
standard solutions is more straightforward; standards for processes of customer
management and billing exist and deploying standard software products have become
possible.
4.1 Open Source Software Adoption
In the telecommunication industry, OSS is mainly deployed in infrastructure
software. Mentioned software included Linux, Apache and MySQL. The software
vendor C informed that there are many initiatives, which drive open source adoption
and CSPs are increasing use of OSS components in the future. However, it was found
that open source is not in use in industry-specific software. The software vendor C
expressed his opinion that OSS "does not fit" to software specific to the
telecommunication industry and there are no communities to develop them. With
regards to infrastructure software, open source is nowadays a common practice and
OSS is used as part of the software system deliveries. Respondent from software
vendor B described the use of OSS as follows:
"Operators are using open source, mainly in applications provided for customers.
There is no preference in using either open source or proprietary solution, rather they
want functioning and secure (and cheap) solution. OSS is more common in
infrastructure software than in application software."
In contrary, one of the informants (in CSP D) underlined that the use of open
source is avoided in business-critical systems and in services visible to their
customers. He suggested that open source can be applied to systems supporting
internal processes and to "enterprise-grade" systems, but in "carrier-grade" systems
proprietary solutions are preferred.
OSS is mainly adopted because of the cost factors (CSPs B, C, D, F), although
CSP D commented that OSS is not cheaper by an order of magnitude when looking at
overall costs. Use of OSS is also motivated by the capabilities and resources available
through the communities. With CSPs A and C, this is related to the lack of internal
capabilities and to the efforts to generate new sources of revenue. Many service
providers believe that flexibility is also an important benefit for OSS, including fast
time-to-market. Service provider B sees flexibility in form of future capabilities
allowing customization of standard building blocks.
Barriers for adopting OSS in telecommunication industry include lack of internal
capabilities (CSPs B, C, D), fear of liabilities (CSPs A, C, Vendor A), associated
control risks and uncertainties in business continuation (CSP A, B, C, D). According
to the respondents, lack of internal expertise leads to situations where obtaining
commercial supporting service becomes necessary and as a result cost advantages are
diminished. Uncertainties and fear of liabilities are linked to the complexity of
different open source licenses. In addition, service providers A and D mentioned that
they are not using open source, as no viable offering is available.
4.2
Software-as-a-Service Adoption
Similarly to OSS, SaaS adoption is connected to the cost benefits (CSPs B, F) and
principally to the flexibility of SaaS offering. The service providers A, B, C and D
presented ease of procurement, ease of maintenance and swift time-to-market as
components of flexibility. However, respondents were concerned with the total costs
and for instance CSP C disclosed such uncertainty as inhibiting factor to SaaS
adoption. The Chinese service providers are not applying SaaS, because their
suppliers are not providing it. This was explained by the software vendors A and B; in
software vendors currently have a strong customer lock-in (no incentives to offer
SaaS) and systems are acquired as custom deployments (transformation to SaaS
would be difficult). Service provider B called for industry standards in speeding up
the development.
Common concerns related to SaaS mode included integration and security issues
(CSPs B,C,D,E). For instance, CSPs are obliged by law to apply high data security
measures on call data records, which SaaS vendors are not able to comply with.
Problems with integration are related to the properties of SaaS offering. The mode of
deployment assumes standard processes and interfaces, which does not match the
attributes of industry-specific software. Informant in CSP C described the issues
related to company-specific processes and network technologies:
“It is a combination of the two things. We’ve got a variety of network technologies in
our network, for historical reasons. And that doesn't help in making it easier to
outsource it because both of them are completely different. So try to outsource that to
one and same company in itself it's a challenge. Try to rationalize and simplify the
processes around it is also a challenge... Yeah, I would be inclined to say that it is
more challenging to outsource in the OSS side of fence than BSS of fence.”
However, the SaaS mode of deployment has already been adopted in several
companies in the telecommunication industry (CSP A, B, C, D, F). Deployed software
are horizontal, e.g. for financial management and customer relationship management.
SaaS is also in use in the business support systems. However, in the companies
interviewed, SaaS mode of deployment is not applied for industry-specific software.
Service provider D described the adoption of SaaS in their organization:
“SaaS deployments have progressed and CRM system is in production in one
business unit. New projects to deploy SaaS have been initiated in the area of business
support systems... Attitude towards SaaS is more and more positive.”
With regards to third-party software, the most of the operators (CSP B, C, D, F)
see their role in the value chain as reseller and operator of the services, and have
already taken such role. The CSP A's strategy in providing third-party software is to
increase customer lock-in, by providing a combination of IT and communication
services, and envisions operating in both intermediating and aggregating roles, and
has already launched product concept to do so. The service provider D is aiming for
an aggregator role, where CSP offers multiple SaaS products for end-users. Such role
is seen natural, and CSPs are expected to take such role in its ecosystem.
5
Conclusions and Further Research
This study has focused on different aspects of OSS and SaaS adoption in the context
of vertical software industry. This is a perspective, which has received limited
attention in the contemporary literature, although a significant share of software
business takes place in this context. Examination of the facets of the vertical
industries may to bring into focus certain factors explaining the adoption or nonadoption, which do not manifest in the procurement of more generic software. In this
study, the dynamics of software business in the telecommunication industry were
examined. It was regarded as suitable target domain for analysis as it demonstrates
characteristics of vertical industry enterprises that are both generic (like selling and
using CRM) and industry-specific (like provisioning mobile subscriptions and
managing network elements). Conducting a multicase study involving both
communication service providers and software vendors serving them therefore
facilitated insightful examination on software business in vertical software industry.
The interview data uncovers that OSS mode of development and SaaS mode of
deployment are currently utilized by the communication service providers in
horizontal software: OSS in infrastructure software and SaaS in customer relationship
management and financial management software systems, which can all be used
similarly in many vertical industries. Industry-specific software (i.e. operation support
systems) is not developed as open source or deployed as a service. This observation
addressing the first research question has two further consequences.
First, it signifies that the perceptions and experiences of interviewees on OSS and
SaaS can only be associated with horizontal software. However, this allows us to
position the empirical findings more easily against the prior literature. The
respondents mentioned mostly similar benefits and disadvantages of OSS and SaaS as
in earlier studies:
• The benefits of OSS include cost efficiency [15, 21, 22], resources and knowledge
of the communities [21, 22], reduced time-to-market [14] and adaptability [14]
of source code. Lack of internal capabilities to maintain OSS [5, 15, 16] and
resulting increased dependency on support services [5, 15, 19] were considered as
problems of OSS.
• SaaS model was regarded as beneficial in terms of flexibility [11, 24–28] in
procuring, deploying and maintaining the software. Cost benefits [11, 24] were
also mentioned, but the respondents also raised a question whether the total costs
of utilizing SaaS would actually be lower over longer period of time compared to
other deployment models. The problems with the model to be solved include issues
related to security [24, 27, 29] and integration [30].
In this research, the value of OSS and SaaS was examined primarily through
advantages and disadvantages of the models compared to more traditional business
models incorporating bespoke software or software products. Taking into account that
the specific attributes of industry-specific software most probably did not affect
respondents assessment of OSS and SaaS, a partial answer to the second research
question may be given: conducted case research indicates that the communication
service providers see the value of OSS and SaaS consistently with companies in other
domains.
The adoption of OSS and SaaS in only certain types of software, and non-adoption
in certain others, moreover indicates that there are factors in the operating
environment and in the software business setting, which simultaneously drive and
inhibit adoption of OSS and SaaS models. As revealed by the case research, the
decision-making on software procurement in communication service provider firms is
presently business-driven. There are concurrent pressures to reduce expenditures on
software and to deliver compelling services of highest quality. Such pressures drive
e.g. acting as sales channel for third-party SaaS offering. This also informs us that
certain technology, specifically horizontal business support systems, does not to any
further extent provide significant competitive advantage to the firms. Instead, focus is
on new technologies and services that further makes commoditized software subject
to outsourcing and cost considerations. This observation is in line with previous
studies, in which productization [1] and commodification [4] are seen as leading to
increase in adoption of OSS and SaaS models.
On the other hand, it can be stated that SaaS mode of deployment is not harnessed
in industry-specific software, i.e. operations support systems. This observation is
somewhat contradicting to the models describing commodification development,
since operation support systems (for provisioning, ticketing and mediation) are
unlikely to act as source of differentiation in telecommunication either. Some of the
case companies addressed the issue. Representatives of software vendors disclosed
that there may not be incentives to offer SaaS or developing SaaS offering may turn
out infeasible. Reasons mentioned by the CSPs for using the existing systems, instead
of opting for SaaS mode, included specificity of processes and technology interfaces.
These factors also appear in previous studies as determinants for vertical software
industry evolution [1], but in the present study, company-specific processes and
interfaces emerged as factors disallowing use of highly commoditized SaaS offering.
When software business is examined as outsourcing of the IS function, transaction
cost economics may be employed to explain market failure, i.e. non-adoption of SaaS
mode of deployment. Transaction cost theory [37] holds that transactions with high
asset specificity are managed more efficiently within the boundaries of the firm. In
the software business setting, this means that the more specific the requirements of
software are, the more likely shall the clients choose to develop the software
internally or as bespoke software. Further, in case of high asset specificity, software is
less likely to be acquired as software product or as a service. In a prior study, Benlian
et al. [32] analyzed the association of asset specificity as explaining factor for SaaS
adoption. However, their focus was on more generic software systems and their
operationalization of asset specificity constructs was therefore missing dimensions,
which might be relevant to vertical software industries. Based on the case research,
and in line with the transaction cost theory, the following hypotheses are put forth for
further studies:
H1: Specificity of processes in client organization is negatively associated with
SaaS adoption.
H2: Specificity of technology interfaces in client organization is negatively
associated with SaaS adoption.
This paper has examined the adoption of OSS and SaaS models in
telecommunication industry. Therefore, it contributes to the software business
literature by recognizing the similarities and differences in adoption in vertical
software industries. Conducting a case research, it was found that managers in
communication service providers find similar benefits and problems in OSS and SaaS
as suggested by the current literature. A conclusion can also be made on the types of
deployed software: communication service providers use OSS and SaaS mode of
deployment in software provided and used across industries. In this case research, no
examples of industry-specific software developed as OSS or deployed as a service
could be found. For theory development in the field of software business, the findings
indicate different patterns of adoption on different types of systems. This study
arrived at two hypotheses, which are subject to further research.
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