Since its inception, SaaS market has been one of the fastest growing segments in the software industry. This paper is the first attempt to measure the productivity of pure-SaaS firms by adopting a stochastic frontier approach. Using an annual dataset from 2002 to 2009, we conduct a two-stage analysis. In the first stage, we derive the efficiency scores of each SaaS firm. We found average technical efficiency has been increasing due to catch-up effect in recent years. In the second stage’s analysis, R&D investments are found to be negatively associated with SaaS firm’s technical efficiency. Our results also show that R&D investments significantly contribute to the 1-year growth of technical efficiency of SaaS firms.


Software-as-a-service, On-demand computing, Stochastic Frontier analysis, Technical efficiency, R&D, Catch-up effect, Spillover


ISBN: [978-1-86435-644-1]; Full paper