Abstract

We use audited financial statements toexamine claims that service-oriented architecture(SOA) leads to higher profits relative to traditionalsoftware delivery models. Specifically, we examinevendors that rely on the Software-as-a-Service (SaaS)pricing model, and compare their performance toother firms that still use the traditional perpetuallicense model. We find that, relative to their peers,SaaS firms tend to have lower costs of goods sold as aportion of revenues. Compared to their software firmpeers, SaaS firms are also younger, smaller, possessless financial leverage, and have higher costs (sales,general, and administrative) relative to revenues.Pure, per-unit costs of hosted SOA applications do notappear to be lower, however, compared to firms thatspecialize in retail provision of mass market software.This leads us to conclude that, despite the predictionsof the most ardent adherents of SOA and SaaS,traditional vendors with sufficient economies of scalewill not be intrinsically threatened by the new model.