Understanding the organization of managed service providers: an analysis of customer satisfaction and contracting in markets for hosted IT services

This dissertation looks at several facets of the application service provider business model. Application service providers are companies who provide software capabilities for multiple organizations over the Internet. Though the ASP model has the potential to fundamentally transform the manner in which IT services are provided to firms, to date the ASPs have not been successful in attracting a large client base. My dissertation explores research issues arising from the ASP business model and can offer insights into the survival and future viability of ASPs. In my work I combine insights from the principal-agent literature in emphasizing incentive compatibility of the contract, the transaction cost literature in outlining the need for ex post adaptation, and literature on customer satisfaction that emphasizes the importance of understanding customer expectations and performance evaluations. One of the implications from this work is that negative evaluations such as post usage disconfirmation have a higher magnitude of effect on customer satisfaction outcomes than positive evaluations of service provider performance. Another implication is that users expectations are more important in making satisfaction assessments than their experiences with similar services. I also draw upon the transactions cost economics framework of Bajari and Tadelis (2002) and look at the role of ex post adaptability of ASP services as a need for designing flexible contract forms. Another contribution is to look at multitask agency issues underlying the application service provider business model, which establishes that the optimal contract should a low powered incentive contract in order not to induce task distortion