DP8907 Migration to the Cloud Ecosystem: Ushering in a New Generation of Platform Competition

Author(s): Chaim Fershtman , Neil Gandal

Publication Date: March 2012

Keyword(s): cloud computing , network effects , platform competition , two-sided markets

JEL(s): L13 , L86

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP8907.asp

Cloud computing is defined to be Internet based computing technology, where the term 'cloud' simply means Internet -- and cloud computing refers to services that are accessed directly over the Internet. There are essentially three categories of cloud computing. (i) Iaas (Infrastructure as a Service) -- number crunching, data storage and management services (computer servers), (ii), SaaS (Software as a Service) -- ‘web based’ applications, and (iii) PaaS (Platform as a Service) -- essentially an operating system in the cloud. Much of the attention and literature has focused on the revolution in Iaas services provided via the cloud. Despite the major changes in technology in IaaS services, estimates indicate that more than 90% of the cloud computing market (in terms of revenues) will involve (virtual) operating systems and applications software services (i.e., PaaS and SaaS services.) In this paper, we examine how several key economic factors will likely affect competition in SaaS/PaaS services in the cloud.