Application service providers: an application of the transaction cost model
Application service providers (ASPs) are expected to become a $25 billion industry by 2004. A firm's decision to build or buy its IT infrastructure is dependent upon an application of transaction cost theory. These theories substantively explain a firm's decision to outsource IT services to an ASP. This paper examines the ASP model through the lens of Williamson's transaction cost model. The applications of this model explain many of the current market trends and provide insight into the continued success of the ASP model. The conclusion provides additional decision criteria for those practitioners who are in the decision process of outsourcing the IT function to an ASP.
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