Examining the Antecedents of Cloud Service Profitability

In a fast growing but highly competitive market, some cloud service providers are significantly more profitable than others. In particular, numerous providers struggle to scale their cloud service delivery up from a one-time, project-based co-creation model to a platform delivery model, building on reusable resources. This study builds on the service (-dominant) logic and the resource-based view to develop a model of cloud service profitability. It is proposed that profitability results from the ability to manage costs of customer-specific value co-creation and efforts to build reusable resources, which facilitate future customer engagements. The results of a survey with 99 cloud providers show that value co-creation costs indeed mediate the effects of facilitation capability and complexity on cloud service profitability. However, facilitation capability has both direct and mediated effects on profitability. The results provide insights on which factors influence cloud service profitability and which resources should be established before offering a cloud service to future customers.