Kenneth C. Laudon,Jane P. Laudon Management Information System 12th Edition pdf

outsourcing 

enables a firm to contract custom software develop-

ment or maintenance of existing legacy programs to outside firms, which

often operate offshore in low-wage areas of the world. According to the indus-

try analysts, 2010 offshore outsourcing revenues in the United States will be

approximately $50 billion, and domestic outsourcing revenues will be $106

billion (Lohr, 2009). The largest expenditure here is paid to domestic U.S.

firms providing middleware, integration services, and other software support

that are often required to operate larger enterprise systems. 

For example, in March 2008, Royal Dutch Shell PLC, the world’s third largest

oil producer, signed a five-year, $4 billion outsourcing deal with T-Systems

International GmbH, AT&T, and Electronic Data Systems (EDS). The agree-

ment assigned AT&T responsibility for networking and telecommunications, 

T-Systems for hosting and storage, and EDS for end-user computing services

and for integration of the infrastructure services. Outsourcing this work has

helped Shell cut costs and focus on systems that improve its competitive posi-

tion in the oil and gas market. 

Offshore outsourcing firms have primarily provided lower-level mainte-

nance, data entry, and call center operations. However, with the growing

sophistication and experience of offshore firms, particularly in India, more and

more new-program development is taking place offshore. Chapter 13 discusses

offshore software outsourcing in greater detail.

FIGURE 5-11

CHANGING SOURCES OF FIRM SOFTWARE

In 2010, U.S. firms will spend over $291 billion on software. About 40 percent of that ($116 billion) will

originate outside the firm, either from enterprise software vendors selling firmwide applications or indi-

vidual application service providers leasing or selling software modules. Another 10 percent ($29 billion)

will be provided by SaaS vendors as an online cloud-based service.

Sources: BEA National Income and Product Accounts, 2010; Gartner Group, 2010; author estimates.

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Chapter 5

IT Infrastructure and Emerging Technologies

193

C l o u d - B a s e d   S o f t w a r e   S e r v i c e s   a n d   To o l s

In the past, software such as Microsoft Word or Adobe Illustrator came in a box

and was designed to operate on a single machine. Today, you’re more likely to

download the software from the vendor’s Web site, or to use the software as a

cloud service delivered over the Internet. 

Cloud-based software and the data it uses are hosted on powerful servers in

massive data centers, and can be accessed with an Internet connection and

standard Web browser. In addition to free or low-cost tools for individuals and

small businesses provided by Google or Yahoo!, enterprise software and other

complex business functions are available as services from the major commercial

software vendors. Instead of buying and installing software programs, subscrib-

ing companies rent the same functions from these services, with users paying

either on a subscription or per-transaction basis. Services for delivering and

providing access to software remotely as a Web-based service are now referred to

as