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This paper seeks to better understand the factors contributing to the adoption of Software as a Service (SaaS) as on-demand sourcing option. Grounded in Transaction Cost Theory (TCT), the authors developed a research model for assessing SaaS-sourcing at the application level. Four hypotheses with three TCT based constructs (application specificity, environmental uncertainty, and usage frequency) and one contingency factor (firm size) affecting the adoption of SaaS-based sourcing were formulated. Survey data of 154 firms in Europe with 284 response items across different industries were collected to test the theoretical model. PLS-based structural equation modeling demonstrated that uncertainty emerges as the strongest factor for SaaS-adoption, while application specificity also contributes significantly.
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