Applying Real Options and Game Theory to Information System Decision Making: The Application Software Provider Case

Due to the rapid progress and adoption of information technologies, the decision making for technology investments has become very complex. Also, after the burst of the investment on information technologies (IT) bubble in 2000, companies and investors now require information systems decisions be based on demonstrable value creation that is aligned with the business mission and goals. In this context, it is essential for the IT community to adopt better models for decision-making regarding investments and projects. In this paper, we made a literature review of applying Real Options and Game Theory models for information system decisionmaking. Specifically, we formulate some research questions to analyze the delivery of software applications over the Internet on demand and on a variable pay as-you-go basis. Under this model of delivery, that is starting to be offered by Application Service Providers (ASP) like IBM and Oracle, the customer pays the software as a utility, similar to telephone or energy services. We describe how the combination of Real Option and Game Theory helps Information Systems managers to adopt an optimal strategy for the decision-making process of selecting ASP services. This extended abstract is organized as follows: first we present an overview of ASP and Real Options. Second, we explain an application of Real Options to analyzing ASP software delivery model (Techopitayakul, Johnson, 2001). Third, we consider the new research trends that extend the real option model with game theory to analyze the information system decision-making process under competition. Finally, to do a summary and we present some research questions