Does outsourcing IT impact a startup’s ability to differentiate itself and grow? With the advent
of cloud services, firms are licensing IT instead of developing IT in-house. Despite this growing trend, we
know little about how early-stage resource acquisition decision affects technology adoption, product
differentiation, and longer-term performance. When firms outsource their IT, they develop a supplier
relationship with a cloud services provider and receive valuable resources related to their cloud provider’s
platform. However, cloud suppliers control which resources they create and share, which technologies they
suggest, and how well technologies fit with their platform, potentially impacting product differentiation.
Using panel data on app-developing startups, I find that startups outsourcing to cloud platforms adopt more
technologies. When outsourcing, development tools that programmers use to code an app become more
similar to other startups, saving time by avoiding compatibility issues. On the other hand, data analytics
capabilities become more diverse, enabling startups to cultivate more robust data, which aids in product
differentiation and startup growth.