SaaS Agreements:  Software as a  Service (“SaaS”)  Agreements is a term that is used to apply to a wide variety of service provider agreements. Infrastructure as a Service; Platform as a Service, back-up as a service to name a few of the variations.

Essentially they all refer to a cloud-based compute model in which the specific service is a remotely hosted and delivered could-based model, where the service itself is delivered to a remote customer; i.e. unlike the prior compute model where the server (mainframe, mini, LAN  or desktop) was always local.  There can be very significant operational and financial benefits to customers:

(i) in the speed it takes to stand up a user environment,  as opposed to purchasing  and installing a system to host an application (in addition to the realty expense, electrical and HVAC  costs);

(ii) the costs of administrative support for that environment are the SaaS provider’s responsibility;

(iii) the transition from a significant long-term capital expenditure on the Balance Sheet and prorated over the life of the System; to an Operational Expense that is expensed on the Income and Expense report can have a significant impact on your financial reporting; and

(iv) flexibility to transition to upgrade the infrasturure or new solutions can be addressed in as little as a one year term SaaS as opposed to waiting until the end of a standard GAP (5) year   depreciation schedule on the asset.

These are just some of the more prominent reasons most new applications are moving rapidly to the SaaS  compute model.

The SaaS Model is indeed a service based model and that has a significant impact on the support provided. SaaS models look to Service Level Agreements (SLA), that typically categorize service support issues based upon severity; offer average vendor response and cure time ; along with a service credit remedy in the even the vendor fails to meet those SLA metrics.

The SaaS cloud-based compute model offers: faster implementation time; less up-front costs; eliminates to need for dedicated support staff;  and tremendous flexibility to scale to meet future needs and they evolve. From a SaaS provider’s perspective, SaaS offer providers a way to allow  potential customers to quickly immerse themselves in the compute environment. They can easily demonstrate how the customers staff can utilize the SaaS Service in the they environment prior to a purchase decision. There is no need for incremental equipment, and dedicated support staff , the SaaS provider can usually create a virtual instance of their SaaS Service for you on their host and have it stood up and ready for you within a very sort few days time (days vs. months).

SaaS Agreements impact a number of critical contract terms that you may be familiar with from End user License Agreements. “Acceptance“, “Warranty & SLAs“, “Indemnity“ to name a few.

Acceptance in any tech-contract acceptance is a critical term, that typically is when your payment obligation commences, of course that is probably subject to a payment term window, like net 30 days but that 30 days does not start to run until the product is accepted. That is also when the vendor get to recognize revenue, when your warranty period starts to run. Acceptance is critical in any tech agreement but there are some very distinct nuances that apply to most SaaS Contracts, please click here to learn more.

Warranty and SLAs do you understand the difference? There are differences and if your SaaS Service is not operating properly they generally carry different rights and obligations. If your concept of warranty is predicated based upon a standard product warranty like the warranty on your car, a refrigerator or any other goods, you should understand that right is fundamentally different from an SLA generally offered under most SaaS Agreements.

Indemnity is always a term that will garner careful consideration from your legal support team. SaaS offering are much more fluid than stand alone software application packages. SaaS Agreement typically do not offer the same indemnity as stand-alone software packages and because they are fluid they often depend upon your input. Please click here if you would like to learn more about how liability under a SaaS agreement may be a bit different from what you are familiar with seeing, Indemnity.

SaaS from a Developer’s Perspective: While there are many reasons software developer clients prefer the SaaS model, the two more prominent reasons include: quicker implementations and a short term Operating Expense (vs. a series of long term Capital Expenses). However, the benefits to software developer’s business are simple. SaaS is a single comprehensive offering with one sales cycle; one in which more of the implementation variables are now under the control of the SaaS provider. You provide the application, the hosting service, and the software support as part of a reoccurring SaaS subscription fee. In most cases, customers pay an additional implementation fee for the consulting services necessary to aide them in their implementation….Learn more about SaaS from a developer’s perspective.

SaaS from a Consumer’s Perspective: One of the significant benefits of a SaaS agreement is the subscriber doesn’t “own” a perpetual license to a copy of software, as they might have done for years with applications like Microsoft Office and Windows OS. In fact, they don’t even own a server that sits in their office or computer room. A subscriber simply accesses a URL with login credentials for software that is hosted on a separate environment maintained by the vendor’s platform. A license fee is usually calculated based upon the number of users, transactions, and other quantity type metrics associated with the term of subscription….Learn more about SaaS from a Consumer’s Perspective.

John O’Brien has focused on evolutions within the tech industry and has worked for large manufacturers and software developers. As a professional services counsel for Digital Equipment in the early 1990s he worked closely with Project managers and their team in support of customized software development and deployment  projects in their NYC Area practice, the largest PS practice in the country at the time. Later as  an Area Counsel in Sun Microsystems he witnessed the amazing client server/open systems shift that is often referred to as the .com. More recently he has been immersed in support of software developers and SaaS providers. Change is the only constant, but you need to be able to discern the implications of the change on your operation and adapt. Let him help put that experience to use for you.

I am a legal professional specialized in helping companies of all sizes develop, negotiate and/or modify consulting contracts, licenses (in-bound or out-both), SOWs, HR agreements and other business related financial transactions.