Software as a Service (SaaS)

SaaS is now the model that most software suppliers are aiming for. From the supplier side, SaaS helps protect intellectual property rights, it makes things easier when it comes to support and maintenance and the supplier retains greater all-round control. If the customer doesn’t pay then the supplier can switch off access easily. From the customer side, support and maintenance and service availability is less of an issue because the supplier is servicing hundreds or thousands of other customers. Customers can rest assured that the supplier will be doing all they can to ensure the system is working. This article gives a very brief overview of SaaS and the things you should be aware of if you are thinking of signing a SaaS contract. Our lead software lawyer is Neil Williamson who is an expert in all software law matters.

What is SaaS?

SaaS (software as a service) is a software supply model through which a supplier hosts software applications on its platform and permits its customers to access and use that software over the internet. A SaaS customer will not receive a physical or installed copy of the software. Instead, the software is available via the internet using a standard browser. The customer will login to the supplier’s platform using credentials provided by the supplier and, once logged in, the customer can then use the software on the platform.

Access to SaaS is provided to customers on a subscription basis. When you stop paying the subscription fee, your rights to access the SaaS will end. Additional fees may also be payable, for example, in respect of any additional or enhanced user subscriptions or for any data stored in excess of any data storage limit that may be imposed.

Examples of popular SaaS applications include Dropbox, Amazon Web Services and Salesforce however there are many niche providers in the market now. These suppliers tend to be offering a platform where customers can upload and process data.

Advantages of SaaS

There are numerous advantages to SaaS. Commonly, SaaS providers host their services and store all of their customers’ data in the cloud so the data can be accessed and processed from anywhere with an internet connection.

This structure also allows providers to offer customers major cost savings as a result of economies of scale achieved by managing multiple customer solutions in a single operation.

SaaS eliminates upfront costs of purchase and installation and means that customers do not have to invest heavily in hardware, software or professional skills to obtain a wide range of functional capabilities. Additionally, the SaaS “pay as you go” model allow businesses to pay only for what they are using. This can be particularly advantageous for small businesses because it provides access to expensive, technical software that might have been otherwise unobtainable through conventional purchasing methods.

As well as being able to offer cost savings, SaaS providers can benefit from only having to support one version of their software and delivering their service on a single platform. SaaS providers can make changes to their software easily, especially when compared to a model where the software is installed on the customer’s servers. The provider can also implement enhancements at its data centre and make those changes available to its entire customer base. SaaS is designed to be user-friendly and should therefore minimise specific training requirements.

Other advantages include protection of intellectual property rights and general overall control for the supplier. Under the SaaS model, the customer does not receive a copy of the software making it much harder for the customer to copy it. As software is delivered as a service, the service can be switched off at any time by the supplier disabling the customer’s log-in credentials.

Disadvantages of SaaS

There are also disadvantages to SaaS. Although some SaaS providers offer customer-specific customisation services, the majority of services provided are a “one-to-many” model. SaaS is therefore generally regarded as more useful for standardised software applications such as email, data processing and accounting. You will need to evaluate each application individually to make sure that the SaaS offers the features that you need to do business.

Some businesses may also be concerned about the lack of control and security of SaaS. In-house software applications give business owners a high degree of control. When you use a hosted solution, you give much of that control over to a third party provider. If you aren’t comfortable relying on a third party to manage critical business applications, a SaaS model may not be right for you. There may also be compliance (for example, data protection) issues and a risk of hidden extras for additional users, storage and so on.

What do I need to consider when entering into a SaaS agreement?

As SaaS providers usually have high numbers of contracts globally, they generally seek to offer their services on standard terms. These terms tend to be strongly advantageous towards the provider and exclude liability for data loss, corruption or service failure. Consider the following provisions in particular:

• Charges and payment (including any price increases);
• The treatment of customer data;
• Service levels;
• Confidentiality provisions;
• Term and termination; and
• What happens to customer data when the contract ends.

From the supplier’s perspective, a SaaS model is lower risk than other forms of software supply. However, as with all contracts, careful drafting is needed. All of the above provisions are important from the supplier’s as well as the customer’s perspective and, in addition to these, appropriate intellectual property rights provisions should be included.

Licensing

Although in a software as a service model software is not being physically supplied to the customer, appropriate software licences still need to be granted. This is because the customers are using the software at a computer and, without a licence, this would be copyright infringement. These licences are usually very narrowly defined and limited to use of the online application for their own business needs. The supplier should warrant to gain and maintain all necessary licences, consent, and permissions necessary for the performance of the agreement.

If you have any questions around software as a service agreements or you need support drafting a software as a service agreement contact Neil Williamson.