SaaS Contracts – Things to Look out for

SaaS contracts are increasingly relevant as SaaS is now the model that most software suppliers are looking to supply through. This article provides some insight into the kind of things you need to consider if you are dealing with SaaS contracts.

What is SaaS?

SaaS is the practice of accessing software solutions over the internet, as opposed to by downloading solutions onto your computer. Before SaaS, businesses and consumers would buy a physical version of the software that required installation.

Remember the plastic-wrapped boxes that held the software’s CD-ROM? SaaS eliminates the need for that thanks to the internet. Businesses and consumers simply subscribe to access externally hosted software. As long as they have a connection to Wi-Fi, customers can access the software from anywhere, on any computer.

Example

Take your email server, for example. You want to know that you’ll continue to send and receive emails without needing to fiddle with your email settings or worry about updates. Imagine if your email server went under because you forgot to update it and you went days without email? That’s simply not an option in today’s marketplace. If you use a SaaS product like Microsoft 365 as your email provider, the chances of something going wrong are very small.

Why use SaaS?

With SaaS, you don’t need to install and run software applications on your computer (or any computer).

Everything is available over the internet when you log in to your account online.

You can usually access the software from any device, anytime (as long as there is an internet connection).

The same goes for anyone else using the software. All your staff will have personalized logins, suitable to their access level.

Issues

One-to-many model means SaaS customers do not get bespoke services.

Reliance on online connectivity. The internet is fast becoming a single point of failure for many organisations: how long could a company operate without it?

Compliance issues, such as cybersecurity, data protection and encryption.

Risk that customer fails to control usage or increased storage.

Commercial setting

Although most famously deployed on a business to customer basis, SaaS is also used on a business to business model. If you are looking to offer SaaS to customers or businesses or are a business looking to subscribe to a SaaS offering, then being aware of the negotiating positions on SaaS contracts is crucial.

Negotiation Checklist – What to ask for and consider in SaaS Contracts?

• A detailed description of the services being offered.
• How is data being processed? This is important when looking to comply with data protection law i.e. who has access to the personal data that the SaaS provider is collecting? Who is responsible in the event of a data breach? For the purposes of GDPR the customer i.e. the person using the software and putting data into it, is usually considered the data controller. The obligations of data protection law are mainly on the data controller and therefore, usually, the customer of a SaaS provider. A data controller should only allow a third party to process data on its behalf if it has appropriate organisational and technical measures in place to protect the data. So appropriate data processing provisions need to be set out in the SaaS Contract.
• The right of access to the application. Who does and does not have the right to use the application? For example, is the charging structure in the SaaS Contract based on a per person subscription fee or can any of the customer’s staff access the service in return for the customer paying a (significant) upfront annual licence fee?
• The provision of updates, maintenance and integration of third-party tools. Depending on the context, the customer may want to see some response time commitments if things go wrong as well as service availability commitments. If the SaaS product is for consumers such provisions are unlikely to be included in the SaaS Contract. If the service is fairly niche and for businesses rather than consumers then response time commitments for fixing faults are more likely to be found or negotiated into the SaaS Contract.
• Intellectual property rights. The supplier of a SaaS application and its licensors will own the intellectual property rights to the software whilst a customer will own the data which is imputed into the software.
• Term and Termination. Clear language in the Saas Contract is needed so there are no doubts about the length of the subscription term. Is the term service to be automatically renewed? If so, can prices increase in future?
• Limitation of liability. Generally the liability of the supplier is limited to total subscription fees for 12 months but this can vary. Customers must be mindful of the kinds of losses that they may incur if things go wrong and check whether or not the limitation being imposed by the supplier is fair.
• Scalability of pricing options i.e. How can you get or offer the best price for the size of businesses you are likely to attract.
• Rights of third parties? If the customer needs its consultants as well as its employees to be able to access the applications then check that the SaaS Contract allows this. What about staff belonging to other members of the same group of companies as the customer?

The Present and Future of SaaS

Since its early beginnings, the SaaS industry has continued to grow, evolve, and thrive. It’s an equal-opportunity industry, with SaaS tools coming from startups, tech giants, and every company size in between. Even traditional software companies now have SaaS offerings to stay relevant and on-trend.

The SaaS industry is also home to quite a few unicorns (private companies valued at $1 billion or more). While the tech sector dominates lists of unicorns in general, SaaS tools are beginning to gain more and more real estate. Some SaaS companies with unicorn status are Dropbox, Domo, and Slack.

In the future, SaaS companies are expected to adapt their offerings based on significant tech trends. For example, artificial intelligence is likely to play a major role as SaaS companies begin to incorporate AI into their tools, ultimately increasing functionality and improving the user experience. Artificial intelligence is often seen in the form of chatbots, but it will also be useful in automating manual tasks and personalizing SaaS offerings.

Cybersecurity is also a vital aspect of the future of SaaS. There is always a risk to storing sensitive data in the cloud, but consumers’ concerns and hesitations have pushed SaaS companies to take necessary security measures.

These enhancements are formulated through encryption algorithms, identify management, and anti-malware – three measures that work to protect software, and its customers, from data breaches and viruses.

We are SaaS Experts

EM Law’s technology lawyers have helped clients with a wide range of SaaS Contracts both nationally and internationally.

Please contact us if you have any questions on SaaS Contracts or you can find out more about SaaS arrangements by checking our other blogs on cloud services or Software as a Service.