Basics of SAAS (software as a service) agreements

Software as a service (SaaS) is a common way to deliver a software product for use by others. Most businesses today utilize several SaaS products during the normal course of conducting their business. With this delivery method, rather than purchase an annual license, software users “subscribe” for a specified period of time. In this delivery model, paid subscribers access the software via the Internet, not via a licensed copy of the software. SaaS subscriptions can be for any length of time, it depends on the software being provided and its use. Some companies are receptive to subscriptions for just a few months, for example when finalizing an engineering project. In that instance, the engineers may just need access enough to finalize particular finishing elements of the project. 

For such projects, the profit margins of the engineering company may better support a monthly subscription fee, rather than annual. By comparison, some user business models are completely dependent upon an uninterrupted access to specific software programs to service customers. Here, multi-year SaaS subscriptions may be beneficial in negotiating uninterrupted service and any volume-based discounts the provider may offer. If the provider is unwilling to offer annual or volume discounts, sometimes a “not-to-exceed” annual cap can be negotiated. If your business is dependent upon a specific software service, call Susan to discuss other price insulating possibilities.

Benefits of Software as a Service

For software companies, software as a service delivery method can provide numerous benefits and many cost-saving opportunities. A major benefit to the provider, in both direct and indirect costs, is the obligation to support a single version. The provider can address a customer problem with the software once, many times before other customers even report it. These economies of scale enable providers to both reduce support costs while simultaneously providing improved response times to customer issues. SaaS can lower the initial costs to consumers while providing shorter response times, leading to increased customer satisfaction. Companies can monitor how customers use the software, which features are favored, and a host of other items.

Software as a service provides many benefits for customers, too, many of which are centered around cost savings or cost avoidance. Customers can avoid hardware costs, benefit from reduced internal tech support staff, and skip up-front license fees. As updates and new functionality are automatically updated on an on-going basis, staff down-time learning a new version is reduced or eliminated entirely. Some SaaS providers allow for shorter term subscription plans, or by access points, allowing customers to only buy what they need.

Limitations of SaaS

One of the limitations of SaaS is a lack of individual customization features on a business-by-business level. Customers may need to select an alternate provider, or traditional software license, to meet their business needs. Alternately, customers may choose to alter business processes and procedures to conform to the capabilities and features offered by the SaaS. Another limitation of SaaS is individual business owner tolerance for relinquishing control of some portion of their IT needs. For some business owners, turning control of their IT over to any third-party is the stuff nightmares are made of. For other owners, releasing that control, and all that it encompasses, is the sweet sigh of relief. Either way, complete dependence upon a third-party for secure, reliable, accurate, timely, and responsive services carries benefits and risks.

Software as a service contracts are usually presented as a ‘take-it or leave-it’ proposition, containing terms unacceptable to some. Larger customers typically enjoy more flexibility in regard to standard terms and conditions and are able to negotiate favorable terms. Smaller customers normally do not have any such bargaining power and some SaaS providers are more apt to walk away. Regardless of whether your company is large or small, it never hurts to ask, the answer may surprise you.

If you would like to discuss how an experienced SaaS attorney can help you further your business goals, please call Susan Larsen today at (303)520-6030.