SaaS Vendors: A Legal Checklist

Posted on December 1, 2008 by Sam Conforti

 

Due to the differences between traditional “on premise” software licensing and the newer software as a service (“SaaS”) offering, there were bound to be required adjustments on how the software customer contracted for these services.  We owe a debt of gratitude to Gene Landy with the law firm of Ruberto, Israel & Weiner, P.C. in Boston, MA.   Landy has put together a list of 8 items in his article 8 Legal Tips for SaaS Vendors that should be considered by the SaaS Vendor while developing their SaaS offering.  Including some or all of these tips in your contract may be a smart decision.  Here is a brief summary of those legal tips:

1.     Look for restrictions in your own software licenses:  As you develop your offering, do your licenses prohibit use as a service bureau or are there restrictions on remote access or use as an Application Service Provider.  You wouldn’t want your SaaS application to be in violation of any of these restrictions.

 

2.     Has your contract model evolved:  Initially the SaaS offering came in a 2 part form - first a software license and then a hosting agreement.  Today the more common contract model is to view this as a subscription and not mention licensing in the agreement.

 

3.     The Tax Man:  Your customers may be interested to know that most states do not levy a tax on services as they do for the sale of a license.

 

4.     Trials:  The SaaS Vendor could include a trial period bundled into the subscription agreement.

 

5.     Required upgrades limit the SaaS vendor’s maintenance costs:  Require customers to upgrade and eliminate having to maintain prior releases.

 

6.     Security:  It is fine to tout your security measures, but never promise 100% guaranteed data protection.  This is IT after all and you are using the internet.

 

7.     Consider SAS 70 as a selling feature:  You can provide your customers with an extra level of comfort and some of your customers may actually require a SAS 70 certification.  This is a certification performed by an outside accounting firm which attests to the accuracy and security a vendor provides.  The certification states that the controls are adequate.

 

8.     Data Breach Notification:  In the event of a data breach most states require a notification be sent out to the subjects of such a breach.  Make sure that your customers do not attempt to place such obligation upon you.  The costs could be prohibitive.

This is by no means an inclusive list, but Landy has hit some key issues. I found it very informative and helpful.

 

 

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More Growth in Outsourcing in 2008

Posted on January 9, 2008 by Sam Conforti

InternetNews reports that Gartner predicts outsourcing will grow by more than 8% this year to approximately $441 billion. The trend in this continued use of outsourcing seems to be moving away from large vendors to more of the smaller vendors with specialized products or services that can meet a company’s particular needs. Gartner’s survey results indicate a recent change in company’s strategies and priorities vis-à-vis outsourcing. There has been a decidedly huge increase in the percentage of companies from 2005 to today that have established a disciplined process in their approach to determine if they will outsource.

"[We're] seeing our clients set up internal processes and applications to create a service model for other internal organizations to leverage," Hemant Ramachandra, managing director of BearingPoint's Technology Solutions unit, wrote in an e-mail to InternetNews.com. "This can be software-as-a-service or even application as a service. Setting up the right governance structure is critical to ensure that outsourcing is leveraged appropriately."

In 2007 IBM increased its market share for IT outsourcing to 8.1%. EDS was second with a 5.3% increase followed by a 3.3% increase for ADP.

In know what you’re thinking. Woe is me. All of our jobs are going overseas. This is the initial knee-jerk reaction when one hears about outsourcing and its inevitable increased use. But this does not have to be the only truth. As our economy evolves and adapts to the changes in our society and new needs arise, the way we work and the makeup of our workforce will necessarily evolve as well. The largest increases in new businesses in the US are in small business and a large percentage of those new small businesses are home based. New companies will also need to be created to meet the changing model from ASP to the new approach of Web-based Software as a Service (“SaaS”), which allows businesses access to software functionality for a more cost effective monthly fee instead of the cost of the application’s license fee and the upfront cost of more hardware. Who these new companies will employ is yet to be determined.
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