Chicago Software Licensing Lawyer & Attorney : Sam Conforti Law Firm : Master Service Agreements, Negotiations, Outsourcing : Cook County, Illinois

 

Bahan Sadegh, CEO and co-founder of NETtime Solutions and a veteran of the on-demand software industry, has written an article with the SMB Customer in mind.  Sadegh has created a list of questions for the SMB to consider before choosing its SaaS Vendor entitled 10 Questions To Ask A Potential SaaS Vendor.  His list is very informative and it would be wise to keep handy when considering which SaaS Vendor to select.  I cannot attest to the fact that this is an inclusive list, but I will tell you that his discussion of the points he has identified gives the reader enough information to perform their due diligence and ask more questions and there really are more than 10 points to know if one includes all the “sub-points” Sadegh includes.  I will try to provide a brief synopsis of his 10 Questions below:

1.     Billing should be pay-as-you-go: We all know there is a business cycle and your invoice should reflect this cycle.  Also, there should never be any maintenance fee on your invoice.

 

2.     Security:  Sadegh has a very good list of questions to ask in this very important area.  Instead of trying to paraphrase his words, I think it best to directly quote him on this matter:

“Ask your potential SaaS vendor:

-       Does the data center that is housing the servers have physical security 24/7?

 

-       Is the perimeter of the data center secured (do guards walk the perimeter at least once per 24 hours)?

 

-       Who has permission to the access these servers (only internal employees or do contractors also have access)?

 

-       Is there a log that captures who came in and when they left? If so then how often are those logs audited?

 

-       Does the application use industry standard 128-bit encryption?

 

-       If multiple customers are housed on the same server then are they logically/physically separated to ensure your data is not viewed by unauthorized eyes?

 

-       Has the staff of the SaaS vendor who has access to your data gone through a criminal background check? It’s important to know whether or not convicted felons have access to your sensitive personal data.

 

-       Does the vendor have a formal BCP (Business Continuity Plan)? Is the vendor willing to share it with you and does it satisfy your concerns?”

 

 

3.     Solution must be web based:  There should be no requirement to install an application on any computer.     Also any SaaS application should be able to run on any platform and any browser.  In the event of a computer crash, you must have access to your application.

 

4.     An experienced vendor:  Make sure the vendor has experience in hosting.  A vendor experienced in hosting has already addressed such issues as scalability and security and is not merely repackaging their application as SaaS. (NOTE:  See point 8 below regarding MSP’s).

 

5.     Upgrades should be automatic:  You want to be on the latest version and have the most current functionality.  There should be no need to retrain your users.  The upgrades should be seamless.

 

6.     Integration:  You should have the ability to transfer between the web based applications and any on-premise applications.

 

7.     Data must be backed up regularly:  Nightly onsite back-ups and weekly offsite back-ups should be the minimum.  Does the vendor test how to restore their database?

 

8.     Who is hosting the solution:  Is this an in-house hosting arrangement or has the SaaS vendor contracted out with a Managed Service Provider (“MSP”)?  Get a SAS 70 report and verify that in the data center every system has at least one independent backup to ensure availability in the event of system failure; this is known as N+1 configuration.

 

9.     Scalabilty:  Can the SaaS vendor grow as your company grows?  Ask about their largest customer and ask them about their plans for growth.

 

10.  Is the SaaS system monitored:  An easily overlooked question.  Do they have monitoring software and do they test their firewalls?

 

Sadegh concludes his checklist by suggesting that the SaaS Customer perform a bi-annual review of their service with the above checklist in mind.

 

 

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In order for SMB’s to compete with their larger counter-parts, they need to increase their operational efficiency.  CISCO interviewed Laurie McCabe, vice president of small and medium-sized business (SMB) insights and solutions for research firm AMI-Partners, and came up with some suggestions to enhance SMB’s ability to compete using network technology.  Here is what they’ve come up with:

 

1.     Give employees access to information:  SMB’s need to react quickly.  Slow and unsecured networks erode competitive advantage.

 

2.     Mobile employees need access anytime and anywhere: Virtual Private Networks (“VPN’s”) and wireless networks allow mobile employees to stay connected to the network.

 

3.     Develop business processes with partners:  Operational efficiency is enhanced when you can meet your partner’s requirements.

 

4.     Collaborate, Collaborate, And Collaborate:  With partners, employees, suppliers, and customers.  Use integrated voice, video, data, wireless, and other technologies.

 

5.     Your phone system should go where you go:  Missed calls mean missed opportunities.  Solutions exist making one phone call ring multiple devices.

 

6.     Modernize customer communication:  Link your IP communication system to a Customer Relationship Management (“CRM”) solution.  Before your employee answers the phone a pop-up appears on their screen with customer information including recent orders and returns.

 

7.     Travel time kills operational efficiency:  Use video conferencing whenever possible to reduce travel to offsite meetings and training sessions.

 

8.     Outsource IT tasks to a Managed Service Provider:  Employee’s time is better spent on supporting the enterprise’s core competencies rather than on managing network security.

 

9.     Employee retention is key:  Frustrated employees affect customer’s confidence in the enterprise.  Burned out employees leave and time & money is spent rehiring.  A reliable network alleviates this frustration.

 

10.  Develop a long-term technology plan:  Eliminate disruptions from replacements of massive obsolete hardware by devising a mapping of solutions to objectives.

 

 

To read the full details see Ten Tips for Increasing Operational Efficiency.

 

 

 

 

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There are many items to consider before deciding to adopt a SaaS approach to your IT operation.  Marcia Gulesian, a software developer, project manager, CTO, CIO, and author of numerous feature articles on IT, has captured the salient points in her article SaaS: Financial, Legal & Negotiation Issues.  As the title to her article suggests, the financial implications should be addressed first.  Gulesian has a very descriptive section on the differences between buying the software application and leasing it.  She discusses the differences of owning an asset and its tax advantages of the deductibility of depreciation as opposed to the leasing option.  There is a brief explanation of cash flows between the two alternatives, finding your opportunity cost, and making your determination on the comparison of the present values of the cash flows from the cost of owning versus the cash flows from the cost of leasing.  Before we go too far afield, my readers can attest to the fact that I always try to define our terms before delving into the nuances that the subject line suggests.

Wikipedia’s definition of SaaS is very complete yet succinct:

“Short for Software as a Service, SaaS is a software delivery method that provides access to software and its functions remotely as a Web-based service. SaaS allows organizations to access business functionality at a cost typically less than paying for licensed applications since SaaS pricing is based on a monthly fee. Also, because the software is hosted remotely, users don't need to invest in additional hardware. SaaS removes the need for organizations to handle the installation, set-up and often daily upkeep and maintenance. Software as a Service may also be referred to as simply hosted applications.”

I also have a posting in this blog, which I must admit has become quite popular based on the number of hits registered to it, entitled SaaS is the Future.  In it I discuss how a Managed Service Provider (“MSP”) can help software developers get their product to the market faster since the infrastructure barriers and capital expenditures are significantly lessened.  In another posting about Unified Communications I have quoted Mat Taylor, a senior software architect with British Telecom, regarding the benefits of SaaS:

"The ability to get things done faster, get workers more engaged in a business scenario, provide better customer service, are all big productivity wins that benefit the bottom line"

In light of the above discussion surrounding “lower total cost of ownership and quicker time-to-value”, Gulesian cautions us that the other factors to include in the financial calculation is the maintenance and support fees that come with ownership as compared to the SaaS fees which includes these items.

SO WHAT DO I INCLUDE IN THE SAAS CONTRACT?

Gulesian points out three areas that must be addressed in the contract:

·         Integration with your non-SaaS systems

·         Loss of control of data

·         Dependence on the provider for security

The CIO and his or her team are the main players to address the integration issue.  Although the next two points also require the IT organization’s participation and input, these are matters that must be addressed upfront in the agreement itself.

Risk of loss of your data is paramount.  In the event that the SaaS provider is unable to provide the support anticipated, it is essential that you have access to the applications as well as your proprietary data.  Inability of the provider to provide support may happen for a myriad of reasons such as bankruptcy of the provider or a real or threatened patent infringement claim and subsequent injunction.  The preferred approach to protect against such loss is to insist that the provider place its code into an ESCROW account.  Language can be drafted which will instruct the trustee  of the escrow ( an independent and trusted third party) to release the code to the beneficiary (i.e. you) upon the happening of certain events which are defined in the escrow language in your SaaS agreement.  One shortcoming to this occurrence is the downtime that may be involved in getting your systems up and running, but this is a necessary protection that you must include in your contract.

Transition assistance is another item to consider.  In the future you may wish to change the SaaS application currently in use.  Language should be included to require the provider’s assistance in developing the data migration strategies and the procedures to be followed so you can move your data to another application.

Since the SaaS model is economical by nature (see Wikipedia definition above), traditional discounting expectations are not available.  Pricing is based on users or seats.  The more users subscribed, the more likely the cost per user can be discounted.  So plan accordingly and try to build in volume discounting per blocks of users.

Other items Gulesian notes for inclusion in the agreement are:

·         Service Level Agreements (SLAs) regarding

§  Availability

§  Response times

§  Notifications of outages

·         Regulatory compliance

·         Data integrity

·         Data Privacy

·         Frequency of backups

·         Disaster Recovery

Gulesian’s article hits the main points and I highly recommend it to my readers.

 

 

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SaaS is no longer solely for the start-up software firm. Enterprise software developers have heard the call from their customers and seen the competition latch on to SaaS and are now offering mainstream applications. Software developers, big and small, face many demands and constraints placed upon them by the market. Their customers seek rigorous specifications.  The application development process comes with a whole new group of constraints, and the competition is fierce and ever present.

Gary McAuliffe, in his article Excelling in the Evolution of Sass, points to the Managed Service Provider (“MSP”) as the “great equalizer”. 

Managed Service Providers engineer infrastructure for reliability, resiliency, and security, in some cases offering 100% network uptimes. 

McAuliffe lays out a detailed analysis of the value MSP’s bring to the table. He describes how using an MSP can get your product to the global market faster. The other advantage is what McAuliffe labels “optimal user experience” (i.e. customer satisfaction). This customer satisfaction could potentially reap rewards downstream as opportunities for selling licenses present themselves.

The benefits are not solely for the external market. McAuliffe adroitly states:

Internally, partnering with a Managed Service Provider can provide software companies with a plethora of benefits. The capital expenditures to provide and maintain everything the business requires to launch and sustain itself from the application, developers, system administrators, to any commercial software required to run the application, along with a full infrastructure pose daunting barriers to overcome. A MSP will deliver those harsh capital expenditures over a more tolerable operational cost structure allowing software companies to reinvest their upfront capital into software where it is more beneficial in the overall well being of the firm.

If this has sparked your curiosity, then perhaps you might also be interested in Jeff Kaplan’s article Top Ten Reasons Why On-Demand Services Will Soar in 2008. I’ll whet your appetite and list out the ten reasons. You’ll have to read his whole article to get the benefit of his wisdom and predictions.

The Top Ten Reasons are as follows:

1.     Services are Recession Proof

2.     Everyone’s Going Virtual

3.     Amazon, IBM and Google Bet on Utility Computing

4.     Nick Carr Returns

5.     SaaS Solves SOX

6.     Managed Services 3.0, Unified Communications Services and Service Automation (Hint: The key for Kaplan is the “3.0” in the title)

7.     Carriers and Channel Companies Find Success With New Services

8.     Failure Doesn’t Matter

9.     IT Discovers Services are the Solution

10. Wall Street Buys Into Services

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