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Software Acquisition and Support: Do You Know What You are Buying?


If you have purchased the right to use software in your business or home, you are probably familiar with "Software License Agreements." These are the traditional form of agreements between customers and vendors for the use of software. With a "license," you simply obtained the right to possess and install (but not own) a copy of the program on your own workstation or server until the license expired. This model of software delivery, while not obsolete, has been replaced by many vendors with a delivery model that is commonly known as "Software-as-a-Service" or "SaaS." With this model, the customer does not possess a copy of the software. The software is hosted by or through the vendor and typically accessed by customers through an Internet browser. The data that is input by customers is, likewise, hosted by or through the vendor rather than residing on the customers’ own systems. 

We have recently been asked by several clients to review vendor-supplied Software License Agreements that were actually for SaaS arrangements. Typically, this has been the result of the vendor’s and the customer’s failure to recognize that a different type of agreement was warranted. A Software License Agreement, besides misstating the nature of the transaction between the parties, does not address several issues that should be considered by the customer. Some of these issues are as follows:

  • Does the customer really want a SaaS arrangement?  For mission-critical software or software that is used to process and hold highly sensitive data, some customers may prefer to have the software housed on their own systems. Many vendors still offer customers the option of software license or SaaS.

  • With a SaaS arrangement, what happens if the service goes down?  When first negotiating with a vendor, the prospective customer should inquire as to the vendor’s guaranteed "uptime," (referring to the percentage of time that the service will be available, barring Internet outages or scheduled maintenance). Ideally, the vendor should guarantee that the service will be available 99% or more of the time. The customer should require the vendor to include a "Service Level Agreement" to the SaaS agreement in order to address uptime, scheduled maintenance periods, and the like.

  • Alternatively, what happens if the vendor goes down?  In many instances, the vendor may not host the software and the customer’s data itself, but outsource the hosting functions to a third party. The customer does not have a contract with this third party and typically does not even know that the vendor is not the host. This issue should be investigated by the prospective customer and dealt with appropriately during the contracting process.

Benefits of SaaS arrangements for the vendor and the customer include cost savings and the elimination of the need for the customer to purchase and consume valuable storage space on its own systems for hosting the software and data. However, it is incumbent on the customer and the vendor to understand the business arrangement and to enter into appropriate agreements to reflect that arrangement. Please contact Roberta Christensen or David Goeschel if you have any questions.

By Roberta L. Christensen

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