Conversion to SAAS – Legal Issues and Other Considerations

In most sectors of the IT industry, there are now extreme pressures and sometimes compelling reasons to convert to the SAAS model.  However there are other factors which militate against such a move. We will look briefly at some of the key legal and commercial issues.

Competitor Behaviour
If you operate in a sector in which your competitors have adopted SAAS or are about to do so, you may be driven to follow their lead. Existing customers who have paid the original licence fee and are now only paying annual maintenance will probably not be a concern. However, the chances of attracting new business are low if you require a sizeable initial licence payment whereas your competitors do not.

Loss of Revenues
People speak of the J-Curve effect which results from conversion to SAAS. The initial loss of up-front licence fees hits revenue hard but is subsequently offset by a rise in recurring income.  However, this is an over-simplification. Many software suppliers who have moved to the SAAS model manage to combine the typical subscription fees with certain up-front charges for set-up or similar and this can reduce if not eliminate the negative impact on cashflow.

Data Protection and Security
In those industries where systems process highly sensitive data, the issues of privacy and security are uppermost in the minds of customers. In such situations, customers want to retain the comfort of knowing that the software system is located and the data are processed on their own premises or in a datacentre where they are confident that all is totally secure. The prospect of such sensitive data moving through the cloud, possibly involving various sub-processors and jurisdictions is unsettling and may be inconsistent with legal obligations. In such cases, the traditional licensing model is likely to persist far longer.

Internet Limitations and Liability
Certain applications process a very high volume of data. In such cases, constraints on bandwidth may be another reason why a web-enabled SAAS solution may be unsuitable.  It is also worth noting that where platform stability and constant access are vital, there may be understandable reluctance to rely on a web-enabled service due to the inherent instability of the internet and customers may prefer a traditional local implementation.  It is very important in the contract to seek to exlcude or, at least, limit liability for failures to meet the SLA which arise from problems with connectivity and other infrastructure issues which are outside of your  control.  Precise wording must be included in the SAAS agreement to address that.

For further information on our model SAAS contract, please contact us.