All you need to know about a SaaS Agreement

28 January 2021

SaaS or Software-as-a-Service is a software distribution model in which a third-party provider hosts applications centrally and licenses them to customers over the internet on a subscription basis. An example of a digitized economy, SaaS is one of the three main categories of cloud computing, alongside Infrastructure-as-a-service (IaaS) and Platform-as-a-Service (PaaS). 

While SaaS has turned out to be quite helpful to organisations in terms of flexibility and cost-effectiveness, recent stories around hacking and data leaks shed light on the vulnerability of these centrally-hosted software systems. In this regard, software developers should have well-drafted agreements in place to not only protect legal responsibility but also safeguard the distribution and subscription licensing of the offering. 

B2B vs B2C

B2B SaaS companies, as the name suggests, offer cloud business management solutions ( products and services) to other companies. On the other hand, B2C SaaS businesses sell products and services to consumers directly. Both B2B and B2C are based on subscriptions and track customer acquisition cost, churn rate, and user lifetime value metrics.

However, their marketing strategies approaches are different. For example; B2B customers have experience in a given product or service and hence if you are serving as a B2B SaaS marketer, the strategy would be more professional and thought through. While, if you are a B2C SaaS marketer, you will need to be more simple in your approach, in order for the customer to understand the product/service better.

Enters SaaS Agreement...

A SaaS agreement is basically a document that sets out the provision and delivery of software services to customers through the internet. As the offering is licensed on a subscription basis and centrally hosted, it is often distributed on-demand on cloud. The agreement is a serious undertaking which requires careful consideration. Once properly drafted, it eliminates the hassle around conventional software licensing models. 

Note- The terms in a SaaS agreement can be renewed when the subscription period expires

Essentials of every SaaS Agreement

  1. License, services and functionality: Access to the software provided to users, subject to conditions, on a case to case basis.. Specify the type of service that you render to the client under the agreement. Outline this in exact detail to prevent a dispute arising about what was promised. In case of customised services, draw up a separate customisation agreement that sets out tailored services, delivery timeframe and attached costs

  1. Data Protection: Include a clause which highlights the protection of data that will be transmitted to the providers and how they will further process that data.

  1. Intellectual Property (IP) Rights: In this clause, the Intellectual Properties of all parties should be clearly outlined. This clause sets out which party can use what during the term of the SaaS agreement

  1. Confidentiality Clause: This clause helps parties have faith in the transaction. Since the parties to a contract will always share confidential proprietary information with each other, it is necessary to safeguard the same

  1. Indemnities: The parties involved in an agreement may suffer certain losses and or damages for which they shall stand liable and indemnify the other party for all losses, including costs that will be incurred during the course of legal suits

  1. Disclaimer: Include a disclaimer specifying what will not hold it liable.
    For example, A SaaS product may suffer from cyber-attacks, viruses, hackings and all such related risks, which may be beyond the control of a provider and hence shall not be covered under its liabilities

  1. Limitation of Liabilities: Limit liabilities under the SaaS agreement as the damage suffered may be huge and the client may demand unreasonable amounts for the same. Hence, limiting the liability is a feasible solution

  1. Representations and Warranties: Include representations and warranties of both parties in the SaaS agreement. Since the provider will usually be the data processor and the user is the data controller, both parties should have certain warranties set out in the agreement

  1. Terms of Service: It is very important to set out the term based on the subscription that the user has subscribed for. On termination of the subscription order, the provider shall cease its services.

  1. Force Majure: It has now become pertinent to include a force majeure clause in all SaaS agreements. This clause will include the course of action at the time of extreme events that can be termed as ‘act of god’ - including hurricanes, tornadoes, floods, etc. 

  1. Service Level Agreements (SLA): A SaaS agreement should always include an SLA that covers the provisions of technical and support services, including availability and penalties

How is SaaS different from EULA?

An End User License Agreement is exactly what it sounds like - an agreement encompassing the license to a software for the end users. When you purchase a software product/program, EULAs are included so that you can install the product/service on your personal device. This licenses the end user to use the software in a limited manner. 

However under SaaS applications, users do not get a copy of the software. SaaS is usually hosted and accessed through the internet.

Full Form Software-as-a-Service End User License Agreement
Ownership Vendor offers the software and users access it on the internet on a subscription basis. Ownership of software is not transferred to the user Software is purchased by the end user. Users have all rights - including copyrights. The user can make copies of the software for personal use
Termination of Usage User’s right to the software ends upon termination of the SaaS agreement User owns the software and has the grant of copying, downloading and installing it but is not allowed to resell it
Licensing/Access The customer is usually granted an access to use the software The customer is provided with the licensing of the product/software
SaaS versus EULA

Download Startup Guide
A guide with complete lifecycle of startup

Treelife Ventures Services Private Limited.
All Rights Reserved. © 2022.