Mobile

Software as a Service (SaaS) Risk Reward Model

A lot has been written about potential cost savings for SaaS as utility computing. SaaS has a subscription cost model versus a large upfront capital investment. However, there is another interesting aspect of moving to a SaaS model – the reduction of risk. And, the reduction of risk should also influence your investment decision.
Let’s use for example a CRM or ERP implementation. An on premise solution requires a large software purchase followed by a lengthy implementation. What’s really amazing is for many years, decades really, we have accepted all the risk of buying software that might not work. I cannot think of another item we purchase that has these terms.
Consider the following typical software license terms:

  • In most cases by downloading, installing or accessing the software or clicking on “I ACCEPT” on download screen you accept the terms of the contract including payment terms. If you download it you are contractually bound in many cases to pay for it.
  • Software licenses agreements with respect to warranty are often full of disclaimers. For example, the customer is “solely responsible” for determining the software’s “fit for purpose” and the software is provided “as is” and/or “with all faults”. In other words, it does not have to work and you cannot return it.
  • A limitation of liabilities clause is found in most software licenses agreements. It typically excludes liability for “incidental, consequential and punitive damages” and will cap liability for all claims and loses to the “amount paid for the software”. If the software wrecks your business you might be able to get the money back for the software purchase price but that’s it.

It’s no wonder we end up with so much shelf-ware. There is really no remedy for buying packaged software that is buggy or not fit-for-purpose. Then there are of course project implementation risks including large cost overruns. Now contrast that to a subscription model where if you don’t like the software you simply stop paying for it. SaaS agreements often commit to availability and protection of data as well.
There are also many risk reducing options for SaaS rollouts including free trials and limiting the subscriber count and term until you are happy with the software – e.g. a pilot project.
Not all software solutions are available as SaaS (yet), but take a look at the SaaS software agreements for negotiation ideas.

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Eric Roch, Chief Strategist, IT Modernization & Integration

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