Sending your client a downloadable link to your software instead of giving them access through cloud services might not seem like a big deal. However, this change can have significant implications for your business that you might not foresee. You need to consider how the distribution of your software will affect your business financially and impact the control you have over your products. This article explains why your business should shift from providing software products to software as a service (SaaS), as well as the potential implications of this change in your supply approach or client agreement.

Difference between Software and SaaS

Businesses typically supply “software” as a “good”. This involves giving the client a copy of the software that they can install and run locally or “on premises”. On the other hand, some suppliers enable their clients to access their software via cloud services. This is known as a “Software-as-a-Service” or “SaaS” arrangement. As the name suggests, this involves supplying the software as a “service” instead of a “product”.

Supplying a Good versus a Service 

Goods are, by their very nature, different to services. This affects the way that you supply the software and the contractual clauses used to govern your relationship with your clients.

For example, consumer laws require that customers of goods get “undisturbed possession” to that good for the agreed period of time. If you hire a bike, generally, the agreement is that you get to exclusively use that bike for a set time. Both parties understand that the supplier of the bike cannot request the bike back or try and reclaim the bike from you.

In the context of software, the above rule also applies. This can be problematic where: 

  • you need to stop supply for whatever reason during the term; and 
  • other licensees infringe on the rights, or affect the experience, of other users. 

As a supplier of software, you may face liability concerning these sorts of claims. You could avoid these issues by supplying software under a service agreement instead of as a product. 

Other Advantages of SaaS over Software 

You might also wish to consider the following key points when deciding as to whether to supply software or SaaS. Your SaaS agreement should reflect these factors.

1. Restrict Use After the Agreement Ends

Supplying software generally means handing over a copy of that software. While some goods are easy to retrieve on termination, it can be a lot trickier to ensure that a client hands back all versions of your software.

For example, it is very straightforward to ask a customer to return a car after the rental period has expired. In contrast, you have no way of knowing if a client is continuing to use your software after the agreement ends.

If you are going to supply your software solution as a product, we recommend restricting use through licence keys. 

2. Monitor and Restrict Use During the Term

Use can be more easily monitored through SaaS because you can track and log user activities as they occur. As software is generally run on the client’s servers, you are much less likely to have remote access. If you do have access to this data, it is likely to be very limited.

SaaS also allows you to suspend and terminate: 

  • user accounts; and
  • the whole or part of a client’s access. 

This is a useful tool to incentivise timely payment. It also ensures that you can respond quickly and effectively if: 

  • something unexpected happens; or 
  • the client breaches a law or term of the agreement.

3. Better Control Over Your Intellectual Property

A further advantage of being able to monitor and restrict users’ access to your software is having better oversight over the use of your intellectual property

Most software and SaaS agreements handle this by way of granting the client and its users a licence to use the solution and any intellectual property within it, on the condition that they comply with the terms and conditions set out in the agreement. 

If you can monitor and restrict use during the term, you will have more visibility over: 

  • how your intellectual property is being used; and 
  • whether your customers are complying with the terms and conditions of the licence. 

Should you discover that your client is failing to comply, you will then be able to exercise any rights you have under the agreement. 

For example, this might include termination of the client’s access to your software for the breach of their agreement. This is a lot harder to do when you are supplying software as a product.

4. Implement a Subscription Model

A subscription model is a pricing structure that allows you to generate ongoing revenue. Rather than having a fixed term and fee, these agreements operate based on a membership that automatically renews until the customer cancels it. This involves your clients agreeing to pay a fee at regular intervals.

For example, you might sell a subscription package to your software for the price of $80/month. You clients will pay this fee every month and retain access to your software until they cancel their membership.

SaaS lends itself well to this model because there is limited installation and initial outlay involved. It is also easy for you to monitor and restrict the access and use of your clients and their users.   

The model is popular for its simplicity. However, you should exercise caution because you may face legal troubles if the terms of this arrangement are unfair or unclear.  

5. Easier to Provide Your Clients with Support

As outlined above, SaaS gives you better control over use and access to your software. This puts you in a better position to be able to help your clients if they run into any issues using your solution. 

You can either: 

  • supply this service free of charge; or 
  • offer different levels of support differentiated by the kind of support and the agreed response times. 

You may even be able to charge different amounts depending on the support level they select. 

While this offers a commercial opportunity to increase your revenue, it also increases customer satisfaction. If your clients are enjoying your product and able to get the most out of it, they are more likely to stick with you long term.   

6. More Opportunities to Grow Your Business

A by-product of being able to monitor users’ access and use through SaaS is having access to your client’s customer data. This is further enhanced if you are responsible for providing your clients with technical support.

This refers to the data and information that they input into your solution while using it. Customer data can be very valuable, as it might: 

  • help you better understand your client’s needs; and 
  • assist with developing improvements and new features.

Your agreement should be clear on what is considered customer data and who owns it. Often the client will seek to retain ownership of their data. If this is the case, you need to ensure that your agreement includes a licence which enables you to use that customer data in the ways that you are planning to. 

You will also need to think about what happens to all of the customer data after the agreement and licence to use that customer data ends. You might want to consider anonymising the customer data so that you can continue to use it for the purposes of analytics. These arrangements should be clearly outlined within your SaaS agreement.   

Key Takeaways

As a software supplier, you should consider the benefits and drawbacks of providing your software as a service instead of a product. Indeed, SaaS packages will allow you to maintain greater control over the way in which your clients use your software. This ensures that you can restrict access, control your intellectual property and manage customer data. SaaS is also a valuable opportunity to shift to a subscription model and grow your business. If you would like assistance deciding whether SaaS or software is the better option to protect your business, contact LegalVision’s IT lawyers on 1300 544 755 or fill out the form on this page.

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