Foundational Contracts

The next few Oh Lawdy!s are about the buy-side view of foundational SaaS contracts.

What is a foundational contract? It’s a contract which underpins your business, and which isn’t a contract for a commodity like Google or Microsoft offerings. For example, if you are starting a bank, the contract for the banking software is a foundational contract. Most (new) businesses will have one or two foundational SaaS contracts on which their whole business is based.

As a buyer of a foundational SaaS contract, there are two things you need to recognise.

The first is that SaaS vendors are much more experienced at negotiating SaaS contracts than you are, especially for their technology. They do SaaS deals day in, day out, and their contracts reflect their interests, not yours.

This means not only that their contracts are stacked in their favour, but also that the SaaS vendor – other things being equal – has the upper hand in negotiations.

It’s not a level playing field.

The second thing to think about is the risk profile of SaaS – any SaaS. SaaS has lots of advantages, but it’s a much riskier place to be than onprem. With onprem, the vendor can’t switch you off and, even if it goes bust, you will be able to carry on running the software without support for a decent period.

But that’s not the case with SaaS. Because SaaS software doesn’t sit on your machines, you are not independent of the vendor. If the vendor goes bust, or decides to switch you off, you are – in practical terms – up a creek without a paddle.

The position is the same with your data. With onprem software, your data lives on your servers and, if the vendor goes bust, you still have your data. With a SaaS vendor, on the other hand, the data lives on the vendor’s servers. If the vendor goes bust, or decides to cut you off, you are left without your data.

Yes, there are lots of advantages for SaaS compared to onprem, but the risk profile is not one of them.

So: given that a SaaS vendor has the upper hand in negotiations, and that SaaS is a much riskier place to be than onprem, what should the buyer in a foundational SaaS contract be doing about it?

That’s what I’m going to look at in the next Oh Lawdy!.

17 Dec 2024