Negotiating Tips On Software-As-A-Service Contracts

Negotiating Tips On Software-As-A-Service Contracts

More often than not, people don’t ask questions. However, when it comes to negotiating a SaaS contract, it pays if a customer asks. In general, a client mustn’t be ashamed to ask even the simplest question. With the increasing popularity of cloud computing, IT administrators and Chief Information Officers will often find themselves dealing SaaS solutions providers. According to Gartner, it expects SaaS revenues from around the world to reach $14.5 billion for 2012. By 2015, it expects the revenues to hit $22.1 billion. With the present move towards the cloud, customers must be wary about security and performance concerns. They must also consider establishing vendor management systems because of the expected proliferation of Software-as-a-Service providers.

Even before a customer initiates talks with a supplier, he must ask himself some questions so that he may be able to have a solid grip on the goals and needs of his company so that he can identify important matters to discuss with a SaaS supplier. In “Contracting for Cloud Services”, a book written by Thomas Trappler, he said that there are two basic questions that a customer must ask a potential cloud computing supplier: How business critical will the cloud service be to the business operations? How sensitive is the data that they will be moving to the cloud?

When the customer discovers that standard contract of the Software-as-a-Service provider doesn’t meet his organization’s needs, he must make it a point to discuss further his needs and ask the supplier to tailor fit the cloud computing service according to the business’s requirements. In some cases, the provider may not be able to meet all the customer’s needs. On the other hand, the THINKstrategies managing director, Jeffrey Kaplan, believes that service level agreement and contract negotiation really depends on the nature of the cloud computing application. Some SaaS available in the market today don’t even allow negotiating because a customer will just need to sign up online and pay for the services through credit card.

Small and medium-sized companies have limited negotiating powers. The only thing that they can negotiate is the price. SMBs would often find themselves giving up some of the functions or features in exchange to a cheaper price. In general, SaaS suppliers don’t really change the basic contract. What the customer can do is to scrutinize various SaaS contracts from many suppliers in order to decide which among the contracts best matches his business’s requirements. A customer must also exercise due diligence when dealing with small SaaS suppliers because such vendors may be acquired by a much larger company in the future and may, thus, change its cloud computing product direction.

A customer must also find out how the SaaS supplier will be able to link its product with existing business systems. The service provider must also be able to provide data migration and export/import tools in case the customer decides to switch suppliers in the future. After the terms of the SaaS contract are accepted, the vendor and customer must then discuss vendor and contract management. Aside from establishing and/or identifying staff resources to ensure that the supplier fulfills his contractual obligations, the customer must also ensure that a contract management system is established. In most cases, the purchasing and IT departments are tasked with the supplier selection and appraisal process while the legal department often evaluates broker negotiations and terms.

By Florence de Borja

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