Key Areas To Consider In SaaS Contract Negotiation

Liz Herbert
Vice President, Principal Analyst
November 1, 2011

With the Sourcing and Vendor Management Forums coming up next week in Miami and at the end of the month in London, our team is busy finalizing content and rehearsing sessions. Personally the hottest question I have continued to get since the keynote I did last year on SaaS sourcing is the question of SaaS pricing and contract negotiation. So, what can you expect in the track session “Negotiating Cloud Pricing and Contracts” for those of you who can join us?

New data from the Q3 2011 services survey showing:

  1. SaaS is disrupting spend on traditional services. Nearly half of the firms we surveyed say that “as-a-service” spending has reduced spending on traditional on-premises IT spend. And, these firms also say that it will have a noticeable disruptive impact. Out of the firms who say “as-a-service” spending will reduce spending on traditional spend, 30% say this disruption will be 6% or more.   
  2. SaaS adoption has expanded into IT applications and industry-specific applications. Firms are now using SaaS for an increasingly wide range of solutions: horizontal applications like CRM and HR and collaboration applications like email still dominate the trend but now 13% of firms use SaaS for IT software such as asset management and 10% of firms use SaaS for industry-specific solutions such as insurance claims management.
  3. Firms are centralizing their approach to SaaS sourcing and vendor management. The recently gathered data shows a strong trend towards centralized SaaS strategy and formal multi-year plans around SaaS. Not surprisingly, this data also shows that firms expect to see a decrease in unsanctioned, business-led buying.  

We will also talk about key pricing models and trade-offs of each model (including user-based, transactional or usage-based, enterprise license agreement) and key areas to consider when negotiating contracts, including:

  1. What types of SLAs should we consider? How are these tracked? What is typical payout?
  2. What support is typical? What hours, modes, escalation, governance, response time, definitions of severity?
  3. What are typical pricing and payment terms?
  4. What are typical exit clauses, including for cause and for convenience?
  5. How are upgrades handled? What notification is typical?
  6. What can we expect for disaster recovery/business continuity?
  7. What do SaaS contracts typically include around security? Compliance? Privacy?
  8. Is SaaS escrow viable?

I would love to hear your thoughts and tips on negotiating SaaS contracts!

Hope to see you in Miami or London!


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