Traditional software licensing typically involves a one-time purchase through which the customer buys the perpetual right to use the software, which is then installed on infrastructure controlled or provided by the customer. SaaS, on the other hand, is generally subscription- or term-based, with the software hosted by the provider and accessed by the customer via the internet or other remote means.
These differences impact not only how the software is accessed and used but also the associated legal terms of use. Transitioning to a SaaS model means shifting from a product- to a service-based approach, requiring adjustments in the legal framework that governs the use and access to the software.
In most SaaS models, a customer’s users will access the software through remote means. Access rights and mechanisms, including passwords and security protocols, will have to be addressed in the contracts. Depending on whether the solution is a single or multitenant environment, in some instances there may be specific access restrictions and circumstances that will result in termination/suspension of access rights.
Unlike traditional licensing arrangements, SaaS solutions require a vendor to maintain the application and infrastructure stack and in many cases commit to SLAs for availability, system response, and incident response and resolution. Customers should understand these terms and negotiate them carefully to ensure they meet their needs, taking into account the criticality of the underlying applications and business functions they support and the potential remedies.
In traditional software models, the vendor would hand over a copy of the software to the customer for the customer to run in its environments. The vendor did not generally host or store the customer’s data. SaaS models, however, by their nature require the vendor to host and process customer data, thereby implicating data security and privacy protocols and requirements. These protocols and requirements require heightened levels of attention when personal information and/or business-sensitive or regulated data is involved. Applicable terms include information security programs for data at rest and in transit, security breach procedures and incident notification and remediation requirements, and data handling procedures that comply with application regulations such as HIPAA, the Gramm-Leach-Bliley Act, California Consumer Privacy Act, and General Data Protection Regulation, as applicable.
Transitioning from traditional software licensing to a SaaS model involves careful consideration of legal, financial, and operational factors. By understanding these aspects and negotiating thoughtful, detailed contracts, businesses can ensure that they make the most of the benefits offered by SaaS while minimizing potential drawbacks. As this transition also marks a shift toward more dynamic and scalable software solutions, it represents not only a change in technology but also a strategic business evolution.
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