10 Key Benefits & Risks of SaaS based – Contract Management Systems

This post will briefly address some of the principal benefits to users of cloud-based, Software as a Service (SaaS) solutions, as well as some of the key business and legal risks to corporate users.

 

A RAPID ASCENT TO THE CLOUD

There is little doubt that the enterprise software paradigm shift away from on-premise to remotely hosted cloud applications has been remarkably rapid. It’s clear to me that the benefits and risks to companies operating their key IT systems in the cloud are much better understood today by sophisticated buyers, their IT departments and their attorneys than they were just a few years ago. 

First, in summary fashion, some of the benefits and risks of cloud-based applications (see, Benefits of SaaS):

 

BENEFITS OF SAAS APPLICATION FOR THE CUSTOMERS

 

1. Reduces the customer’s need for dedicated, internal IT resources – personnel and hardware

Instead, the customer “subscribes,” typically on an annual basis, to the right to use the provider’s cloud computing infrastructure and applications on a shared basis with the provider’s other customers.

 

2. Potentially quicker deployment

There’s no need for the core software applications to be installed in the customer’s computing environment. Instead, they “reside” or are “hosted” in in the vendor’s cloud environment. (Still, some configuration of the application may be necessary to optimize it for the customer’s business.)

 

3. Lower initial acquisition costs

The customer does not need to pay a large up-front license fee for a traditional “perpetual, non-exclusive” license to the software. SaaS applications are typically licensed on a subscription basis with an annual subscription/license fee. Over time, however, subscription costs may exceed the up-front license fee required in a traditional installed software model.

 

4. No maintenance releases or “patches” to install

Updates, upgrades, enhancements, bug fixes, etc., are made across the entire code base hosted by the vendor and apply to all customers. Often the subscription license fee includes this “maintenance.” However, technical support services will frequently require an additional charge. In the traditional installed software model, combined maintenance and technical support services can cost between 15-20% of the aggregate software license fee annually.

 

5. Scalability

There is no need to purchase additional hardware as the customer’s needs grow, but the customer may need to purchase additional computing capacity from the provider, e.g., bandwidth, data storage, etc.

 

6. Reliability

Cloud vendors typically will commit to a “service level agreement” guaranteeing at least 99.5 and frequently 99.9% uptime/availability, subject to superior force, including Internet outages and other exceptions.

 

7. Data Security

Given the importance of customers’ concerns regarding the security of their data when it resides off-site (not to mention customers’ legal obligations with respect to confidential information, personally identifiable information, reputable SaaS vendors will frequently provide potentially more robust data security than the customer would itself – this is particularly the case where the customer is a smaller company without deep IT resources, staff, controls or expertise.

 

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Business and Legal Risks of SaaS Applications for the Customer

 

8. Data Security and Privacy

The customer’s critical proprietary and confidential data will reside and be processed in the provider’s cloud-based infrastructure. While not limited to commercial cloud vendors, data breaches or un-authorized or illegal system intrusions resulting from malicious or criminal activity, hacking, data theft, espionage (whether by competitors, criminals, insiders, cyber-terrorists, governments and other groups of misfits) or negligence (employee or contractor mistakes) occur with alarming frequency.However, such events can be mitigated by implementing a “Two Server” model where the application and Database are hosted on two different servers and database can be secured behind the firewall.

 

9. Availability of the Hosted Application (“Uptime” Commitment)

If a critical SaaS application is unavailable, the customer’s business operations can be significantly impaired. SaaS vendor will typically agree to make the application available and accessible at least 99.5% of the time 24x7x365, subject to certain exceptions for e.g., routine maintenance, Internet outages, etc.

 

10. Compliance with Increasingly Stringent Data Security, Breach Notification and Privacy Laws and Regulations.

A breach in the security of the cloud provider’s environment results in unauthorized or unintentional disclosure of the Personally Identifiable Information (PII) of individuals, the company, i.e., the cloud provider’s customer, will be responsible for notifying those affected under applicable breach notification laws. In addition, many multinational companies have started facilities in which the interest of PII (“personal data”) of citizens and need to conform their data security processes and standards to data security requirements – and ensure that their cloud software providers can meet those requirements. The legal and regulatory environment in the area of data privacy is very fluid, but cloud software customers (and providers) should expect more stringent and rigorous requirements.

Authored By

Eric S. Freibrun

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