Monday, December 15, 2008

SaaS: plan to get out before you get in

A question about software licensing contracts on Ray Wang's blog, prompted me to think about issues involving the use of software-as-a-service (SaaS) for mission-critical applications. Specifically, the issue of vendor lock-in.

If you thought vendor lock-in was a problem with traditional on-premise ERP software, think about the issue when it comes to SaaS. Under a perpetual license agreement for on-premise software, you always have the option of going off maintenance but continuing to run the software, and perhaps maintaining it yourself.

But with SaaS, there is no such thing as going off maintenance. If you stop paying, access to your mission-critical system gets cut off.

Therefore, I think it is important for buyers to think about what will happen if and when they decide to migrate from their SaaS provider. Specifically, there are two things I believe that buyers should ensure are in their license agreements:
  • First, if the SaaS provider offers an on-premise version (e.g. Oracle On-Demand), ensure that there are terms and conditions that allow you to transition to an on-premise version. This covers cases where you want to continue to use the software but are no longer satisfied with the hosting arrangement.

  • Second, if the SaaS providers does not offer an on-premise deployment option (e.g., be sure the provider gives you the ability to extract all master file and transactional data to an open format (e.g. XML). The ability should be repeatable--not a one-time right--so that you can develop migration programs to facilitate conversion to a new SaaS or on-premise solution.
Software-as-a-Service is becoming more and more accepted as a deployment option for enterprise systems. But if the application is truly mission-critical, be sure you have an escape plan in advance.

Update, Dec. 28. I just came across this blog post by the folks at Zoho, which competes at one level with for CRM customers.
Salesforce has repeatedly tried to block customers from migrating to Zoho CRM, by telling them (falsely) that they cannot take their data out of Salesforce until their contract duration is over. We have emails from customers recounting this.
If true, and I have no reason to think it's not true, it underscores the need for customers to take proactive measures to mitigate vendor lock-in by SaaS providers.

Update, Feb. 13, 2009. For a really sad story on difficulties getting out of a SaaS relationship, read this account concerning NetSuite. I do not know if current customers of NetSuite are having similar experiences.

Related posts
Netsuite claims new deal flow more predictable
SaaS: degrees of multi-tenancy
Workday: evidence of SaaS adoption by large firms
All not sweet with NetSuite
Computer Economics: The Business Case for Software as a Service
Dell acquires SaaS platform Everdream

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