SaaS Escrow: On The Fence?
Posted by Chris Smith on Thu, Dec 09, 2010
Is SaaS Escrow Necessary?
Having worked in the software & technology escrow industry for the past 12 years, I would be the first to agree that not every technology transaction would benefit from an escrow agreement. However, certain situations can benefit immensely from having an escrow agreement in place as part of a business continuance plan.
SaaS has provided new challenges for the technology escrow community but it has not rendered the concept obsolete. Instead, we are seeing a larger percentage of our clients use SaaS escrow agreements and I believe that the argument can be made that the difference between the on premise solution and the SaaS model actually make an escrow more important.
The primary differences (as related to software escrow agreements) that we see between a traditional on-premise installation and a SaaS delivery model are:
Application, data & source code – with a SaaS escrow many of our clients are relying upon us to give them access to the application, their data AND the source code should a release condition occur. The addition of the object code and data to the escrow equation significantly raises the importance of the escrow if the beneficiary is relying upon us for access to the run time environment.
Timing is more critical - with a hosted application downtime means immediate pain. Whereas, with an on-premise solution, many stable environments can continue to run for months even years with out direct support/involvement from the software provider. While the typical release process for an on-premise application might be 40 days the SaaS escrow must move much faster to prevent significant downtime and associated losses to the end-user. The typical SaaS escrow is released in a few days as opposed to weeks or months.
Access to data - the common assumption among SaaS end-user's is that they can just switch providers if their SaaS vendor fails. The trouble with that plan lies in the migration path and the timing related to the migration. Do I have my data? If not, how can I get it? Is there a suitable replacement provider? How long will the data migration take? What is the cost of interim downtime?
Support – most successful escrow release stories involve support from “key personnel” from the then defunct software vendor. This is why including “key personnel” contact information in the escrow deposit is more relevant and critical than ever.
Hosting – if a release condition occurs who will host the application? Is there a way to engage the current hosting provider to continue hosting the application short term while I make long term arrangements? Can my software escrow agent help with this?
Testing – testing the SaaS application in escrow is both more complex and more important. However, testing the SaaS application is escrow with your data is the ONLY way to have a fool proof business continuance plan.
As an escrow agent I love read discussions about the relevance of software escrow today. It’s a galvanizing question. Some people believe while others do not. Each person’s experience is unique and each situation is unique. I have been teaching attorneys and “C” level executives about our industry and the possibilities for years and while some of the details have changed the questions and answers remain the same. Not every SaaS solution would benefit from having an escrow in place but an escrow will help if it’s done correctly.
And, like any insurance, you plan it well, put it in place and hope you never use it!