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This is the second of two postings that discuss SaaS pricing. In the earlier posting, we discussed the underlying economics of SaaS solutions and their implications for how SaaS services are priced. This posting identifies some key considerations in negotiating pricing for SaaS services that can help lower total subscription costs.

Committed Growth vs. Incremental Purchases

As a general matter, the higher the volume you commit upfront to a SaaS provider over the contract term, the higher the discount you can negotiate. However, this carries a risk that your projected growth may not materialize and you’ll wind up paying for a higher volume of service than you need. As a result, it is important to use the negotiation process to assess the level of upfront commitment to future growth that achieves the optimal balance between high discount levels and the risk of paying for more than you need.

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Software as a Service (SaaS) is growing rapidly as an alternative to licensing on-premises software for corporate customers. As reported by Forbes earlier this year, analysts are forecasting that global SaaS revenues will reach $10.6B in 2016, representing a 21% increase over projected 2015 spending levels. By 2018, 27.8% of the worldwide enterprise applications market is projected to be SaaS based.

SaaS solutions are attractive to customers because they substantially reduce the upfront investment and risk associated with licensing and implementing on-premises software and avoid the ongoing costs of maintaining the infrastructure and implementing upgrades for the licensed software. In a SaaS solution, those costs and risks are transferred to the supplier.

SaaS combines elements of software licensing, outsourcing and hosting into an integrated solution. The pricing models for SaaS solutions have certain distinct characteristics that are driven by the economics of those solutions and differentiate SaaS pricing from pricing models for software licensing, outsourcing and hosting services.

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As more and more companies of all sizes ranging across a wide spectrum of industries have been exposed to network and data security breaches in recent years, the market for insurance products dedicated to cover cyber risks has grown just as fast. With policies sold under names like “cyberinsurance,” “privacy breach insurance,” “media liability insurance” and “network security insurance,” the market for this coverage often seems chaotic, with premiums and terms varying dramatically from one insurer to the next.

For more information, please read our Client Alert.

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By Richard E. Nielsen


On May 15, 2015, the New York Department of Taxation and Finance determined in Advisory Opinion TSB-A-15(2)S that the sale of certain cloud computing services were not subject to New York State sales and use tax.  The Advisory Opinion is noteworthy because of the Department’s position on the taxability of licensing prewritten software. 

  1. The Opinion was based on the unique facts of the taxpayer. The taxpayer (“Supplier”) offered Software as a Service (“SaaS”).  No specific servers of the Supplier were dedicated to any particular customer, the customers had no physical access to the servers, and the Supplier decided which of its servers would be used for each customer.  Customers were not charged by the Supplier for operating system software, and all charges were based on hourly rates and the amount of computing power consumed.  Customers were not charged any fixed fees for the service.
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You’ve managed to agree the deal; all that’s left is to sign the documents.  That’s the easy bit, correct?  So you might think, but it is important to be careful not to slip up at this final stage, particularly when contracting with foreign entities and considering using electronic signatures.

Which law applies when contracting with overseas entities?

In the recent case of Integral Petroleum SA v Scu-Finanz AG [2015] EWCA Civ 144 the English Court of Appeal considered whether a supply contract governed by English law and entered into by two Swiss oil companies was binding.  The defendant successfully argued that the contract was not binding as it had been signed only by one representative of the Swiss company, rather than two representatives, as required by Swiss law.

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As the range of technology employed by the UK’s leading banks widens, the balance between cost-effectiveness and manageability of solutions becomes increasingly difficult to strike. 

Background

The banking sector in the UK has grown significantly through acquisition and amalgamation. The result is a market dominated by banking groups, which have not yet had the time, finances or inclination to set about harmonising the underlying IT infrastructure of their respective component parts. The table below highlights some of the key retail bank elements of the UK’s major clearing banks, alongside which it is necessary to consider the various additional investment bank, private client, credit card and other major business unit components that sit within the same group.

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Part 2: How are Limits of Liability Evolving, with Respect to the Issue of Data Breaches?

Ten years ago, most “buyers/customers” expected their suppliers to absorb unlimited contractual liability if the supplier was responsible for a breach affecting the customer’s data. Today, while customers may continue to insist upon such a position at the beginning of negotiations, they frequently expect that market-leading suppliers will ask for some sort of limit to the supplier’s potential liability for data breaches.

When customers are forced to negotiate a liability cap applicable to breaches of data (including PII and PHI), they usually insist that such liability cap be an amount that is greater than the “standard” limit of liability under the Agreement (i.e., greater than the standard financial cap applicable other contract breaches).

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Part 1: Contractual Protections With Respect to Data Breaches

Given the unrelenting, it seems, news reports of cyber attacks and data breaches affecting customer records and data, the issue of what are the appropriate contractual provisions that should govern data breaches in a contract between customers and suppliers remains timely, sticky, and constantly-evolving. Below are several observations regarding contractual language and protections with respect to data breaches, where a supplier has access to and/or could cause or allow a customer’s data to be breached.

  • Customers continue to insist upon strict terms and conditions requiring their suppliers to protect the customer’s confidential information, including with respect to the customer’s (i) data (i.e., information stored in equipment and software), (ii) Personally Identifiable Information (PII), and (iii) Protected Health Information (PHI).
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There is no shortage of commentary on why mergers and acquisitions fail or do not live up to their projected potential. The percentage of failed or underachieving deals is astounding with some placing the failure rate over eighty percent.The reasons for this dismal outlook range from ill-advised strategic vision, misaligned expectations and poor execution to cultural clashes, fumbled integration, and (some would say) misguided management objectives.

Over the past decade I’ve observed another factor that contributes to these suboptimal results: poorly planned, constructed and executed transition services, especially in connection with divestitures and carve-outs. The two main factors contributing to deficient transition service arrangements fall into two general categories: (1) a flawed perspective on the importance of transition services; and (2) errant development and execution of the transition service regime.

Let’s explore each of these factors both in terms of how they arise and how they can be avoided, focusing first on what I refer to as the flawed perspective.

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News of Alibaba’s cloud investment and a recent software park tour indicate that China’s IT services industry is evolving in its own way.

Alibaba Invades Silicon Valley

The “Amazon of China” is following Amazon’s playbook yet again with their investment in the cloud. Aliyun, Alibaba’s technology arm, already operates five Chinese data centers supporting 1.4 million customers. They cite high performance specs, such as the ability to process 80,000 orders per second during peak shopping season, and a successful defense against the largest recorded DDoS attack in China, which lasted 14 hours with a peak onslaught of 453.8 gigabytes per second.

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