A vibrant software-as-a-service marketplace for corporate products saves time and effort for internal development teams, but there’s no guarantee the provider will always be there to offer said services.
When SaaS was a new technology, software escrow was a popular inclusion in contracts. A neutral third party would take in the source code and hold it in escrow. If things go sour and the original software provider goes the way of the dodo, the customer can then get the software and IP rights from the third party. But as one SaaS hosting provider said, software escrow is no longer fashionable.
“What’s surprising me is that this was a fairly hot topic of conversation a couple years ago, but now I don’t hear customers talking about it anymore. We even offered this as an option and people didn’t buy it,” said Treb Ryan, CEO of hosted software provider OpSource.
He said that escrow hasn’t been on any of his customers’ receipts since December 2008. He said the reason is a somewhat dirty secret for many companies: “It’s like disaster recovery, people talk about it to a certain level, but nobody ever buys it.”
If a buyer were concerned about the stability of a SaaS product, Ryan said, they probably wouldn’t want to use it in the first place.
But when a successful SaaS provider is acquired by a larger company, the results can also cause software or services to vanish.
Jan Aleman, CEO of SaaS provider Servoy, said that “if you have 100 customers paying US$5 a month for the product, then you’re in a different situation. Whoever is cleaning up the leftovers may say, ‘This revenue stream is so low, we’ll let it collapse and be done with it.’”
Though the issue of software escrow may no longer be a hot topic, the potential for a company losing its grip on SaaS-provided rope is still very real.
Aleman told of a situation one of his customers, Pioneer, encountered when it became reliant upon a third-party SaaS application. “When [the third party] went bankrupt, [Pioneer] said, ‘We’ll just pay for the hosting bills until this is sorted out.’ They then paid a fee to own the software. If they had known all this was going to happen, they would have happily paid for an escrow.”
Aleman said that escrow is still a useful tool when negotiating SaaS contracts. “I think as more companies move to SaaS, that is going to become a more important question,” he said.