Should I Make SHORT-Term or LONG-Term Commitments to My SaaS Customers?

Should I Make SHORT-Term or LONG-Term Commitments to My SaaS Customers?

Have you thought about which parts of your SAAS customer contract commitments should be a short-term, and which parts should be long-term? Well, if you have not thought about it, then how about we do that now.

What Should/Could Be Short Term?

The key with SAAS models is that most* are not perpetual (aka forever) models (like a typical software licensing model where the customer receives a perpetual license to the software), so things are supposed to change along the way. The functionality you provide may change, along with the feature set. Oh yea, this is pretty typical and actually expected for SAAS companies, so don’t feel bad about it. So the takeaway here is to think about keeping your commitments as to functionality, features, support  and pricing short in duration (i.e. maybe a year or less and not multiple years). Why you say? Well, things could change, so be careful what you commit to for long periods of time. By the way, if you contractually commit and don’t’ perform, then that will likely turn into a ‘breach of the contract’ on your part (aka not a good thing).

  • Examples of Long-Term Commitments Requested by Customers: price caps, support commitments, feature and functionality commitments, etc.

What Should/Could be Long Term?

Well in the SAAS model I am not sure there are many really long-term commitments, as the customer is receiving/buying a subscription based offering (something that is time bound). As  I scratch my head to think about what long term commitments you could/should make, I really can’t think of any. In fact, maybe that is the answer:  you should not make any really long-term commitments as that is not the model (if you do make any long term commitments, make sure you think it through as things will change). As I said above, the issue of long-term commitments comes up very frequently when licensing software in perpetuity as the customer is paying you for something (and buying something) they could use forever (they are thinking super long term).

So think short-term commitments in your SAAS contracts, and keep the flexibility in your model (to the extent you can). That is what SAAS is all about!

Resources:

Oracle’s Long Term Commitment to Support Siebel Products.

* Exception: I have seen and worked with some SAAS companies which provide really long-term solutions to their customers, so they will have to address long-term commitment issues, but the key thing is even those are not perpetual models (aka forever).

Disclaimer: This post is for educational and informational purposes only, and does not constitute legal advice.

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2 Comments
  1. I definitely agree with you on only short term commitments on features and functionality.

    The types of commitments that I think can and probably should be made long term are commitments on security, SLAs, data ownership and data availability at contract end. Customers are unlikely to agree without these.

    Pricing commitments over time are always an interesting negotiating point but usually a customer wants some type of guarantee that prices won’t go up unreasonably.

    • I think the key thing to think about is that commitments don’t’ have to be forever, and you can/should think about limiting them to a limited duration. For example, maybe the price gty is only for 3 years, as it is really hard to predict what the pricing and competitive landscape will look like going out several years.

      Thanks for the feedback.

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