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By Thomas Hoffman
Shortly after National Retirement Partners' broker/dealers began using Salesforce.com's software in late 2007 to manage its clients' 401(K) plans and other retirement investments, officials for the San Juan Capistrano, CA-based retirement planning consultancy discovered that the type of software agreement it had entered into only allowed for a limited amount of data storage.
"With Salesforce.com, you do get some data storage but once you go over it (the monthly limit) they ding you for it," says Adam Sokolic, senior vice president of operations for NRP. To handle the data storage needs for its broker/dealers, NRP opted to create its own hosted storage facility in April 2008. And while the self-managed storage environment which now houses about 1 terabyte of data turned out to be a more cost-effective option for NRP, the decision to house and manage its data from the system has forced Sokolic and members of his staff to make periodic systems updates each time Salesforce.com introduces new software functionality with its own storage capabilities in mind.
Sokolic's experiences with Salesforce.com, which he's generally positive about, are reflective of the 'read-the-fine-print' types of issues inherent in Software-as-a-Service (SaaS) agreements that IT executives need to pay close attention to. Even though SaaS offerings such as Salesforce.com and WebEx have become more mainstream in the last few years, the contracts for many of these software agreements aren't nearly as mature as the more traditional enterprise software licensing agreements that IT executives are accustomed to signing, according to analysts. SaaS contracts "are still very much a work in progress," says Pat Cicala, president and CEO of Cicala & Associates, a New York-based IT procurement consultant.
One of the reasons for this is that the terms and conditions in many SaaS agreements have been drafted by lawyers who typically represent the interests of their vendor clients, says Robert Scott, managing partner at Scott & Scott LLP, a Dallas-based law firm that's focused on software licensing issues. For instance, says Scott, liability limitations in many SaaS agreements are often restricted to the amount of money that customers pay vendors monthly under the contracts, regardless of what financial impact a breach in service might have on a customer's business, says Scott. Scott says he often works on behalf of customer clients to obtain less restrictive liability limitations.
As SaaS systems have become strategic components in companies' software portfolios, customers often have to push vendors "to be more diligent" about specific clauses in these agreements around elements such as Service-Level Agreements (SLAs), business continuity provisions and security guarantees, says Liz Herbert, an analyst at Forrester Research in Cambridge, MA.
CIOZone spoke to a mix of CIOs, analysts, attorneys and other contract experts to help identify the top 'gotchas' that IT executives need to watch out for in SaaS agreements. And as Cloud Computing offerings proliferate, many of the same gotchas that apply to SaaS, will also apply to services offered in the 'cloud'.
Next: Identifying the Top 'Gotchas'
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