How Brexit-friendly are your SaaS contracts?

Analyst opinion

If you think Brexit will be advantageous for the UK economy and the British people, this post is not for you. If your assessment of the available information, like mine, is that our economy will suffer and many UK businesses will need to cut overheads, then you need to review the Software as a Service (SaaS) contracts you have in place. This is because so many SaaS contracts are fixed term, typically one to three years, and work on a ratchet basis. You can add seats, capacity, etc at any time during the contract term, but only once the current contract term is up can you reduce your commitment, or indeed cancel the service and/or move to an alternative provider. And if you choose to renew, you are then locked in for another year or more. The exact details and level of rigidity varies by provider, but some of the big players with more of an ‘old school’ commercial culture like and Microsoft are pretty strict and uncompromising on both terms and enforcement. Other significant SaaS providers, e.g. Google, Dropbox and Slack to name but three, are more flexible. They allow you to contract on a rolling monthly basis, with the right to adjust the number of contracted seats down as well as up as the level of activity, requirement and/or performance changes within your business.

Flexible vs fixed terms

The value of such flexibility is obvious if you need to downsize your workforce, or reduce the number of contractors or collaborators you work with who would have previously had access to the system. Either way, you aren’t left paying an ongoing subscription for seats that aren’t being used. But SaaS contract flexibility provides options for cost reduction in other ways. For example, even for core applications, it is not unusual to have a core of essential users, plus a set of users for whom system access is more of a ‘nice to have’ – a luxury you could afford when times were good, but one that’s harder to justify when the squeeze is on. And if you review your SaaS portfolio carefully, you’re likely to spot solutions that the organisation could easily live without. One benefit of SaaS is that you can put a solution in place very quickly, but the downside is that this encourages speculative commitments. You may therefore have accumulated some ‘cloud clutter’ – services that seemed like a good idea at the time, but which ultimately didn’t deliver the expected value. In an ideal world, where flexible contracts exist, you would manage costs through ongoing reviews of needs and usage patterns. You would flex subscriptions up or down, terminate services that are no longer needed, and switch providers where appropriate.

Review those contracts – are they worth it?

Back in the real world, the real challenge is those providers who still insist on long-term fixed contracts and ratchet-style subscription mechanisms. For some core services, you may decide that the value is worth the pain, but even then it’s worth asking for a concession if you need it. While the most likely response to smaller businesses will be “Tough, that’s what you signed up to,” we have heard cases of providers willing to compromise on occasions. This is more likely to happen if you are into your second or third contract term. For those borderline-value services, consider switching from an annual to a monthly rolling contract until your situation becomes more certain, if that option is available. Not all providers will offer this, and the ones that do will charge you more per seat per month if their preference is for fixed-term, but it can give you the flexibility to make tough choices in the interim without a major cost penalty. For now though, I would urge anyone making new SaaS commitments in these uncertain times to make contract and commitment terms important factors in your decision-making. Having just one opportunity per year to terminate, switch or optimise means you are constrained by an arbitrary timetable which has nothing to do with your own business cycle or related milestones and events. That kind of contract clearly isn’t consistent with the ‘on-demand’ and flexible spirit of the original cloud proposition, nor is it very Brexit-friendly. Now, more than ever, it is vital to beware of contractual lock-in when reviewing and making SaaS related commitments.

Originally published on Freeform Dynamics’ Computer Weekly Blog – Write Side Up

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Dale is a co-founder of Freeform Dynamics, and today runs the company. As part of this, he oversees the organisation’s industry coverage and research agenda, which tracks technology trends and developments, along with IT-related buying behaviour among mainstream enterprises, SMBs and public sector organisations.