The Real Value of SaaS Industry Trust In a Post Lockdown Market | Hansen Tong ESQ

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The pandemic forced a lot of hesitant companies to share data with SaaS vendors. The SaaS lawyer, Hansen Tong explains how the industry needs to secure trust in the market in order for the 96 billion dollar industry to grow in a post-lockdown workplace.

Cloud computing and SaaS are innovations that were bound to happen. Just like the internet and the steam engine. Yet, most family dinner conversations about SaaS Vendors are met with vacant expressions. Despite its lack of sex appeal, corporate spending on cloud computing services has grown from 1 billion in 2009 to 96 billion in 2019.

The radical efficiency of using a network of servers to facilitate the SaaS model invited a flood of market innovations and solutions like Salesforce, Zoom, and collaborative whiteboard platforms like Miro. Without this paradigm shift, countless companies could not have survived the COVID-19 lockdowns.

With ample market evidence supporting cloud computing hype, the industry is still met with skepticism and concerns about data. As we re-open society, can SaaS companies keep these customers who were perviously concerned with sharing data? The answer depends on trust and transparency. Without this bond, many could abandon the cloud computing train and leave billions of revenue out of the market. How the problem of trust is solved will determine its real value to both SaaS vendors and adopters.

Vendor Concerns in SaaS Adoption

When companies first started adopting the SaaS industry model, their biggest concern was trusting the service provider’s competency. If the SaaS vendor provided an essential service, the business wanted to ensure that they would still have access to that service if the SaaS went insolvent.

Escrow services provided this market demand for trust by backing up the SaaS’s source code. So if a company subscribed to a ticket management tool that could no longer provide the service, they could download the source code to continue business as usual.

Competency is no longer the primary concern, though. Over the past decade, companies have discovered just how valuable user data is to their business. This new data gold rush has complicated relationships with SaaS vendors and enterprises.

The emergence of data mining is a fascinating development. It is as if a waste distribution company discovered that depositing waste to a landfill was a valuable commodity. The question of who owns the data becomes a real dilemma. Does the landfill own it simply because they possess it, or does the waste company own it because they delivered it? Businesses worry that SaaS vendors will use this legal ambiguity over data ownership to sell user data to (or insights into the data) to advertisers, government agencies, research analysts, or even their competitors.

The dilemma is further complicated now that California has passed landmark legislation under the CCPA and CPRA for data and privacy rights. This new legislation has a series of consequences, ranging from waves of data breach lawsuits and compliance headaches. Users now have more control and legal ownership of their data. Specific provisions allow users to demand the deletion of data shared with third-party vendors. It is as if while the landfill and waste distribution company were fighting over ownership, the town residents arrived to demand this newfound commodity back.

Brien Posey from TechGenix cites these growing concerns in his article on data ownership. Some businesses value their user data so much that they hire third parties to migrate all of their business off the cloud.

Amazon is a classic example of this. They have their team of software engineers to create proprietary services that are used exclusively in house. They have their version of Slack, Salesforce, Zoom, and countless others. Unfortunately, most other businesses don’t have the same resources as the world’s wealthiest companies, so they need to rely on an alternative solution.

How The Market Solves the Problem of Trust

Like the steam-powered train analogy, the SaaS industry is only as strong as the linchpin of trust holding together the carts of valuable user data. SaaS agreements are just how the sector forms this linchpin. If it's hard explaining SaaS Vendors to relatives, try holding their attention while talking about SaaS agreements.

Since SaaS uses a subscription model, the agreement sets how users access the software under that model. There are clauses within these terms that should frame how the customers license their data to the vendor.

The data use section of Miro’s SaaS agreement is an example of this clause:

4.1 Data Use: Customer grants Miro the non-exclusive, worldwide right to use, copy, store, transmit, publicly display, modify and create derivative works of Customer Data, but only as necessary to provide the Service, Support, and any Technical Services to Customer under this Agreement.

This clause establishes transparency for the customer and is also CCPA compliant. The bolded stipulation “but only as necessary to provide the service” prevents the selling of user data to third parties without overburdening Miro in providing its service to its customers. The same language is used in the CCPA to protect a businesses’ rights to user data essential to the service provided.

Suppose a business is concerned about a SaaS vendor selling its user data to third parties. In that case, it should look out for clauses that grant the sub licensable license to copy user content and data. This clause allows businesses to pass the customer’s licensed material on to third parties.

For example, sublicensable language does not appear in Miro’s Master Cloud Agreement. Businesses that thoroughly review these contracts with an informed legal perspective can make confident business decisions regarding the use of their data.

Both SaaS vendors and customers have a role to play in building the linchpin of trust. SaaS vendors can provide clear and concise terms stating what they will and won’t do with customer data. Customers add to this solution through negotiation of specific data usage rights \and holding vendors accountable to the terms of their agreements.

Conclusion

If a business isn't Amazon, they have to carefully consider the cost of moving all business functions away from shared cloud computing. There is an opportunity cost to consider, as well. Even Amazon cannot match the new world-class innovations the market is producing. Transitioning away from SaaS means missing out on a projected 146 billion dollar industry. Businesses with concerns about data ownership and sovereignty should be aware of data use clauses in SaaS agreements. This insight will help them find SaaS vendors they can trust and ultimately scale their business with the best cutting edge solutions.    

Hansen Tong
Tech, Software, Data Privacy, Entertainment, Gaming, Digital Media, and SaaS Attorney

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