customer bill of rights: saas

Customer Bill Of Rights: Software-as-a-Service

37 Best Practices To Improve the SaaS

Client-Vendor Relationship

October 12, 2009

By R “Ray” Wang With Jeremiah Owyang

Includes input from 57 ecosystem contributors

© 2010 Altimeter Group

Ecosystem Input The Customer Bill of Rights: Software-as-a-Service (SaaS) report could not have been produced without the generous input from some of the leading market influencers and the following vendors who have shown a keen interest in transforming the client-vendor relationship. Please keep in mind; input into this document does not represent a complete endorsement of these rights in total by the individuals or vendors listed in this report.

Influencer Input Nenshad Bardoliwalla Naomi Bloom, Bloom and Wallace Kevin Dobbs, Montclair Advisors Bob Evans, TechWeb Dennis Howlett, Enterprise Irregulars Phil Fersht, Horses For Sources Christian Gherorghe Paul Greenberg, The 56 Group James Governor, Red Monk Erin Kinikin Esteban Kolsky Michael Krigsman, Asuret Frank Scavo, Computer Economics Josh Weinberger, CRM Magazine

Vendor Input Agresso Appiro Boomi Blue Wolf Cisco Systems CODA Demand Media Epicor Everest Software Flexera GetSatisfaction HelpStream IBM Infor Informatica

Infosys Intacct Intuit Jive Software KickApps Lithium M-Factor Microsoft Mzinga NetSuite Oracle Panaya Inc Patni Pervasive Software RightNow Technologies

Rimini Street Salesforce.com SAP SocialText SoftBrands SuccessFactors Sugar CRM Telligent Tenrox Ultimate Software UserVoice VMWare Workday

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Table of Contents

Purpose and Intent .............................................................................................................3

Executive Summary ............................................................................................................3

Cost Transformation Drives Mainstream SaaS Adoption...............................................4

SaaS Licensee’s Rights Must Reflect Unique Business Model Considerations...........2

SAAS Bill of Rights Span a Continuous Ownership Lifecycle ........................................3

Section 1: Ownership Experience And Governance Models .........................................................4

Section 2: Selection .......................................................................................................................5

Section 3: Deployment...................................................................................................................6

Section 4: Adoption .......................................................................................................................6

Section 5: Optimization..................................................................................................................7

Section 6: Renewal ........................................................................................................................8

Customer Rights Must Come With Responsibilities .......................................................9

Recommendations............................................................................................................10

Put The Best Practices From SaaSBoR To Use Across The Organization .....................................10

Resources..........................................................................................................................10

Contact Us.........................................................................................................................11

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Customer Bill Of Rights: Software-as-a-Service

37 Best Practices To Improve the SaaS

Client-Vendor Relationship

October 12, 2009

Purpose and Intent This document is intended to serve as a reference, checklist, and point of discussion with SaaS vendors for prospects and clients who have made the decision to begin a SaaS deployment. Though your SaaS vendor may not provide all these rights today, these represent the best practices in over 250 SaaS contracts and the general spirit and intent of most SaaS vendor’s executive management teams.

Executive Summary SaaS deployments have entered the heart of the business and now deserve to be treated with all the rigor and due diligence of on-premise licensed software. Client – vendor relationships in SaaS are perpetual and it is imperative that these agreements provide a chance for a new slate. CIO’s, CMO’s, LOB execs, procurement managers, and other organizational leads should ensure that the mistakes they made in licensed software aren't blindly carried over. The SaaS Bill of Rights (SaaSBoR) provides a tool for clients and vendors to change the tenor of contract negotiations from subservient user to equal and collaborative partnership.

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Cost Transformation Drives Mainstream SaaS Adoption Organizations saddled with cost pressures, rigidity of existing legacy systems, flood of business requests for changes, and impending regulatory and compliance burdens, now turn to software-as-a-service (SaaS) as a deployment option and business model to bring immediate value to their organizations. In fact -- multiple research surveys show an estimated 35% to 45% of companies considering, piloting, and/or adopting SaaS solutions in the organization1. In emerging markets, organizations have chosen SaaS as a way to leapfrog legacy deployment options. However, SaaS should not be seen as anything new to the enterprise. Many consumer solutions and Web 2.0 social technologies such as SocialText, LinkedIn, FaceBook, Twitter, Gmail, and YouSendIt have already been put to use inside organizations, often without the advisement from IT departments. This groundswell of user driven consumer tech initiatives has quietly permeated and benefited many organizations. As the shift from consumer tech to enterprise class SaaS solutions continues, organizations should consider seven key benefits of moving to SaaS over on-premise (see Figure 1): Figure 1. SaaS Deployment Delivers 7 Key Benefits

Source: Altimeter Group September 2009 SaaS Benefits Survey of 91 end user clients and vendors.

1 Saugatuck Technology, Gartner Group, IDC, and Forrester have shown similar SaaS adoption rates in 2009 research reports and surveys.

Anytime scalability and dynamic capacity

Subscription pricing

Access to the “always-on” SaaS tools regardless of location

Minimal upgrade hassles

More frequent cycles of innovation

Rapid IT implementation and optional higher quality deployment

Richer user experience and user productivity

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1. Richer user experience and user productivity. Newer technologies enable more engaging and easy-to-use interfaces. Solutions often designed with a role based perspective in mind result in minimal training.2

2. Rapid IT implementation and optional higher quality deployment. The duration of the technical implementation phase moves from months to weeks. Customers can demo a product, move to sandbox, and train in days. Organizations now have the option to redirect their budgets and resources to improve business process and configuration instead of fighting integration and deployment quagmires. True SaaS solutions do not require individual installs, instead they leverage the SaaS environment.

3. More frequent cycles of innovation. SaaS vendors update their solution between 2 to 4 times a year. With current Agile development methodologies, some vendors iterate in months. Customers gain access to latest features, bug fixes, and regulatory updates at a quicker pace. In many cases, organizations turn to SaaS to access innovation and capabilities not provided by incumbent on-premise vendors.

4. Minimal upgrade hassles. Users no longer have to worry about a flurry of bug patches, fixes, and the endless testing cycles required to validate changes. Business processes impacted by regulatory changes such as financial closing and hire to retire benefit the most from easier consumption of updates.

5. Access to the “always-on” SaaS tools regardless of location. Office workers can now access these SaaS tools anywhere they go. These consumer tools often have rich mobile experiences –often far ahead than providers in the on-premise space.

6. Subscription pricing. SaaS solutions have adopted subscription or utility pricing to spread out payments over time. The shift from capital expenditure (CapEx) to operational expenditure (OpEx) frees up funds for other projects. Business users can swipe and buy without going through complicated procurement processes. During recessionary times, subscribers only buy what they consume, stretching their investment. Many contract terms have also moved from yearly to monthly increments.

7. Anytime scalability and dynamic capacity. Scalability enables customers to streamline cost per additional user. Clients can flex-up or flex-down on usage without incurring spikes in variable costs such as hardware, staffing resources, and license costs.

SaaS Licensee’s Rights Must Reflect Unique Business Model Considerations With increased SaaS adoption, organizations must consider broader implications and expectations of the SaaS client-vendor relationship. Building long-term win-win relationships with SaaS vendors differs from the on-premise world for a three key reasons:

2 Ten elements drive the move to more social enterprise apps. Many SaaS vendors already exhibit these qualities. View the August 24th, 2009 blog post “Monday’s Musings: 10 Essential Elements For Social Enterprise Apps” http://bit.ly/130WiO

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Issues related to software license rights. In true multi-tenancy, SaaS vendors own the core code and licensees own the data and metadata. Clients must assess exit strategies. What happens if the vendor goes out of business? What’s happens when the vendor is acquired by a competitor? What do you do to make the data useful without context? How do you prevent lock-in? Can you buy the data models and logical models?

Vendor commitment to significant product investment. Pace of innovation remains rapid today but there are no guarantees on what to expect in future levels of investment. With frequency ranges from 2 to 4 times a year, what protections do clients have for future investment levels? Will vendors attempt to charge for “new” modules that represent extensions of existing capability? How does the buyer provide input into future product roadmaps?

Client remedies for breaches in service level agreements. Despite all backups and contingency plans, clients should consider scenarios where core business systems may go down. What are fair remedies? How are systems backed-up? What will be done during disaster recovery? How much liability the vendor will provide?

SAAS Bill of Rights Span a Continuous Ownership Lifecycle SaaS shifts ownership from perpetual licenses to perpetual usage. In fairness, vendors should expect a minimum standard of respectful, sincere, and earnest clients. Users must consider the implications of perpetual usage and relationship. These SaaS Bill of Rights represent a client-focused perspective of what vendors should provide as 37 basic rights. Five key phases across the SaaS ownership life cycle include (see Figure 2): Figure 2. SaaS Ownership Experience Spans A Five-Phased Lifecycle

Source: Altimeter Group

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Section 1: Ownership Experience And Governance Models The SaaS ownership experience parallels similar elements of outsourcing. To start, organizations hand control over business processes to a third party solution/service provider. Hence, clients should take the time to design the appropriate levels of governance to achieve a mutually beneficial ownership experience. Client rights that emphasize the client-vendor relationship include:

Vendor executive advocacy and accountability. In the consumer space, this may result in management team accountability for customer success. At higher price points, organizations can expect to know which executives take responsibility for customer satisfaction and advocacy. Escalation processes should be defined upfront. Product and sales accountability should be tied to specific individuals and customer satisfaction should be tied to compensation metrics.

Timely and meaningful interactions. Vendors and their partners should guarantee timely response times for key issues such as service requests, bug fixes, and help desk issues. Key policy changes such as product road map decisions, organizational and personnel moves, support policies, and licensing and pricing should be communicated in a timely fashion to customers and tracked by the vendor. Vendors should provide a complete picture of the overall interaction history.

Professional customer relations. Courtesy and respect across all customer touch points should be the norm from not only front line customer facing personnel, but also back office employees. Vendors should keep all contract details confidential and private unless permission has been granted. Professionalism also includes the right to work with knowledgeable and trained resources.

Quality guarantees and remuneration. Customers should expect that vendors to stand behind the quality of both their products and services. This includes full disclosure of known and potential defects that relate to performance, availability, bugs, integration, and partner solution compatibility. Penalties for breaches should reflect the business impact of a disruption or inability to access a capability promised to a customer. Customers should be able to choose the format of remuneration. Vendors should be able to place mutually agreed limits on liability.

Ownership of and access to data with no questions asked. Customers should know that they own all their data and have access to this data at all times throughout the relationship. Tools to access data should be provided to clients. Vendors should build from this customer centric design point.

Ongoing Transparency. For critical applications, clients should be given insight into the vendor’s long-term viability (i.e. financing, operational condition, etc.), regardless of whether the vendor is publicly or privately-owned. Transparency rights include access on a periodic basis to the vendor’s financial statements along with insight into the vendor’s operational performance in areas such as incident and problem management, security management, and business continuity planning. Transparency allows customers to develop risk management scenarios based on the vendor’s actual financial and operational condition, giving customers the necessary time to migrate to a new service provider if appropriate.

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Section 2: Selection Selection describes the rights prospects and clients should expect from software vendors as they make their decision on a product and vendor. Prospects and clients should have a right to:

Include an entire agreement clause. Prospects and clients should ensure that demos, proposals, and promises made during the selection process are included in the final contract. Vendors should expect clients to include documentation as exhibits in contracts.

Try before buying. Prospects and clients should be given access to the system and provided a sandbox to demonstrate the system. Vendors should retain the right to charge for the proof of concept as appropriate.

Access licensing and pricing terms and conditions. Pricing metrics, discounting criteria, and terms and conditions should be provided upfront to all customers. Prospects should receive updates and alerts when changes are made. Terms around user and usage metrics should be made clear. Standard contracts and renewal provisions should be made available for review.

Provide a TCO analysis of SaaS during the sales cycle. Vendors should be able to show the true cost of ownership over a defined period of time. Key metrics should show comparisons of deployment options over 5, 7, and 10-year time frames.

Obtain clear policies on storage costs. SaaS clients often find out after-the-fact that the storage allocations do not meet actual usage requirements. Once hooked onto the product, on-going storage costs could prove to be the largest expense item. Clients should negotiate these terms in advance and seek pricing plans from vendors.

Receive disclosure about solution defects. Customers and prospects should be given access to a list of known bugs, integration, performance, and deficiencies. This should include incomplete business process flows or scenarios where use case scenarios cannot be completed.

Understand system configuration and architecture. Clients should receive details about the hardware architecture. Key areas to detail include hardware, processing approach, operating system, and configuration and customization process. Other areas for disclosure include processing pipelines, batch processing, queuing, and system monitoring methodologies.

Stipulate data management requirements. Clients should determine data properties including physical location, security mechanisms, access rights, disaster issues, and regulatory compliance. Critical information such as host info and availability should be provided. Location of the cloud may play a role in selection.

Reach out to customer and partner references. Clients should expect a vendor to provide customer references for unfettered conversations about the solution. Clients should also be able to reach out to user group leaders for honest and candid discussions.

Perform due diligence on a vendor. Prospects should be able to examine a SaaS vendor’s financial viability, security risks, and legal liability. Key areas should include financial performance, legal risks, management team background, customer lists, and SAS

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70 compliance. Clients should have the right to review SAS 70 certification results; and conduct or have third party auditors perform regular audits of the vendor data center.

Contract third party advice. Clients should retain the right to engage a third party advisor in vendor selection, contract negotiations, and independent verification and validation (IV&V). Vendors should not try to prevent clients from seeking such advice.

Section 3: Deployment Deployment describes the rights clients should expect from software vendors as they implement and consume the technology. Rights should include:

Support multiple implementation options. Clients should be given a choice as to whether they can self-deploy, choose a trained third party partner, or work with the vendor. Selected partners should be able to obtain access to key data and implementation information. In cases where no partner exists, clients should have the option to self-implement with vendor/partner assistance.

Receiving a clear statement of work and project status reporting. Vendors should deliver large projects in accordance with project management best practices such as the Project Management Body of Knowledge (PMBOK). Smaller projects should follow clearly defined templates for rapid implementation. Deliverables, milestones, acceptance criteria, and escalation processes should be documented prior to project kick-off. The implementation teams should provide service level agreements (SLAs).

Contracting vendor expertise. Customers should have the right to engage vendor experts such as product development teams, solution architects, training, and support personnel at reasonable rates. Assess the team on their technical acumen. Examine how consultants are trained, how product teams and consultants collaborate, and how they address challenging projects. Fees should be provided in advance. Detailed information should include personnel rates and estimated effort for common projects.

Accessing training programs. Vendor should provide access to training programs to ensure a client or their partner could complete a deployment. More importantly, clients should expect adequate knowledge transfer activities from the vendor to ensure self-sufficiency.

Section 4: Adoption Adoption describes the rights clients should expect from software vendors as they utilize the solution across the organization. Vendors should provide clients with the following rights:

Freedom of speech. Clients should not be limited in discussing the solution with fellow customers, peers, or media. Clients should be able to freely discuss issues with the software including but not limited to security issues, bugs, and pricing. Clients should not be limited to no disparagement clauses. Both sides should be open in their communication.

License equivalency. Clients of on-premise software vendors moving to SaaS and other on-demand models should be given the right to convert user and usage models across different deployment options. Equivalency ratios should be determined ahead of time.

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Intellectual property (IP) indemnification. Vendors faced with lawsuits will provide clients with indemnification from IP legal claims. Remedies should include refund of the subscription costs, provision of a replacement solution at zero cost, and vendor developed solution.

Software escrows. Clients should expect vendors to provide the option to access a competitive provider of their choice who serve as custodians for source code, user data, application executables, and related documentation. Mutual agreement should be determined on frequency of backups and updates. Hot backups should be made available for disaster recovery scenarios. Vendors reserve the right to charge for software escrows.

Integration and API support. As organizations make the shift from on-premise to cloud-based deployment options, vendors must deliver key access to public API’s, web services, and other integration tools to support hybrid deployment. In some cases, integration will revolve around business processes such as order to cash, campaign to lead, and incident to resolution.

Data quality support. While a vendor cannot guarantee the quality of data being put into the system, tools should be provided to address both a sourcing and day-to-day processing perspective. These tools ensure short-term and long term efficient processing.

Section 5: Optimization Usage optimization describes the rights customers should expect from software vendors as they change how they expand, maintain, or contract in their usage of the solution. Customers should expect:

Price protection options. Clients and prospects should be given the opportunity to lock-in increased consumption guarantees or seek price increase protection. Vendors should provide the discount rationale and clearly state the pricing bands for each bulk increment. Clients should be able to move between bands at defined periods of time. One option – provide for a collar where user counts can fluctuate up or down by 25% over six months or a year at the same unit price. Vendors should be able to set minimums.

Affiliate usage assignment. Customers should be able to provide access and usage of the software to majority owned affiliates. Customers and vendors should determine how to treat usage assignment with other related organizations.

M&A scenarios. Clients should be given the option to combine contracts to achieve higher discount levels or tiers during mergers and acquisitions. In cases where the software will no longer be use, limited access licenses should be provided to access pre-merger files, compliance requirements, or historical trending data. SaaS vendors should provide an option for clients to flex-down usage or terminate during divestitures. Vendors may also provide an option to apply credits to the new entity.

Multiple support options. Customers should be given more than one-size fits all support options. Options should provide tiering in pricing and service levels that correspond to actual usage.

Install base transparency. Vendors should inform customers when multiple installations have been deployed at a company. Clients should be able to access information about usage by users to determine if they’ve purchased shelf ware.

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On-going performance metrics. Clients should expect a trust site to monitor service level agreements. Vendors should provide at least a monthly report on key availability and continuity metrics.

Section 6: Renewal Revision describes the rights clients should expect from software vendors as they shift their usage requirements and change how they adopt SaaS solutions. At a minimum, clients should expect rights to:

Provide input into future capabilities. Vendors should provide input mechanism for requirements prioritization. Prioritization and acceptance criteria for roadmap decisions should be made open to clients. Clients should understand that vendors might reserve a portion of investment decisions for platform upgrades and updates. Vendors should provide confirmation and status on feature requests.

Give ample notice before deployment. Vendors should give customers ample time (e.g. 30, 60, and 90 days) to prepare for an upgrade. This includes keeping the lines of communication open, preparing the appropriate training materials, providing guidance on testing, and working with end users on implementation risks and impacts.

Transition to alternative deployment options. Vendors with multiple deployment options for similar code lines should provide mechanisms for clients to transition among the different options. At no time should a client be locked in to one deployment option. Pricing options should reflect a comparable total account value. Client should be able to access full data at any given time, no questions asked. Vendors should provide both public and private access to APIs to support transitions.

Determine termination criteria. Both clients and software vendor should communicate clear termination criteria. Termination criteria should also include transition language and migration assistance conditions for impacted clients. Regardless of the contract, the customer should always own their data and have the opportunity to migrate it. Acquisition should be listed as one example of acceptable termination criteria.

Receive migration assistance. Customers leaving a SaaS provider should be provided with the necessary transition tools to ensure business continuity. Tools could include temporary hosting privileges, integration frameworks, data migration, and historical archive capabilities. These costs should be determined during the selection process.

Purchase the source code. In some cases, clients may leave a SaaS vendor and require more than just the flat file extract of their data. Some vendors in the past have allowed clients to purchase the semantics of the data. Key items would include business rules that govern the data structures within which the data is stored, data models, and logical models.

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Customer Rights Must Come With Responsibilities SaaS provides an opportunity for clients and vendors to rethink their relationships. Vendors give up some of the mystique of software contract negotiations with an open Customer Bill of Rights. An open and collaborative approach will lead to a more amiable and long-term approach to the client-vendor relationship. However, clients must take actions and responsibility to keep their rights by:

Ensuring adequate client side resources to succeed in deployment. Clients must bring to the table executive sponsorship, adequate funding, appropriate resourcing, and strong project management. In cases where clients decide to self-implement, they should have the vendor or third party assess their capabilities to collaborate towards a successful implementation.

Paying invoices on time and in full. SaaS vendors deliver solutions 24/7. As with utilities, they will not immediately turn off service for late payment. However, clients should pay invoices on time if they expect their SaaS vendors to keep the lights on and stay in business.

Partnering with their vendors to ensure their long-term viability. Clients can add complexity and cost into the cycle when they try to prove how smart they are during contract negotiation. Excessive use of large penalties, price caps, and other "you can't fool me" items often create an adversarial relationship right from day one. Clients should hold to their rights and objectives but keep in mind the potential long-term nature of SaaS relationships.

Maintaining ongoing communication. Clients often expect SaaS vendors to respond immediately to requests. Clients should also respond to SaaS vendors in a timely manner. If an issue is addressed, clients should communicate whether or not the solution succeeded or failed. Clients should anoint a dedicated resource to maintain this level of dialogue with the vendor.

Acknowledging changes in scope. Customers need to accept responsibility for major changes in scope that differ from an initial product and implementation plan. Clients should review changes and compensate vendors for changes that materially impact delivery dates, resource allocation, and overall cost.

Serving as a client reference. Clients should be open to share honest feedback with prospects and other clients about their experiences with the solution and the vendor. Where possible, clients should engage in the ecosystem by taking a reasonable number of press calls, prospect calls, and speaking opportunities. Vendors should not abuse this privilege.

Providing feedback into product roadmaps. When given the opportunity, clients should take the time to provide input into the future direction of products, markets, and other investments. Clients should help shape the direction of how that feedback is defined and provide input on the success or failure of that solution.

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Recommendations

Put The Best Practices From SaaSBoR To Use Across The Organization While SaaS may appear to be a short-term fix to the lack of timely innovation and ownership expense structure brought on by many on-premise vendors, organizations should view this as key pillar in their overall enterprise strategy. The proliferation of SaaS deployments will require CIO’s, business leaders, and sourcing and vendor management teams to work more closely with each other to deliver flexible guidelines in the adoption of SaaS solutions. Consequently, the Altimeter Group suggests the following:

Use the SaaS Bill of Rights to bring IT and business teams together. Walk through the best practices to establish future SaaS procurement policies. CIO’s can give use the SaaS Bill of Rights to establish frameworks for business units to speed up the vendor selection process.

Include the SaaS Bill of Rights in SaaS evaluation and selection criteria. Utilize the rights as a starting point in establishing a long term, productive client –vendor relationship. The SaaS Bill of Rights should be a starting point for discussions. Clients should also keep in mind their responsibilities as a client in the relationship.

Expand the rights to meet organizational requirements. The SaaS Bill of Rights provides a starting point for your contract negotiations and establishment of a long-term client-vendor relationship. Organizations should expand on rights that apply to specific industries, geographies, and regulatory conditions.

Join the SaaS Bill of Rights ecosystem. Altimeter Group has put together a series of community tools including a linked in group to continue the discussion. New rights, your experiences, and feedback can be contributed on the SaaS User’s Bill of Rights.

Resources Join the Customer Bill of Rights ecosystem. Altimeter Group will be continuing the discussion via webinars, social conversations, and events. LinkedIn: http://www.linkedin.com/groups?home=&gid=2322509&trk=anet_ug_hm http://bit.ly/ctuGL Twitter Hashtags #SaaSBoR http://twitter.com/#search?q=SaaSBoR

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About Altimeter Group Altimeter Group is a strategy consulting firm that provides companies with a pragmatic approach to disruptive technologies. We have four areas of focus: Leadership and Management, Customer Strategy, Enterprise Strategy, and Innovation and Design.

Contact Us Altimeter’s Hangar (At the Crossroads) 1875 S. Grant St. #640 San Mateo, CA 94402-2667 [email protected] www.altimetergroup.com

Consulting Inquiries David Stanley VP, Business Development and Sales Phone: 719.357.7826 Email: [email protected]

Speaking Inquiries Mel Blake Monitor Talent Phone: 617.252.2472 Email: [email protected]

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