Brief explanation of the two models for selling software.

There are two main business models for selling software:

1. Through local software installation – the customer purchases the software solution, which is installed locally, a license agreement is concluded;
2. Software as a Service (Hereinafter SaaS) – The customer accesses the software solution via the Internet, which is not installed locally on his server. A SAAS contract is concluded, usually with a subscription payment by the client.

Here are some main differences between the two business models and, accordingly, the differences in the contracts concluded between the parties.

PRICEING:

In the first model, the price is usually paid once – before the installation package is provided. However, it is not excluded that the provider may include an additional price for support and software upgrades.

In the SaaS model, providers provide access to the software solution based on a subscription, where the price is due periodically. Within the subscription, there may be different pricing options, usually for a number of accounts or for access to different packages of a complex software solution. These fees usually include support and upgrades.

LICENSES:

In the local software installation model, the provider can provide the customer with unlimited use, as we indicated above, the software solution is installed on the customer’s server and used locally.

In the SaaS model, the provider typically grants the customer a limited right to access and use the software only during the term of the agreement. In the  SaaS model, the parties typically agree that the customer has the right to “access and use” the functionality of the software. This is key because in this model, software installation is not performed, and the software solution and its functionalities are accessed via the Internet.

SECURITY REQUIREMENTS, PERSONAL DATA PROTECTION:

The provider who provided the client with the right to use and the ability to install the software solution on his own server would usually not have additional obligations in relation to the security and protection of personal data, because from the moment of software installation, these commitments are related to the organization of the client’s activities. This does not mean that if, for reasons in the software solution, and not in the customer’s organization, there is a breach of information security and potentially a violation of personal data protection rules, the software provider’s liability could not be realized. 

In the SaaS model, the provider should assume an obligation to ensure information security during the use of the software solution, even after the subscription expires. These security measures usually extend to the customer’s data provided to the provider through the use of the software. Here, the potential damage from the realization of a cyber risk is more significant than in the first model, mainly due to the fact that in this business model, the software solution provider collects in its information array the data of all its customers, which it often processes through the software and the data of their customers, i.e. The service provider concentrates a huge amount of personal data, therefore compromising the information security of this provider in most cases would lead to significant damage.   

GUARANTEES:

In the local software installation model, the provider usually guarantees that the software will function in accordance with the contract for a specified period. The provider usually guarantees that the software is provided without viruses, bugs and similar shortcomings. After the expiration of the term, it can be foreseen that the provider can provide an update to the software for an additional period.

With SaaS, the provider undertakes to ensure that, during the term of the contract, the software will function in accordance with the contract, in the part concerning the functionalities. In this case, it is less common to pay for software upgrades, as additional payments are usually related to new functionalities that are part of another access package, for which an additional fee is paid above the subscription fee.

We have experience in concluding such deals, especially in the part concerning the structuring of the deal in terms of liability for risks, data protection and guarantees that are reasonable to be assumed by the parties.

If you have any additional questions, you can contact us 

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