Escrow agreements keep up with the new demands of SaaS

I would be the first to agree that not every technology transaction will benefit from an escrow agreement. However the growing acceptance of SaaS is compelling more businesses to re-examine the role that software escrow plays in business continuity plans.

Business is finding that modern escrow agents have evolved and new practices are playing an important part in SaaS arrangements.

Let me explain how:
First, we need to understand the differences between traditional software escrow and modern SaaS escrow. Those differences make escrow for SaaS an important component of today's procurement agreements.

The primary differences between a traditional escrow and SaaS escrow are:
Material in escrow: Traditional escrow arrangements rely upon the escrow agent securing and providing access to the software source code. A SaaS escrow arrangement must consider source code, object code and data. Further, should a release event occur, the data that is required must be up-to-date.  Day-old data is a day too old. This raises the importance of escrow if the beneficiary is relying upon the escrow agent to provide access to source code, object code AND up-to-date data.

Timing: With traditional escrow, stable environments can potentially run for years without direct support or involvement from the software provider. With SaaS, downtime means immediate pain. The traditional escrow release process demands that release conditions are verified FIRST and materials released SECOND. This might take 20-30 days. For SaaS, release must be immediate. SaaS escrow agreements provide for the release of software FIRST and verification of release conditions SECOND.

Data: A common misconception among SaaS users is that they can simply switch providers if their SaaS vendor fails. Often SaaS vendors provide more that simply hosting generic software. Many value-add through integration, customisation or adapting to bespoke business processes. Who owns the data? Do you? How can you get it if the SaaS vendor vanishes? Is there really a suitable replacement provider? How long will the data migration take? What is the cost of interim downtime? SaaS escrow provides answers to these issues.

Community: If your business needs escrowed material to be released, chances are so do the SaaS provider's other clients. An escrow agent can play a pivotal role in forming that community with the intention of pooling resources to establish a common replacement hosting provider and continuity solution.

Support: Key personnel from a failed SaaS vendor can play a pivotal role in re-establishing service quickly. This is why including contact information in the escrow deposit is more relevant and critical than ever.

Hosting: If a release event occurs, who will host the application? Is there a way to engage the current hosting provider (sans SaaS vendor) to continue hosting the application? An escrow agent can help form this bond and bring about the change in relationships.  

Not every SaaS solution will need SaaS escrow but an escrow arrangement will form part of well-constructed business continuity plans.

Plan it well, put it in place and hope you never need to use it!