Understanding Software Escrows

Maintaining Business Continuity With Mission-critical SaaS Applications

SaaS applications are universal features of the modern business world. Unfortunately, they don’t always come with the guarantees that they should.

No matter what kinds of software your clients license or use, they run the risk of massive failures if they don’t offset their dependency on vendors with viable backup plans. From data center disasters to software providers going under, your clients’ reliance on third-party tools endangers their day-to-day operations and ongoing profitability.

The Risk Defined: What Happens When Software Disappears?

Continuity is vital to doing business. Your clients’ customers won’t simply give them a pass because their software wasn’t working on a particular day or because they got hacked. Although most companies are diligent about securing their own internal systems, they expose themselves to the mercy of fate when it comes to their software vendors.

The dangers of ineffective continuity planning are all too real. Some sources estimate the amount of revenue lost annually to IT downtime to be in the $26 billion range.

The history of IT continuity planning is also riddled with examples of huge companies dropping the ball. For instance, Hurricane Sandy shut down the New York Stock Exchange in 2012, and as recently as 2008,  Google Apps suffered major outages. The IT world has certainly come a long way since those dark days, but such events still underscore the need for corporate continuity planning that ensures companies can keep functioning after they lose vital services and SaaS components.

There are several basic forms of software escrow agreement depending on what you and your business needs:

1. The most basic and fundamental software escrow agreement is the standard three party agreement.  This type of agreement is entered into by a software escrow agent (EscrowTech), a software vendor and a licensee.  A standard three party agreement is perfect for a situation where a single licensee is requesting a software escrow however the software vendor does not want to set up an escrow for their other customers.
2. The next type of escrow is a multiple party agreement.  This allows for a software vendor to set up an escrow and register one more licensees to their escrow.  This allows for a software vendor to keep a single escrow account for all of their licensees.  This greatly reduces the amount of time it takes to manage an escrow and significantly reduces the escrow’s cost.
3. The next type of escrow is for multiple licensees spread across multiple software products.  Instead of managing multiple escrows this type of escrow allows you to have one central agreement to manage everything.  Like before this greatly lowers the amount of time spent managing an escrow and their associated costs.
4. Some licensees need something more flexible.  In this situation a licensee creates an escrow account that allows for multiple software vendors to register.  Each software vendor is given a separate space in an escrow vault and can submit escrow materials for the licensee.  This is a great way for a licensee to organize all of its escrow accounts.
5. The next type of escrow is a minimum service escrow.  This type of escrow allows for a software vendor to create a multiple party escrow without paying a licensee fee for each licensee.  The trade off is that the licensee does not receive notification from EscrowTech and can be removed or added to the escrow by the software vendor without notification.  Depending on your situation and the level of protection your licensees need, this type of escrow might meet your needs.

Cloud computing has popularized the approach to software solutions known as “Software as a Service” (SaaS). It enables many businesses to use software located in a vendor’s cloud instead of their own infrastructure.  Because of this many businesses find themselves relying on cloud computing and data storage for their day-to-day operations. Yet cloud computing is still a fairly new industry with many rules yet to be written. As an industry, it moves rapidly, with acquisitions, changes in support structure, and interruptions in service still being fairly regular occurrences. How does a SaaS escrow play a part in protecting your Software as a Service rights?

There are several steps to keep in mind when agreeing upon a software escrow:

1. The most important thing to decide for your company is which software applications should be escrowed in the first place. If software is mission-critical or difficult to replace, it should be escrowed.

2. Ensure that the release terms in your escrow agreement are clear. Make sure both broad situations and detailed possibilities are both covered.

3. Make sure your own company’s escrow policies are being followed. Often, companies set rules for themselves that apply to specific situations like escrow. However life happens and things get forgotten.