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Top 10 SaaS Traps: Watch Out For Hidden Snags

Software-as-a-service agreements can snare the unwary

By Thomas Hoffman
June 12, 2006 12:00 PM ET

Computerworld - In theory, software as a service (SaaS) should be a cost-effective option for IT executives who don't want to deal with the hassle and expense of installing and supporting software for users. By tying into a Web-based software service that users can access with a browser, IT departments can avoid the costs of adding servers, powering servers or even setting aside space for them in a data center. And since the software is supported by a managed service provider, IT managers don't need dedicated staffers to deal with help-desk-related issues.

So SaaS is cheaper than installing your own software, right? Don't count on it. "If you go into a SaaS agreement believing it's going to be less expensive under all circumstances, you should reorient your thinking," says Rob DeSisto, an analyst at Gartner Inc. There are all kinds of extraneous expenses that SaaS customers need to be aware of, according to DeSisto. Those include setup costs, training fees, storage limits and the costs of integrating with other applications.

Here are the top 10 gotchas in SaaS agreements that corporate customers should watch out for:

1) "I agree" to what? SaaS providers typically send electronic contract notifications to customers with an "I agree" button for them to click, says Pat Cicala, president and CEO of Cicala & Associates LLC, a consulting firm in Hoboken, N.J. "People usually get sick of reading these agreements online and end up clicking 'I agree,'" says Cicala.

IT organizations that are poorly governed or don't have a centralized Web licensing strategy run a significant risk of having business leaders agreeing to software terms they're not familiar with. "You've got business buyers making a lot of the contractual decisions, and they're not savvy in a lot of the contractual issues," says DeSisto. For instance, most business leaders don't know enough to ask if the vendor's data center is staffed by people with proper security certifications or if the vendor is ready to comply with the SAS 70 auditing standard.

2) Easy installment plans. For customers, one attractive characteristic of SaaS agreements is that they don't require a huge upfront financial commitment to start a service. But even though there are advantages to paying for the service on a monthly or quarterly basis, few customers realize that they can pare their yearly costs by 5% to 15% if they pay for an annual SaaS agreement all at once, says Michael Mankowski, senior vice president of Tier 1 Research in Minneapolis.

Customers should also obtain the rollout plan for the software in writing, says Mankowski. Find out what the vendor's rollout capacity is, he says. Will it add 100 of your users per week? Per month?



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