SaaS Agreements – Matters Worth Knowing

August, 2020 / EKW

Software as a Service Agreements (or “SaaS”) are license agreements which grant a service via software, provided to users by a “cloud”, instead of installing the actual software on the computers and/or servers of the client who is interested in using the software for his personal or business needs.

In general, these are agreements which incorporate standard elements which appear in services agreements and license agreements, when their purpose is licensing/ license for using the software as a service.

In Software as a Service Agreements, there are naturally varied provisions, some of them are standard and some of them are more specific, which are phrased in accordance with the needs and the individual considerations of each engaging client. In this article, we will review these matters, in order to attempt to provide a comprehensive point of view on the subject.


In the past, when a certain user was interested in purchasing a license for a certain software, whether for personal use or for business use, he would have to purchase the license for the software and install it on his computer or server. For the most part, this type of software license would involve relatively high costs as well as more complex integration of the software by the user or the software provider.

In recent years, with the development of technology in general and “cloud” technology in particular, a new type of software licensing agreement was developed, namely licensing via use of the relevant software as a service, which is available on the cloud and/or on the server of the software provider.

A main principle in the Software as a Service Agreement is the fact that the ownership of the software itself remains with its manufacturer/provider and does not transfer to the user who consumes it. The only rights which the user purchases in the framework of the Software as a Service Agreement, are rights of use under a time-limited license.

Advantages and disadvantages of Software as a Service Agreements:

The advantages of Software as a Service Agreements are many, both for the user who is interested in purchasing the license to use the software and for the manufacturer/provider of the software.

Thus, for example, a very prominent advantage for the user is the relatively low costs involved in this type of license agreement, meaning the general expenses of the user, the costs of operation and the costs of upgrading and maintenance. Thus, for example, the user has no need for physical installation of the software on his computers/servers or for purchasing software products required for the installation and do not even has to pay the high amount of the purchase, but rather monthly usage fees. We will state, that the operation costs of Software as a Service licensing are also relatively low since the service itself is operated by its manufacturer, who has vast experience in the field and expertise which are greater than that of the user.

Another advantage for the users is the fact that this type of agreement, i.e. a Software as a Service Agreement, is an agreement which grants relatively high flexibility to the consumer in selecting the uses desired by him, so that he has the option of purchasing only some of the services which the software or the manufacturer offers, and later on add additional services or even additional users, in as much as the need arises.

Therefore, these agreements may (but not necessarily) be more suitable for small or medium organizations, which have smaller resources than larger companies.

As we stated earlier, the advantages of engaging in a SaaS agreement are also relevant for the manufacturer of the software, who enjoys saving resources, in particular, time. Thus, the time of supplying the software is relatively short since the software is already installed in the computer center of the provider, and all he has to do is to grant a license to use the software to the user, in accordance with the terms of the agreement. In addition, and due to the relatively low starting cost of the service, the decision and purchase processes of the software as a service by the user, are usually faster than in a situation where they would have to purchase the software itself and install it on their computers, with all that it entails.

We must not forget, that when there is one manufacturer or provider who provides the software to a number of users via “cloud” services, the time of updating the software is also significantly short since the update is performed comprehensively for all users at once, and the same applies to the time and manner of providing technical support to the users.

Without derogation from the above, there may also be some disadvantages to Software as a Service Agreements, all depends of course on the specific considerations and needs of each manufacturer and user.

Thus, the main arguments against SaaS Agreements are that they cannot provide full response to large and complex organizations, and therefore they are more suitable for small and medium organizations which do not have unique business needs.

In addition, some argue that there is a certain difficulty in integrating the software with other software or applications as well as in the specific adaptation of the software for the unique needs of each user (in particular when the user is a business company and not a private person).

In addition to the stated, there is a certain concern for problems related to information security, since the employees of the manufacturer/provider of the software are exposed to the data of the user, in a way which would not have happened if the software was installed on the computers of the user, rather than being supplied to him via “cloud” services.

We will further state, that the very fact that these are services which are provided via the “cloud”, sometimes causes limitations in the performance of the software (since it is remote from the user) as well as dependency on the manufacturer/provider of the software as a service with regards to the level of service and the performance of the software, version upgrades and more.


The option of granting a software license as a service is very common these days, when the availability of cloud services (among others, software licensing) is ever growing.

As a rule, the characteristics of Software as a Service license can interest many business companies as well as private people, naturally in accordance with the needs and specifications which are relevant to them. However, there are certainly those who will prefer the more traditional method of purchasing software and installing it directly on the computers or servers of the user, instead of using the software via “cloud” services.

We recommend each person or organization who is interested or considering engaging in a Software as a Service Agreement, to heavily consider his own individual needs, and reach an educated decision with regards to which of the possibilities is more suitable for him.