When negotiating a SaaS agreement you may come across the term hosting. What is hosting and is a hosting agreement necessary?
SaaS and Hosting
Under the terms of your SaaS agreement you will be storing, processing and publishing customer content and data on the Internet using servers located and operated at the data centre of a third party. The third party operating the servers is known as a hosting provider. The hosting services are provided from a data centre owned and operated by the hosting provider.
Usually the hosting provider owns and maintains the servers in the data centre, however increasingly it is becoming more common for SaaS suppliers to rent “space” in a data centre and then store and maintain their own servers there.
The type, scope and specific nature of the hosting services to be supplied by the hosting provider will be set out in a hosting agreement.
The hosting agreement specifies:
- the scope, type and nature of the hosting services being provided to the SaaS supplier; and
- the terms on which the SaaS software, content and customer data will be stored on behalf of the SaaS supplier.
The agreement is entered into between the SaaS supplier and the hosting provider.
As the customer has no agreement with the hosting provider it is essential that the relevant terms of the hosting agreement are reflected in the service level agreement (SLA) between the SaaS supplier and the customer, as hosting problems could have a critical impact on the customer’s business.
Negotiating a Hosting Agreement
Hosting providers are usually large telecoms or Internet service providers (ISPs). They use standard terms and conditions which are usually non-negotiable and very favourable to them. However, depending upon your bargaining power it may be possible to individually negotiate some terms of the hosting agreement for example, service credits, availability, liability and exclusions.
Dedicated or Shared Services
Depending on the price paid for the hosting services and the industry sector in which your customers operate, you may need “dedicated” rather than “shared” hosting services. Dedicated hosting services involve the storage of each individual customer’s website and content on a single server. If you decide to use a shared hosting option the content and websites of multiple customers will be stored on the same server.
Most SaaS suppliers use shared servers, where this is acceptable to customers, as hosting on dedicated servers is more expensive.
Location of the Data Centre
The physical location of the data centre used by your hosting provider is very important to SaaS customers. Due to ever increasing and evolving security and data protection laws, rules and guidelines, it is essential that you consider:
- the needs and requirements of your customers;
- your long term business expansion plans;
- relevant data protection laws; and
- the physical location of your customers;
when selecting your hosting provider.
If you decide to use a hosting provider with servers located outside of the UK for a UK government customer, even if the hosting provider itself is located within the UK you will encounter serious issues. Conversely, if you decide to use a hosting provider with servers located in the UK for a German customer, you will also encounter problems.
Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:
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