Software as service: read the small print

Think 'contract', says Gartner

Garter is advising organizations subscribing to software as a service, delivered by an emerging generation of suppliers, to "read the small print".

Customers should draw-up water-tight contracts and monitor their relationship with suppliers, to avoid over-spending.

"When you buy a subscription, monitor it - don't keep throwing money at it because another person wants to sign-up," Gartner analyst Joanne Correia said at Gartner's Symposium and IT/xpo 2005, in San Francisco, California.

"The [smaller organizations] need to understand the implications because they... don't have the budget."

She advises customers to draft contracts including terms that state the suppliers return vital customer data should the supplier go out of business.

Gartner estimates 50 per cent of all software licenses will be purchased as a renewable service by 2008, while 80 per cent of companies with revenue greater than $100m will purchase software as a renewable service by 2007. Sixty per cent of today's customers are beginners when it comes to software as a service.

The phrase "software as service" describes an emerging category of software delivery. The model, popularized by Salesforce.com among others, sees applications charged on a subscription basis, but they could be hosted remotely by the supplier or installed locally.

The concept is expected to appeal to organisations on limited budgets, such as public sector or department-level users, because it avoids the need to pay large up-front license fees followed by separate support and maintenance fees - the traditional approach to charging customers for software.

The hosted model has added appeal because it potentially sidesteps the need for installation and integration. Gartner estimates the license fee accounts for just four per cent of the software's total cost of ownership (TCO), while 96 per cent goes into deployment. ®

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