I didn’t stop, as promised, not to write about SaaS for a simple reason – I missed a few things that are basic – legal aspects in SaaS and metrics that will help make the business predictable. Today I am correcting and discussing the metrics applicable in the SaaS model of software delivery. And the chosen topic turned out to be interesting for readers and it is logical to continue it despite the holiday season.
What do I mean by SaaS?
Having already written nine articles on the subject, I began to understand that at the very beginning I made one serious mistake – I didn’t introduce the definition of SaaS, which is already clear to professionals, but not yet clear to many people who are not involved in the industry. I correct and the definition itself is very important when discussing business metrics and will help interpret the metrics correctly and unambiguously.
From a business point of view, SaaS is a business model for implementing the provision of your b2b software and nothing but a business model.
From a technology standpoint, this is
– multi-tenancy – the life of all clients on one database;
– application in the browser;
– it is desirable, but not necessary, to have your own billing and provisioning system for client isolations.
From the point of view of marketing – the transfer of capital costs to operating costs (rent, installment payment).
Historically, business process automation systems of companies fall under the definition, but recently Internet services have appeared on the market that position themselves as SaaS. Basically, they are focused on the b2b segment and have a certain front-end (customer’s personal account), in which you can implement the functionality that the company needs. Below is an example of such services. I would also generally not recommend using the term SaaS in product positioning (in some vendors, salespeople are generally forbidden to pronounce this abbreviation), but I would use a more understandable positioning option – a cloud or online service, and this is simply clearer.
What is important for SaaS services to focus on (#SaaS metrics)
In customer acquisition:
The main metric, in my personal opinion, is the cost of the monthly provision of the service – tariffs. The price is not some kind of reference indicator that you need to focus on, but it is something that needs to be determined once and on which everything else will depend – both the economics of the project and its prospects.
Justification for the impossibility of licensing access to the service
As a general rule, a license agreement for the use of computer programs or databases must provide for:
1) the subject of the contract by indicating the software product, the right to use which is granted under the contract;
2) ways of using such software.
The list of the main ways of using works is contained in the relevant legislative acts. This list is open, however, it allows you to determine the principles of legal regulation of relations regarding the options for using works.
For software, use is:
1) reproduction (production or recording of software copies on electronic media, including in computer memory);
2) distribution (sale, other form of alienation into the ownership of software copies);
3) public display (demonstration of a copy of the software);
4) import (import of software copies for distribution purposes);
5) rental (lease of a copy of the software);
6) translation or other processing (making changes to the source text of the software copy). It does not apply to the use of adaptation of the software instance, i.e. making changes carried out solely for the purpose of functioning of a computer program or database on specific technical means of the user or under the control of specific user programs.
7) making available to the public (providing access to a copy of the software for downloading it to the user’s device).
Thus, the above ways of using the software affect only operations with its copies. Recall that a copy of the software is its recording on any material medium (electronic, optical, magnetic media).
These actions are aimed at replicating, modifying or providing such copies to third parties. That is, in relation to different types of software as objects of copyright, the right to “use” them does not include the use for their functional purpose.
These conclusions are directly confirmed by the legislative provisions, according to which the practical application of the provisions constituting the content of the work, including the provisions constituting a technical, economic, organizational or other solution, is not recognized as the use of a work in relation to the rules of the “Copyright” chapter. The only reservation from this rule is made in relation to the practical implementation of an architectural, design, urban planning or landscape gardening project.
In addition, in the case of distribution of software on the basis of performing the actions necessary for its operation, the fact of lawful possession of copies of such software is sufficient. Separate permission from the copyright holder to perform these actions is not required. These provisions additionally confirm that copyright does not restrict the use of the software functionality, including for the provision of services on its basis to third parties.
Therefore, as part of providing access to the software remotely (SaaS), the user gets the opportunity to use the software to process the entered data on the side of the service owner. A copy of a computer program or a database is not transferred to the user, therefore he does not need to obtain permission (license) to use it.
a sham transaction, i.e. a transaction that was made in order to cover up another transaction, including a transaction on other terms, is void. The rules relating to the transaction shall be applied to the transaction that the parties actually had in mind, taking into account the essence and content of the transaction.
Since the implementation under a license agreement for the use of software is exempt from VAT, there is a high risk of reclassifying a privileged license agreement as part of a tax audit into a regular contract for the provision of services, which retains the obligation to pay VAT.
As a result, according to the results of a tax audit, the owner of the service on the OSN may be charged with arrears, penalties and fines in connection with the unreasonable use of the VAT exemption on the basis of a license agreement.
Get your contracts right!