Moving to the Cloud? Make Sure You Have the Right License.

Moving to the Cloud? Make Sure You Have the Right License.

Many developers don’t realize that their product architecture actually impacts the type of agreement they enter into with their end-user clients.

With on-premise software, the end-user license agreement (EULA) is necessary because the right to use the product is being transferred to the end-user. Neither the product nor the IP are being transferred – simply the right to use it.

If you are hosting your on-premise solution, or running it on virtual machines (VMs), you still need to license the software. This is also true if there is client software running on the end-user’s hardware, which is true even for many SaaS solutions.  For example, storage solutions (Dropbox, OneDrive), on-line meeting software (WebEx, Lync) and back-up systems (Mozy, Carbonite) all require software to be installed on the user’s machine, requiring a license.

With a pure multi-tenant SaaS solution, the end-user is being provided a service. There is no transfer of rights to use the software nor the right to run software on any hardware. For true SaaS solutions, the relationship is governed by Service Level Agreements (SLAs).

There are four main issues that the SLA should address:

  • Control
  • Operational risk
  • Business risk
  • Penalties, rewards and transparency


In creating an SLA, it’s important to account for matters that are out of your control. The SLA would commit you to providing a minimum level of application availability, such as 99.5% uptime. However, you should define permitted exclusions to performance, such as downtime for maintenance, and also specify that the performance is dependent on the client’s internal network. If they are down, it shouldn’t count against your guaranteed availability.

Response time, or latency, is also impacted by the client’s internal bandwidth. You are delivering the service to their door, so to speak, but if their network can’t handle the data flow and slows down the response time, that isn’t your responsibility.

Fail over is also a decision made by the client. Do they want redundancy? Do they want redundancy across datacenters?

By the way, how you calculate performance guarantees is important. For example, is an uptime of 99.5% calculated daily, monthly or annually? The longer the better for you, because things tend to even out over time, while you could be severely penalized for a short-term disruption if it is measured against a shorter time frame.

Operational Risk

This is a major concern in the corporate market. Operational risk includes the perceived risks around security, privacy and data ownership.

Data retention and ease of data migration policies need to be spelled out. In some countries, the data retention period is mandated by law. One of the barriers to Cloud adoption in the enterprise market is the concern about data lock-in – how difficult or easy will it be for them to bring their data back in-house, or move it to another application?

Privacy breaches raise liability issues, and grows in importance and sensitivity every time a bank or large retailer gets hacked.

Business Risk

Business continuity is a concern from most companies – if there is a problem, how long will it take to get fixed? How do they escalate the issue based on severity? Are you planning product changes that could impact their ability to run other applications?

Clearly define your support hours. Is it 9-to-5 in your local time zone? Is it 24-by-7? What about escalation, or accelerated response times?

Penalties, Rewards, Transparency

SLAs almost always have penalties for not meeting performance guarantees. How do you handle refunds? Do you automatically credit it against the next month’s billing? Would you allow customers to request an actual payment?

What if you are hosting the solution on your own datacenter and you just can’t keep up. Would clients be able to terminate the agreement if you consistently fail to meet performance guarantees?

The best thing for you, is to apply a credit against future payments, unless the penalty is so large that it exceeds monthly payments for some time to come.

Three simple ways we can help you

If you should have licensing questions or questions about any aspect of transforming your business to the Cloud, I would like to offer you three ways of getting answers very quickly:

  1. 101 Questions to ask about your Cloud business strategy” ebook. We get a LOT of questions. This FREE download has the questions we get asked most often.
  2. Do you have a specific question or two? Well then, let’s talk. CLICK HERE to set up a phone call. It’s free.
  3. Want to discuss and gain guidance on specific issues, we make special 90-Minute Advisory Sessions available.