What is the difference between a software license and a software as a service agreement?

A software license agreement is an agreement that governs the distribution of software or the use of the software itself on your computer. Anyone who wants to distribute and/or use proprietary software needs to have a license from the owner of the software rights. This license will usually permit the recipient to install a copy of the software on its computer and to use it. One example of a common software licensing agreement is the “EULA” (end-user licensing agreement ).

When you are using software as a service – you do not actually need to install the software on your local computer; you use it on the vendor’s computer. Therefore when using software as a service, you do not need a license. You need a software as a service agreement (“SaaS Agreement”). One common example of this kind of an agreement is a cloud computing service agreement where you access the service on the vendor’s computers via the Internet. In fact, an SaaS Agreement governs access to be provided to the user to the vendor’s computers and the terms of those services being provided to the user by the vendor via the Internet.

Why are software as a service agreements becoming so popular.

Companies prefer a steady revenue stream from subscribers than a one-time license fee from purchasers users who don’t bother with upgrades. These are the economic interests driving the market from the classic software licensing model to the new software as a service model.

Some more differences

The language of a SaaS is a subscription, subscriber, concurrent users, authentication mechanisms and access controls, performance metrics, points of responsibility, limited term with evergreen renewal, performance warranties, force majeure (internet , challenge of identifying points of failure in a distributed network environment, prevalence of disaster recovery and re-routing capabilities in the Internet application marketplace. While the language of a EULA is number of installations, right to install and use, scope of installation and use rights, right to copy (usually for archival purposes only), right to resell/distribute (usually prohibited), perpetual, warranty of title ownership,


Special attention needs to be paid to the following clauses in a SaaS:

  • The Service Level Commitment – the availability or monthly uptime, which (if you are the user) should be very specific and not a general statement regarding service availability.

  • Penalties for Breach – the usual “termination for breach clause” accompanied by a 30 day remedy period is of no use in these kinds of contracts. Penalties (if you are the user) need to be specific financial credits/liquidated damages with a right to terminate upon the occurrence of a defined number of breaches within a certain time period.

  • Security and privacy – what measures does the vendor have in place/in compliance with applicable laws; immediate notification of breaches


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