What is a SaaS Escrow?
SaaS Escrow is a service designed to protect businesses relying on Software-as-a-Service (SaaS) applications by ensuring uninterrupted access to critical software and data in case of unforeseen circumstances. These circumstances might include provider bankruptcy, acquisition, or failure to meet service-level agreements (SLAs).
Here’s how it works: a neutral third party securely holds everything you’d need to keep the SaaS application running—source code, deployment scripts, databases, documentation, and more. If things go south, you’ll still have what you need to stay operational.
Unlike traditional Software Escrow, which focuses on on-premises software and its source code, SaaS Escrow is built for the complexities of cloud-hosted applications. It goes beyond source code to include data, hosting environments, and other tools to keep your business moving without interruption.
Why SaaS Escrow is Important
1. Service Disruption Risks
Businesses rely heavily on SaaS applications, but unexpected events—like provider bankruptcy, acquisitions, or technical failures—can throw a wrench in operations. Without a SaaS Escrow agreement, these disruptions can lead to data loss and costly downtime.
Remember the 2013 shutdown of cloud storage provider Nirvanix? Customers had just two weeks to migrate their data, leaving many scrambling to recover critical information. A SaaS Escrow agreement could’ve provided a backup plan, ensuring continued access to essential data and applications.
2. Uninterrupted Access
SaaS Escrow is like an insurance policy for your business, ensuring you stay up and running even if a provider can’t deliver. It helps minimize downtime and keeps productivity on track.
Take Australian fintech company Cache, for example.
By implementing a SaaS Escrow solution, they not only mitigated risks but also boosted client trust. This proactive approach made due diligence easier and increased sales by assuring clients of service continuity.
3. Building Trust
Offering SaaS Escrow shows providers are serious about reliability and transparency. It’s a clear signal to customers that they’re in good hands.
London-based SaaS Escrow providers are a great example. They offer regular backups of application data, ensuring clients can redeploy their apps independently if needed. It’s all about trust—and this kind of protection builds strong, lasting relationships.
4. Standing Out in the Market
Including SaaS Escrow in your service offering sets you apart from competitors. It reassures customers that their business continuity is a priority, making your service more appealing in a crowded market.
5. Comprehensive Protection
A solid SaaS Escrow agreement covers more than just the source code. It includes everything from deployment scripts to databases and configurations—essentially all the pieces needed to run the application independently. This ensures businesses can keep moving forward, even in the face of provider disruptions.
How SaaS Escrow Works
SaaS escrow works thanks to a couple key components:
- Source Code, Deployment Scripts, and Databases: These are the technical essentials for redeploying the software independently. For instance, if a payroll SaaS provider goes bankrupt, the source code and deployment scripts let customers recreate the environment and keep payroll operations running smoothly.
- Supporting Materials: Documentation and licensing keys provide the instructions and permissions needed to operate the software without the provider’s help.
The Key Players and Their Roles
- SaaS Provider: Supplies the escrow agent with all the materials, keeping them updated. For example, a provider might deposit new source code every time a version is released to ensure everything is current.
- Customer: Gains peace of mind knowing their business won’t grind to a halt if the provider fails to deliver.
- Escrow Agent: Acts as a neutral middleman, managing and verifying the deposit and only releasing it when specific conditions are met.
When Escrow Materials Are Released
- Provider Insolvency or Bankruptcy: If the provider shuts down, the escrowed materials are handed over to the customer. A real-world example? When Nirvanix abruptly ceased operations, a SaaS escrow could have ensured customers retained access to their data.
- Breach of Contract Obligations: If the provider fails to meet contractual terms—like uptime guarantees or data security promises—customers can trigger a release.
- Failure to Meet SLAs: If performance or support commitments aren’t upheld, customers may gain access to the escrowed materials to keep their operations on track.
SaaS Escrow Best Practices
1. Keep Materials Up to Date
Make sure all essential components—like source code, databases, deployment scripts, and documentation—are current. Regularly include updates and new configurations to ensure everything reflects the latest software version.
2. Test Regularly
Run regular tests on escrowed materials to confirm they work as expected. Automated depositing services can help streamline updates and keep everything consistent.
3. Set Clear Release Conditions
Define specific conditions for releasing escrowed materials, ensuring mutual agreement between the provider and customer. For example, release could be triggered by documented SLA violations or proof of bankruptcy.
4. Use Verified Escrow Services
Choose trusted escrow services to guarantee deposits are complete and functional. Verified escrow agents conduct independent checks to avoid technical hiccups during a release.
5. Plan for SaaS Access Continuity
Create a solid plan to ensure application access during disruptions. Outline steps for deploying escrowed materials, including a disaster recovery plan for seamless redeployment if the provider fails.
FAQ: SaaS Escrow
What is a SaaS escrow agreement?
A SaaS escrow agreement ensures customers can access critical software and data if the provider fails to deliver, like during bankruptcy. An escrow agent securely holds source code, scripts, and data, protecting both providers and customers by guaranteeing continuity and fostering trust.
What is a software escrow?
Software escrow protects traditional on-premises software by storing its source code and documentation with a third-party agent. Unlike SaaS escrow, it doesn’t include cloud-hosted components like deployment scripts or data, as it focuses on locally hosted applications.
What are the two types of escrow?
- Software Escrow: Secures on-premises software with its source code.
- SaaS Escrow: Ensures continuity of cloud-hosted applications by including scripts, data, and configurations. Both protect against provider disruptions but serve different environments.
Who pays for software escrow?
Costs are often paid by SaaS providers to attract customers. Sometimes, customers cover the fees for risk management, or both parties share costs, especially for complex or high-value contracts.
How much does software escrow cost?
Basic plans range from $1,000–$2,500 annually, while advanced SaaS escrow services can exceed $10,000 yearly. Additional fees apply for updates, testing, and maintenance, depending on the agreement’s complexity.
Does escrow make money?
Yes, escrow providers charge setup, maintenance, and verification fees. These fees ensure proper deposit handling and testing, making escrow services sustainable while protecting customer and provider interests.
