WHAT IS ESCROW FOR
CLOUD-BASED SOFTWARE?

When it comes to understanding the cloud simply look around! The international COVID-19 pandemic has seen many hundreds of thousands of workers set up workstations at home while still accessing important software solutions remotely. This migration away from traditional office-based workflow has massively accelerated the global business movement towards cloud-based solutions.

There are many advantages associated with having access to cloud computing and certainly with the rise of Software as a Service (SaaS). This is a software licensing and delivery model in which software is licensed on a subscription basis and centrally hosted. However, for many different types of enterprises, there are also some risks and vulnerabilities involved.

In fact, one of the biggest threats when moving to cloud computing is the threat to business continuity should this software (or access to it) ever be compromised. This is why the modern escrow service for cloud-based software has become a business critical component. But first, let’s start at the beginning…

 The History of Source-Code Escrow

Source-code escrow agreements have long been accepted by software providers in traditional on-premises software sales. But how often do we see on-premises software licenses today? As we now know, an overwhelming number of vital business functions are now being offered through cloud applications.

However, as we discussed, when it comes to SaaS, the customer is often at a greater risk of losing access to the solution than it would be with traditional software. Over time, the traditional source code escrow model has proven to not be sufficient to mitigate that risk. Hence the rise of cloud-based escrow agreements.

Prioritising Data Protection & Business Continuity

Under a cloud-based software agreement the end user remains a licensee and the supplier a licensor, but there is usually an additional link in the chain of supply and that is the hosting service provider. Under the cloud based model, user’s application and data are typically hosted on third-party systems remotely from the user’s place of business.

The risk is introduced when the hosting service provider is able to interrupt or even terminate the licensees access to both the application and their data if the primary licensor were to stop paying for the hosting service (or default in some other way). This is an additional risk for the user over and above the standard in-house application environment where the application could remain operational, even if the licensor was no longer present to support it.

The Importance of a Well-Structured Cloud Escrow Agreement

Technology transaction practitioners who negotiate SaaS agreements on a near-daily basis are seeing, in real time, a rapidly changing market in which SaaS customers are demanding source code escrow agreements. Add to this, a growing number of SaaS providers who are capitulating. In turn, this is now becoming an industry standard of compliance for many legal software contracts.
This is because under a Cloud Escrow arrangement the primary hosting and data access information is deposited with the escrow service provider, as well as the source code for the application. Under certain circumstances (which are agreed upon in the Cloud Escrow agreement) the escrow service provider is required to release the deposited material to the user in order to ensure their business continuity.

Should Businesses & Developers Use Cloud Escrow? 

At the end of the day, a Cloud Escrow arrangement must address more than just access to the source code, it must provide access to:

  • the operational system
  • data belonging to the user business
  • the compiled software product that can be loaded on an alternative processing platform in the event of an emergency
  • the source code with it’s technical documentation required to access, maintain and support the application itself

In this way the Cloud Escrow arrangement ensures the ongoing business continuity for the user in the event the hosting provider and/or software supplier are no longer able to support the service.

Cloud Escrow for South African Developers & Businesses

At Escrow Europe, we’re able to apply tailored, responsive escrow agreements with solutions that will meet the needs of both South African developers and businesses. We are a proud member of the International Software Escrow Association (ISEA) and our hands-on, professional, legal, technical and administrative teams provide world-class support. Our clients enjoy the ultimate peace of mind that their enterprise’s cloud-based continuity is safeguarded.

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