What is SaaS Escrow?

SaaS, or Software as a Service, is a popular delivery model for software applications in which the provider hosts the application and makes it available to customers over the internet. SaaS has become an increasingly popular option for businesses of all sizes, as it eliminates the need for companies to invest in and manage their own IT infrastructure. However, like any software application, SaaS comes with its own set of risks, which is where SaaS escrow comes into play.

SaaS escrow is a type of agreement between the SaaS provider, the customer, and a neutral third party escrow agent. The purpose of this agreement is to protect the customer’s investment in the SaaS application by ensuring that they have access to the software and its data in the event that the SaaS provider goes out of business or is unable to maintain the application.

In a SaaS escrow agreement, the SaaS provider deposits the source code, documentation, and other materials necessary to maintain and update the application into an escrow account. The customer then has the right to access and use the deposited materials if certain predefined events occur, such as the provider becoming insolvent, significant downtime or breaching the terms of the service agreement.

The neutral third party escrow agent is responsible for safeguarding the deposited materials, and ensuring that they are only released to the customer under the agreed-upon circumstances. The escrow agent is typically a trusted third-party entity with expertise in software escrow and experience in managing the release of software materials.

In addition, top tier SaaS escrow agents provide testing services to ensure that the escrow deposit materials can be utilized to rebuild the saaS application so the customer can continue to use the SaaS application in accordance with the subscription agreement even if the SaaS provider fails. 

SaaS escrow can provide significant benefits for both customers and providers. For customers, it offers peace of mind that their investment in the SaaS application is protected and that they will have access to critical software and data if the provider becomes unavailable. For providers, offering a SaaS escrow agreement can be a valuable selling point, helping to build trust and differentiate their offering from competitors.

However, SaaS escrow is not without its challenges. For example, the process of depositing materials into an escrow account can be time-consuming in part because the majority of SaaS providers are using agile development methods and so the source code, documentation and other escrow deposit materials are continuously changing. The most innovative SaaS escrow agents have developed Automated Escrow depositing services to automatically update the escrow deposit materials on a frequent basis.  While Automated Escrow solutions may cost more the benefits significantly outweigh the costs associated because the escrow deposit materials are virtually guaranteed to be updated when and if needed. 

In summary, a SaaS escrow solution is designed to mitigate or even eliminate downtime and data loss that can occur when the provider of a hosted application fails or goes out of business.  


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