As we continue our “Software Escrow 101” blog series, we’ve defined what software escrow means, and now we’re going to get into who benefits from a software escrow agreement.
In a nutshell, a Software Escrow Agreement is a simple three-party agreement with mutually agreed terms between the software customer, software vendor, and an escrow service provider. The software source code for a mission-critical application is stored securely with the escrow service provider in case it is needed in the future, for example in the event of bankruptcy or lack of support. When a predetermined release condition is met, the security deposit is released to the software customer, who can then use it to recreate and maintain their software application.
Two of the three parties to the agreement – the software buyer and software supplier – are companies that benefit from software escrow. However, there is also a third party that benefits from this, namely law firms, as lawyers are important referrers of software escrow for their clients.
Read on to understand how everyone benefits from escrow services.
Software Buyers (also called licensees or SaaS subscribers)
Critical business issues for software buyers include:
- Software buyers want to use the latest technology to run their business, but the application is out of their control. They can leverage the escrow relationship to ensure the developer delivers on promised service levels to protect their monetary investment
- Software buyers need to know that they have a safe technology decision. Is the developer a start-up company? Can they be acquired by a company that may no longer support the software applications? Software escrow allows them to protect themselves from concerns they have about the developer
- With an escrow agreement and escrow verification, software buyers know they will be able to: retain access to the application source code and related materials to keep their business running in case there is an unforeseen problem with the developer
- Software buyers should also: adhere to their company’s risk mitigation strategy. Most companies have strict processes that must be followed to reduce the risk of bringing in new technology
Software buyers need to know that their technology is there when they need it. An escrow agreement gives them that assurance by giving them access to the source code and other proprietary information needed to keep their technology (and business) running.
Software Vendors (aka developers, vendors, ISVs, or SaaS providers)
Critical business issues for software vendors include:
- Software vendors want to sell their software. With the right escrow agreement, they can: provide the security of investment protection: their customers should feel comfortable closing the deal
- Software vendors must assure their customers that they are a safe choice. Technology escrow will reduce their customers’ risks when purchasing software and thereby help ensure their business continuity. Suppliers can and should also secure their most critical technology in deposits mitigate risks in your supply chain
- Software developers want protect their intellectual property (IP). Protecting IP is paramount. Simply handing code over to customers is not an option because if the code is compromised in any way, the developer loses their competitive advantage and misses out on new business opportunities
Technology developers want their prospects, customers and partners to have confidence in their business. Establishing robust escrow processes helps build confidence in their solutions by letting a trusted and secure third party handle the process rather than trying it yourself.
Law firms help their clients reduce risk. They can reduce risk and improve compliance for their customers by integrating technology escrow and verification services as part of a comprehensive risk management strategy.
Law firms refer to software escrow services. They usually work on behalf of the software buyer to provide legal advice on software licensing, but they can also work on behalf of the developer. A software escrow agreement is often recommended by legal counsel as a way to protect both technology investments and proprietary IP.