If you offer software as a service (SaaS), your choices among contracting approaches for users include an electronic, click-wrapped agreement or a more traditional paper-based, signed agreement - or even a hybrid of these two approaches.

How do you decide which approach is right for you? What are the factors to consider?

With the click-wrapped agreement approach, the agreement is presented to the user as part of the online registration process, usually in a scroll box configuration. The user indicates assent to the agreement by clicking on an I ACCPET button.

Click-wrapped agreements are usually utilized in one or more of the following circumstances:

• relatively low price point service, and/or
• service that is tailored for the small businesses or consumer markets as distinguished from the corporate market.

The advantages of the click-wrapped agreement approach are:

• simplicity - the agreement is presented online automatically, and the process is relatively simple and easy;
• no negotiation of contracts - it's a take-it-or-leave-it approach;
• no contract administration headaches - the agreement is the same for everyone and there are few contract administration tasks; and
• a relatively fast sales cycle due to the factors listed above.

The disadvantages of the click-wrapped agreement approach are:

• you've got to follow the applicable case law regarding the contracting process, or it won't be enforceable;
• some users that do not agree with a specific contract term may not do business with you; and
• the corporate market may require more comprehensive contract terms and the opportunity to negotiate them.

With the traditional paper-based, signed agreement approach, the agreement is presented to the user in paper form. It's almost always negotiated, and it's signed by both parties to indicate assent to the agreement.

Traditional paper-based, signed agreements are usually used in one or more of the following circumstances:

• relatively high price point service, and/or
• service that is tailored to the corporate market as distinguished from the small business or consumer markets.

The advantages of the signed agreement approach are:

• you have the opportunity to negotiate certain terms and conditions that may cause some users to go elsewhere, and
• you have the opportunity to present terms and conditions that the corporate market expects to see.

The disadvantages of the signed agreement approach are:

• complexity - the process is relatively complex and difficult;
• negotiation - a written agreement is an open invitation to negotiate and you'll probably require the services of an experienced attorney;
• contract administration headaches - differences in negotiated terms and conditions require administrative attention; and
• a relatively slow sales cycle due to the factors listed above.

One key point to keep in mind - despite the disadvantages of the signed agreement approach, you may just have to use it if your primary market is the corporate market. As a general rule, the corporate market expects to see a written agreement with the opportunity to negotiate. If this is the case with your SaaS service, your market will dictate your contracting approach for you.

A hybrid approach - where both approaches are used - may be a way to avoid some or all of the disadvantages of click-wrapped agreement approach and the signed agreement approach.

With the hybrid approach, the click-wrapped approach is used as the default approach. However, the click-wrapped approach may be supplemented with the traditional paper-based, signed agreement approach for corporate users that insist on a comprehensive agreement the opportunity to negotiate.

Choosing the right contracting approach is vital to the success of a SaaS business. The key is successfully addressing what your market expects or will bear, while reducing or eliminating as many contracting disadvantages as possible.

Copyright © 2009 Chip Cooper

For additional information, visit our SaaS Legal Resource.

This article is provided for educational and informative purposes only. This information does not constitute legal advice, and should not be construed as such.

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