Emerging Trends Revolutionizing Negotiations in 2025 and Beyond

Over the last two decades, software-as-a-service (SaaS) has become the dominant form of software transaction. Yet, as we look ahead, the landscape of SaaS contracting and negotiating norms is poised for significant shifts that may accelerate in 2025 and beyond. To grasp these anticipated changes, it’s essential to first explore the history and foundational purpose of SaaS, as they set the stage for current trends and future developments.

History of SaaS

Initially, software licensing involved several separate agreements for various elements of software typically housed on the customer’s premises. These agreements delineated terms for software licensing, deployment, ongoing maintenance, and more. With the onset of the SaaS model, these disparate elements consolidated into a streamlined approach, replacing perpetual licenses with limited, periodic licenses and recurring fees. This shift not only simplified the procurement process for customers but also enhanced the revenue stability for vendors.

The rise of SaaS coincided with a broader trend toward subscription-based services across industries. Key factors driving this adoption included the vendors’ desire for a steady revenue stream and customers’ preference for an all-inclusive service model. By outsourcing software management and infrastructure needs to a single vendor, customers minimized their capital expenditures and improved budget predictability. This arrangement often proved advantageous for both parties as recurring fees offered financial consistency for vendors while allowing customers to anticipate costs more accurately.

SaaS Trends

Over the years, the dynamics of SaaS negotiations have evolved considerably. Early on, SaaS vendors tended to use their standardized forms of agreements, leaving little room for negotiation. However, as businesses have acquired more experience and regulatory environments have become increasingly complex, the negotiation landscape has shifted. Below are key trends emerging in SaaS transactions:

• Form of Agreement: The debate over whose form of agreement to use—vendor or customer—is still prevalent. As SaaS businesses mature, many sophisticated customers now come equipped with their own templates, leading to lively discussions on agreement structures.
• Integration of Other Forms: To streamline negotiations, SaaS vendors often attempt to integrate or reference standardized terms related to privacy, security, and other operational matters. This approach can expedite the process from the vendor’s perspective but may also introduce uncontested terms that customers haven’t reviewed in detail.
• Privacy and Data Details: Negotiations regarding data handling have grown increasingly complex. Customers tend to demand more transparency and stringent controls over how their data is processed. In contrast, vendors typically seek broader rights regarding data utilization, which can lead to contention.
• Data Privacy Agreements (DPAs): The rise of regulations like the GDPR and the CCPA has made it essential for SaaS vendors to consider the inclusion of DPAs within their contracts. However, many customers remain unsure about the necessity of these agreements, complicating negotiations.
• Data Liability Exposure: Liability related to data handling is a central issue in SaaS agreements. Customers frequently aim to shift more risk to vendors, particularly concerning data breaches, while vendors typically look to limit their liability to the annual contract fees.
• Renewals and Price Increases: The negotiations surrounding renewals and potential price hikes are pivotal. Vendors wish to create opportunities for revenue growth, whereas customers prefer commitments that ensure cost stability during renewal discussions.
• Migration and Wind-Down Rights: As terms near expiration, discussions often center around how data can be migrated and used afterward. Customers typically emphasize their need for rights to retrieve their data and restrict its post-termination use by the vendors.
• Regulatory Issues: Adaptability to changing regulations remains a priority for both vendors and customers. Firms are increasingly negotiating provisions that allow for adjustments in agreements in response to shifts in the regulatory landscape.
• AI Considerations: The burgeoning use of Artificial Intelligence raises additional concerns in SaaS contracts. Vendors are keen on acquiring rights to use customer data for AI development, while customers generally wish to restrict its use, fearing potential misuse.
• Managed Customer Hosting: A noteworthy development is the willingness of some vendors to allow customers to host data within their own IT environments. This hybrid model, offering customers greater control, is expected to become more common as concerns about data privacy and security continue to mount.

These evolving dynamics in SaaS contracting underscore the need for both vendors and customers to engage in thorough negotiations. As the landscape shifts toward more customized and conscious agreements, a deeper understanding of the implications of terms surrounding service scope, data handling, and risk allocation will be pivotal in fostering successful SaaS relationships.