AI Ate My SaaS: A Contracting Hedge in Six Parts
There is a lot of coverage in the media about SaaS being cannibalised by AI (good article here). Whether that turns out to be correct remains to be seen but, in the meantime, here are six things you can do to protect your SaaS contracts.
1. Move away from pricing by seat. A lot of the media coverage suggests that per-user pricing will be replaced by per-outcome pricing. That may or may not be correct – it depends a lot on the individual business – but there is a fundamental problem with per-user pricing, namely that it puts a brake on the adoption of your product.
In an ideal world you want your SaaS product to be pervasive within your customers’ businesses. You want your product to become as common and as frequently used as Excel.
If your pricing is on a per-user basis, that is killing off the ability of your product to become pervasive. It is much better to have the pricing based on something which is closer to what the customer actually values, and which is not user-based.
2. Make users human. Even if you aren't pricing by user, you're likely to have a definition of user in your contract. Make sure that the definition of user makes it clear that the user has to be a human being, not a machine.
3. Make it easy to sign your contract. Given that AI is making buyers nervous, the last thing you want is a sales-contracting process that creates friction. A friction-free sales-contracting process is at a premium right now. Oh Lawdy! has covered this in depth over the years. If you want all the thinking and techniques in one place, the easiest approach is to get a copy of The Sales-Side Lawyer.
4. Get your customers to sign up for longer contracts. That's going to be hard, given the uncertainty that AI is causing, but it might be worthwhile to give a discount so they are committed to you for the next few years. A few years’ protection will be incredibly valuable because it will give you time to rearrange the structure of your business to cope with AI.
5. Allow for auto-renewals. This is the same reasoning as above. You want to increase the chances of your customer sticking with you even if it's only because they forgot to opt out of the auto-renewal.
6. Beware of the EU Data Act. If you are selling into the EEA then the EU Data Act is likely to apply. The Act provides that if you are a provider of data processing services, then your customer can extract its data at any time. Once that data is extracted, the contract comes to an end even if the customer has signed up for a longer term.
Yes, it’s a ridiculous provision, but the only way to protect against this is to make sure that your contract contains termination fees that are payable if the customer exits early.
28th April 2028