ATM AVOCATS, Paris

International Technology Law AssociationWIPO

Mexico, December 1- 4, 2005

The ASP modelTendencies, contracting, and new business

offers

By Me André Meillassoux, ATM Avocats,Vice-President of AFDIT

(French Computer Law Association)President of IFCLA (2006/2008)

10, Boulevard Suchet F-75016 Parisameillassoux@atmavocats.com

http://www.atmavocats.com

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Summary :

I – Current state of the question :A definition’s attempt of the ASP. The various approaches by ASP actors.

Figures. Why such an interest for the ASPs ?

II – Characteristics and problematics :What it is in itself : Various services, many actors and a lot of questions.

III – Some contractual aspects…:…in response to these characteristics and problematics.

IV – Concrete offers from ASP market :Oracle, Siebel-IBM, Lamy-Cicéron, Salesforce.com and AspawayOracle, Siebel-IBM, Lamy-Cicéron, Salesforce.com and Aspaway

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I – Current state of the question : presentation

1.1 State of the market : some more figures

1.2 Reminder of some of the ASPs appealing characteristics, which explain the current and increasing success of the ASPs

1.3 Difficulty of a precise definition : Disagreements of the actors on what it is really

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1.1 State of the market : some figures

After a delayed start, the ASP European market enjoys a bright development.

A survey, made by Gartner’s Office in 2004, considered that in the end of 2005, 25% of the small and medium enterprises will choose the ASP’s model, rather than 8% in the end of 2002.

The forecasts are positive :

- 30% in 2007.

- 33% in 2009. The turnover/sales figure have been around 620

millions of euros in 2004, according to Markess International, a consultancy.

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1.2 State of the market : Why such an interest for the ASPs ? advantages For the customer, advantage is financial first of all: ASP allows a reduction of expenses, from 20 to 40 % according to estimates, of the investments necessary for the installation of a complete “in house” information

system. ASP also allows to avoid the cost of an internal

computer team in the firm.

From a technical point of view finally, mode ASP brings a simplicity of use, adaptation and agility to the users.

Initially, the ASP model target were the small and middle enterprises. But this is changing.

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1.3 An attempt of definition of the ASP:

Disagreement of the actors on the definition.

Is ASP simply a variant of outsourcing or is it a fundamental change ?

The names given. “on Tap”, “on demand” ?Among the different terms used, the most common is“on demand”, used by some prominent editors, as Oracle, for its “Oracle Business Suite”, itsEnterprise management software (ERP).

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1.3 definition of the ASP:What it is not ?

Not simply « outsourcing »

. Not simply «software hosting »

(« Fourniture d’applications hébergées »)

Not just « IT on tap » nor « on demand »

(what they say it is, for marketing or maybe misleading secret reasons)

Not a « lease » (« fourniture de services loués en ligne » Livre Blanc des ASP-2001)

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1.3 definition : What it is

It is much more than that.

It is a bundle of services,

focused on the software,

which has to organize all the components needed by the customer.

It is a « service» (« louage d’ouvrage »« Werkvertrag »)

Art 1710 of the French Civil code

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1.1 The adopted definition:

ASP is :

the supply,

in distant access,

of a set of various services,

linked to a software solution,

conceived and managed by a third party.

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II. Characteristics and problems

. Mutualisation : « one to many »

. Different services : Hosting of software.  Hosting of datas . Access to distant service Associated services (support, corrective &

evolutive maintenance

. A software license (plain or understated, sometimes not even mentionned

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II. Characteristics and problems

Internet service : who is responsible in case of

break or interruption of the Internet connection ? Data hosting : The risks linked to the data : hacking,

data backup… Maintenance : Who makes it ? The editor or the ASP

provider ? The failure of the provider ASP: a risk of paralysis

of the activity of the firm.

The customer is dependent on the reliability, on

the professionalism and on the solidity of the

various partnerships of the provider ASP.

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II.1. Characteristics : A complex project of Services integration with various actors :

There is a need for a real integration.

It must be well thought, well organized.

The real problem is how the service will be integrated : it is the question of the

Teaming agreement.

Quelle organisation? Quelle convention de groupement ?

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II.3 Problems : Legal problems : protection and integrity of the sensitive data : European directive October 24th, 1995, art. 25 :The person in charge of the treatment cannot transfer

personal data towards third countries unless they guarantee an adequate level of protection : European Union, as well as Iceland, Liechtenstein, Norway, which transposed the European directive.

The European Commission adopted, besides decisionsof adequacy for the Argentina, Guernsey, the island of Man, Switzerland as well as for Canada (in a more limited way)

United States : certain American companies subscribing to the certification of "Safe Harbor" delivered by the Department of the American Business.

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II.3 Problems : Legal problems : how to prevent actors’ defaults The authors of “the white book of the French market of

ASP”, are worried by the diversity of the actors : " there is a great number of actors who intervene at different

levels and who therefore handle an ASP component. If one of these actors is in default, the offer does not exist any more.

The editor’s default is highly problematic : what will be the fate of the source code, service? Will a third party be able

to intervene ? It is necessary to envisage upstream contractual

resolutions (who will allow to avoid cataclysmsas was “the Pandesic affair ") .

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II.3 Legal problems : How to make the providers work together : Joint-venture ?

Several choices… No joint venture at all : the customer has as many

contracts as actors. Subcontracting (: vertical pools French law of 1975)

- The question of the agreement of the subcontractor by the customer.

- Guaranty of sums owed by the contractor to the subcontractor.

- Direct action of the subcontractor towards the customer. The co-contracting : horizontal pools : the best way :

- joint liability

- in solidum

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III. Some contractual aspects…: 3.1 General clauses of computer agreements : Validation:

- temporary- definitive- parallel with “the government contracts”

(Marchés publics)

Warranty : - legal : latent defect ? Conformity ? Eviction ?- contractual

Intellectual property:- Who is the holder of the rights? - What rights are granted?

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III. Some contractual aspects…: 3.1 General clauses of computer agreements :

Accountability :

The contractors / editors of the world of computer science have tendency to make very stretchy the clauses of limitation of responsibility.

Question of the consequential damages and immaterial damages.

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III. Some contractual aspects…: 3.1 General clauses of computer agreements :

Access to the source code :

The supplied applications remain rather standard. They are software packages ; the access to the source code does not seem so necessary.

It is useful, however, to guarantee always the possibility of an access to a professional sequestration, in case of fault of the editor.

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III. Some contractual aspects…: 3.1 General clauses of computer agreements :

Maintenance:

Optional but necessary services in the offer ASP :

• The provider can assure a service of level 1 (simpleanomaly) but it will be in general the editor who will assurethat of level 2 (more complex).

• Corrective or evolutive maintenance.

• In general, the customer has not enough chance to be ableto acquire service by a third, notably when they knowapparently that the return on investment of software isperformed on service.

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III. Some contractual aspects…: 3.2 ASP specific clauses

The license:

For some authors and practitioners, as software is not either downloaded or installed on the computers of the customer, it then does not need of a license.

You use the software: you need a license

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III. Some contractual aspects…: 3.2 ASP specific clauses

SLA (Service Level Agreement):

The contract specifying all the levels of services to be

provided to the customer. It is often a "hold all document ".

It is a mistake because in general, it pushes back problem

instead of treating it.

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III. Some contractual aspects…: 3.2 ASP specific clauses

Safety/security, access and bandwidth :

this model has, from a technical and ergonomic point of view, to be so satisfactory.

Security seems to be a weak point of the model ASP and however, nothing in the legal clauses comes to guarantee it particularly.

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III. Some contractual aspects…: 3.2 ASP specific clauses

Arbitration (WIPO) :

WIPO recommends to refer to its centre of arbitration created in 1999, based in Geneva and specialized in the regulations of litigations linked to Internet.

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IV. Some important ASP Players

Two categories :

4.1 The classical players : software editors :

the big and the smaller

4.2 the new « plain » ASP players

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IV.1 Major actors (1) : ORACLE

ORACLE, worldwide leader in the edition of

databases and n°3 in software, offers a resolution

of ASP which consists of two modes of outsourcing :

- first, hosting of database ;

- the second, "ORACLE ON DEMAND", which is close to

pure ASP : software, data and services, provided in a "rental"mode.

Oracle offers a solution of ASP without the

intervention of providers, nor subcontractors; it takes care

itself of the accommodation of software and data.

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IV.1 Major actors (2) : SIEBEL - IBM

Among the big "historical" editors of software of

CRM, SIEBEL is one of the first to have launched into ASP

with her offer CRM OnDemand. SIEBEL defines the offer as " a CRM on Web via a

navigator for a fixed price by user and monthly. " CRM OnDemand of SIEBEL is the fruit of a partnership in

the form of a grouping concluded in 1999 with IBM

GLOBAL SERVICES who is a subcontractor :

- Siebel : software package and maintenance

- IBM : hosting of software and data

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IV.2 Pure ASP actors : SALESFORCE.COM:

Salesforce.com is a "pure ASP player" (World champion as ASP CRM vendor).

They take responsibility for everything except Internet connection ; they have no partnership; their only partner is thevendor of “a rent space” (secured in California) where are installed their servers.

In their vision of the contract ASP, there is no license.

It is the theory of the " right of access ". They consider that asSoon as software is completely outsourced and that the customer can reach it with his Internet navigator, they are in a situation close to Website consultation.

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IV. Major ASP actors : ASPAWAY SA

French start-up created in 2000, ASPAWAY is not an

editor of software but a provider ASP giving

two solutions of outsourcing : - An offer of pure hosting of software from which the

customer is already holder. It is a performance of service that

Aspaway defines as "of ASP without A, of Service Provider".

- An offer of pure ASP where Aspaway offers some 40

software packages, in a "rental" mode, among the most

renowned in their domain. (CRM, Accounting Management, HR…)

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IV.3 New ASP actors : Microsoft

Microsoft recently launched a new offer :

WINDOWS LIVE

Characteristics of this new offer, which is clearly ASP

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IV.3 New ASP actors : France Telecom

France Telecom recently launched a new offer :

“Business everywhere”

Characteristics of this new offer, which is clearly ASP

Will the telco companies become the real actors of the new “New Economy” ?

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Thank you for your attention