Key Takeaways:
- SaaS vendors rely on customer usage data to enhance functionality, improve user experience, and drive innovation. Without this data, vendors would struggle to stay competitive and develop their products effectively.
- Overly broad data usage clauses can lead to customer suspicion that their data is being used for inappropriate purposes, especially in regions with strict privacy laws like the EU.
- Transparency and clear definitions around data collection and usage provides a balanced approach that addresses the concerns of both vendors and customers.
In this article, I explore the critical role of customer usage data in SaaS product development and the contractual challenges it creates.
While vendors rely on customer usage data to enhance their platforms, vague or overly broad data usage clauses can lead to customer distrust. This article discusses both vendor and customer perspectives on customer data usage, why data transparency matters and how to find common ground to create fair, balanced clauses for data usage.
Data Analytics in SaaS Is No Different Than the Real World
Liverpool FC manager Jürgen Klopp is known for leveraging data analytics to optimize defensive tactics and improve endurance late in games. The Golden State Warriors discovered that three-point shots were more efficient than mid-range jumpers, leading to a tactical shift that made their offense nearly unstoppable from 2015-2019.
Similarly, Billy Beane, the legendary general manager of the Oakland Athletics (popularized in Moneyball), revolutionized baseball by using advanced statistical analysis to build a competitive team on a limited budget, proving that data-driven decision-making can outperform traditional intuition.
Just like the Golden State Warriors’ shift to three-point shots or Jürgen Klopp’s tactical adjustments using data, SaaS platforms thrive on data-driven insights. Continuous improvement through monitoring customer usage is key to SaaS success.
The Utopian Scenario for Customer Data Usage in SaaS: Understanding Vendor Needs
Now, let’s explore how a SaaS vendor might use this data to improve their platform. Imagine a provider routinely analyzing customer usage and discovering that a specific secondary function is being used frequently across its customer base. This function is buried within a menu, requiring users to navigate away from the primary screen, disrupting workflow efficiency. Further analysis reveals increased traffic to the documentation page explaining this function over the past six months.
Recognizing the trend, the SaaS provider allocates additional resources to improve the usability of the function. The platform is updated in the next release, leading to a significant increase in usage across the entire customer base and increased interest in the product from prospects.
For a SaaS vendor, this is the ideal scenario–analyzing customer usage to enhance the product, increasing stickiness, and delivering greater value.
And from the customer perspective, would a customer continue using a product that doesn’t evolve with their needs?
The answer is clear. Customers want their SaaS to improve year after year. Customers expect the best tools, and the best SaaS products are those that improve each year.
So, if customers want their SaaS provider to remain competitive, innovate, and offer the best possible service, shouldn’t they allow some level of data analytics to improve the product?
The logic is compelling.
Learn More: For more tips on navigating SaaS agreements, be sure to check out my Practical SaaS Contract MasterClass, launching in April. Get a 10% discount if you join the waiting list!
Platform Usage Rights: Example Clause
To stay competitive, vendors often include clauses allowing them to use customer data for platform improvement. There are different usage rights models. A typical clause might look like this:
“Provider may collect, process, and analyze customer usage of the SaaS (including telemetry, performance metrics, and system-generated data) to operate, improve, and enhance the Services. Provider may also use anonymized, de-identified, and aggregated data for benchmarking, analytics, feature development, industry insights, other internal business purposes and external publications, provided such use complies with applicable laws and does not directly or indirectly identify the Customer or its Users.”
The Dark Side of Customer Usage Data: Understanding Customer Concerns
While data is essential for improving SaaS products, overly broad or vague data usage clauses can raise red flags for customers. When clauses lack clarity, customers may worry that their data is being used in ways they didn’t agree to or anticipate.
Take, for example, the phrase “other internal business purposes and external publications” in the above clause. For many customers, especially those with sensitive or confidential information, this can set off alarm bells. What exactly does “other internal business purposes and external publications” mean? Does it include using data for marketing or commercial gain?
These concerns are not unfounded. The 2018 Cambridge Analytica scandal, for instance, demonstrated the dangers of vague data usage terms. Facebook users unknowingly agreed to terms that allowed their personal data to be harvested and used for political profiling. This incident triggered widespread backlash and highlighted how unclear data clauses can be exploited for purposes far beyond what users expected or consented to.
Similarly, in the SaaS world, when data usage clauses lack transparency, customers feel exposed. They fear their data might be misused, commercialized, or shared with unauthorized parties without their consent. And, of course, they aren’t being compensated. They become unwitting design partners for the vendor’s SaaS while still paying for the privilege.
Customers see inherent personal value and ownership in the data they generate. This is especially pronounced in Europe, where data privacy is a particularly sensitive issue. Misuse is a serious violation of their personal and property rights. In highly regulated industries, vague data clauses can lead to violations of laws like GDPR or HIPAA, resulting in hefty fines, legal battles, and a tarnished reputation.
Data has become too important and sensitive to allow unrestricted or vague vendor usage rights.
Finding a Middle Ground: Recommendations for SaaS Vendors and Customers
A balanced approach to data usage clauses starts with transparency. Vendors should clearly define what data is collected, how it’s used, and why it benefits both sides. Providing concrete examples helps customers understand the purpose of data collection and eases concerns.
For customers, recognizing the value of sharing data is key. Understanding that their data helps improve the product they’re using makes them more likely to agree to the terms.
Both parties need to view the relationship as a partnership. Vendors need data to enhance the product, and customers need a platform that evolves. Finding common ground through clear, transparent terms ensures a mutually beneficial relationship.
Learn More: For more tips on navigating SaaS agreements, be sure to check out my Practical SaaS Contract MasterClass, launching in April. Get a 10% discount if you join the waiting list!
