A SaaS OEM agreement is applicable in situations where the SaaS solution is rebranded for the OEM business and where an OEM company is responsible for providing additional services such as training, implementation, and level one support.

The OEM business determines the pricing, and the customer will then pay that predetermined amount for the SaaS solution. There are some instances where an OEM company will also commit to additional items, such as training a set percentage of its employees or agreeing to a minimum spend over a certain period.

What Is OEM?

OEM stands for original equipment manufacturer. It's a broad term used to describe a series of relationships between:

  • Information technology component makers
  • Software and hardware vendors
  • Distributors and resellers

The term has evolved from primarily meaning a company that originally built a product, which was then sold to others who could rebrand and sell it. Now, OEM can describe a variety of businesses and their relationships in a convoluted, information technology supply chain.

It's not uncommon for OEM relationships to overlap. One business may be acting as an OEM, and at the same time, sell to other OEMs.

Defining SaaS Terms

It's important to start by defining some standard SaaS terms you'll see used:

  • Customer: The person who has the rights to use the software or application.
  • End-user: The person who interacts with the solution or application, be it indirectly and directly. This person does not work directly for the customer.
  • Solution: Also called “application,” it is the software or a special website created, which the customer either rents or owns. This software or website interacts indirectly or directly with the vendor software.
  • Internal use: Solution is only accessed by people who work for the customer.
  • Public use: Available to an end user by paying a fee, or it may be free.
  • Processed document: Any document the software has manipulated or converted.
  • Source document: The initial document before the software does any processing.
  • Transmit: Transmission is how the processed or source document is delivered to the customer. It can be done through electronic means such as an e-mail or via hard copy.

OEM Hardware and Software

The term OEM hardware can take on several different meanings. These can be specific companies such as Dell or Lenovo who buy components from businesses and sell entire systems under their own brand label. Some component suppliers may offer OEM products in addition to retail versions. Brand-name OEMs may even develop relationships with OEM hardware companies who are in the same supply chain.

There are some software companies that offer OEM versions of their products to smaller systems builders, or bigger OEM hardware companies, who will then incorporate the product into their own line. There are third-party applications and operating system software that are preinstalled on items such as:

  • Laptops
  • Smartphones
  • Tablets

These can be considered OEM software.

Difference Between OEM and VAR

There is some overlap between OEM and VAR, and the lines between the two can be blurred to some degree. The label “OEM” is often connected to large, name-brand hardware companies and marketers who customize the hardware for their own markets, whereas VAR, or Value-Added Reseller, is often defined as selling a larger information technology solution.

However, OEMs can serve as VARs if they bundle third-party software and hardware parts along with building their own intellectual property into the products they are selling. A VAR can white-label the hardware products they are sourcing from various vendors, which means they resemble downstream OEMs.

SaaS Reseller and Referral Agreements

SaaS reseller agreements are used in situations where the reseller plans to resell the SaaS vendor's solution and collects the money from the customer directly. The vendor determines the price the reseller will pay, and then the reseller comes up with the price that the customer will pay. The reseller is usually the one who is providing training, level one support, and implementation services, although it depends on the SaaS vendor's business operation model.

A SaaS referral agreement is one where the referring business introduces or “refers” brand-new leads to the vendor. If a deal is reached, the SaaS vendor pays the referral party a percentage of the contract for a stated period. The SaaS vendor is the one who sets the pricing, not the party who referred the lead. You may hear this referred to as an affiliate agreement, but referral agreement is really more accurate.

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