Contracting in the cloud

There are plenty of cloud (or cloud-ish) companies that will sell you services on a credit card and a click-through agreement. But even when you can buy that way, it is unlikely to be maximally to your advantage to do so, if you have any volume to speak of. And if you do decide to take a contract (which might sometimes be for a zero-dollar-commit), it’s rarely to your advantage to simply agree to the vendor’s standard terms and conditions. This is just as true with the cloud as it is with any other procurement. Vendor T&Cs, whether click-through or contractual, are generally not optimal for the customer; they protect the vendor’s interests, not yours.

Do I believe that deviations from the norm hamper a cloud provider’s profitability, ability to scale, ability to innovate, and so forth? It’s potentially possible, if whatever contractual changes you’re asking for require custom engineering. But many contractual changes are simply things that protect a customer’s rights and shift risk back towards the vendor and away from the customer. And even in cases where custom engineering is necessary, there will be cloud providers who thrive on it, i.e., who find a way to allow customers to get what they need without destroying their own efficiencies. (Arguably, for instance, Salesforce.com has managed to do this with Force.com.)

But the brutal truth is also that as a customer, you don’t care about the vendor’s ability to squeeze out a bit more profit. You don’t want to negotiate a contract that’s so predatory that your success seriously hurts your vendor financially (as I’ve sometimes seen people do when negotiating with startups that badly need revenue or a big brand name to serve as a reference). But you’re not carrying out your fiduciary responsibilities unless you do try to ensure that you get the best deal that you can — which often means negotiating, and negotiating a lot.

Typical issues that customers negotiate include term of delivery of service (i.e., can this provide give you 30 days notice they’ve decided to stop offering the service and poof you’re done?), what happens in a change of control, what happens at the end of the contract (data retrieval and so on), data integrity and confidentiality, data retention, SLAs, pricing, and the conditions under which the T&Cs can change. This is by no means a comprehensive list — that’s just a start.

Yes, you can negotiate with Amazon, Google, Microsoft, etc. And even when vendors publish public pricing with specific volume discounts, customers can negotiate steeper discounts when they sign contracts.

My colleagues Alexa Bona and Frank Ridder, who are Gartner analysts who cover sourcing, have recently written a series of notes on contracting for cloud services, that I’d encourage you to check out:

(Sorry, above notes are clients only.)

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Posted on March 8, 2011, in Industry and tagged , , , . Bookmark the permalink. 2 Comments.

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