Time for CIOs to flex their cloud bargaining muscle

Public cloud vendors have traditionally provided pretty generic computing services to a customer base consisting mainly of SMEs, who first have to agree to a fairly standard set of terms and conditions. In the past this model worked well, with SMEs happy to accept standardised contracts and SLAs in exchange for predictable expenditure, dynamic resources and technical expertise. However, the public cloud is increasingly attracting the attention of corporate giants, who demand flexibility in negotiating service level agreements and price.

For example, Gershon Janssen, IT architect for Air France-KLM, is evaluating public cloud solutions, but he does not yet have a roadmap for implementation. However, it is clear to Janssen that tailored contracts would be vital to any decision made before entering the cloud.

“A large enterprise like Air France-KLM needs to have a solid contract with its vendor – it’s not a take it or leave it deal,” he says. “We would be running our critical applications in their space, so we need to make sure things are run properly.

If it is a take it or leave it deal this would be difficult to manage.”

Mark O’Conor, partner at law firm DLA Piper, says that vendors will include standard terms and conditions in a cloud contract, but for a large enterprise these should be negotiable. 

“If you consider offerings from vendors, such as Amazon Web Services, some of their terms on liability, for example, will say that the service is offered as is – you get what you get,” says O’Conor. “However, negotiating cloud contracts is always a function of money. If it’s a small deal the vendor will say it’s not worth me doing it.

But if you are a large multinational company, it is going to be a big contract with huge amounts of money and stops being a simple stack them high and sell them cheap cloud service.”

O’Conor argues that cloud contracts will vary depending on the type of cloud service. Infrastructure-as-a-Service (IaaS) offerings are more complex and so the associated contract is also more complex. Contract negotiations will focus on what could fail. If you are a large enterprise focused on achieving high availability, robust security and data recovery, you are going to spend time and money making sure a cloud contract is suitable. 

“IaaS deals will essentially have the same contract for a virtualised datacentre deal, and datacentre contracts can take months to negotiate because you get into things like power usage, service levels and disaster recovery,” says O’Conor.

“Whereas with SaaS [Software-as-a-Service], which is essentially a business tool delivered via the internet, companies are receiving a utility. If it goes down it is a bit of a pain, but your underlying data should still be there. As a result, there are different drivers at play,” he adds.

When entering into a public cloud contract, a CIO should look to negotiate service level agreements, termination rights, consequences of termination, service credits and limited liability.

While smaller companies may accept off-the-shelf packages, larger companies have the power to negotiate, particularly as the cloud market develops, with more cloud service providers competing to secure deals. 

David Chan, who teaches negotiation skills as part of London’s City University Masters of Information Leadership course, says that negotiating advantageous SLAs and discounts on price will be increasingly possible as competition in the market grows.

“It is totally untrue that there is no room for negotiation with cloud contracts. Let’s put it this way; if you as an individual want to buy a cloud package you would go on Yahoo and take what is given,” says Chan. “If you are a business, you can play the vendors off each other. Once a vendor’s sales team has got sales targets, as a buyer, you have room to negotiate.”

This is good news for enterprise CIOs who have so far been put off using public cloud services because of worries about being locked into an inflexible contract.
Although price is likely to be higher whenever a contract requires customisation, this is no different to any other commercial agreement an IT leader might enter into. In short, negotiation will become more commonplace as the public cloud market continues to mature.