Can you exit a cloud contract when the prices go up?

Many cloud providers, including Microsoft, are putting enterprise cloud licences up in response to the falling pound. Can customers use this as an excuse to leave?

The falling value of the pound against the dollar has meant that some UK-based firms are seeing significant price increases in their US-based cloud services.

Microsoft has been one of the first US-based providers to announce price rises, with some services to go up by 22 per cent in January, and others are likely to follow soon.

Responding to a recent Computing poll, over 60 per cent of readers stated that they had already seen their cloud costs go up, with 31 per cent stating that prices had become 'a lot more expensive'.

But what are the options for firms who see their suppliers suddenly increase prices?

According to Bryan Oak, director at Searchlight Consulting, it depends on the nature of the contract, but firms shouldn't be shy about requesting discounts.

"Obviously this depends on the termination clauses in such contracts and/or the effort required to move to a different platform," said Oak. "One consideration is whether the cloud service is for software or for infrastructure as a service (SaaS or IaaS). In the case of SaaS business applications, then the effort required to move away from anything but the most basic software applications will require evaluation; migrations from one application platform to another can take weeks or even months to achieve, and the costs may negate the short-term benefit of any currency impact.

"If the cloud-service is an IaaS one, then clients can look around for other platforms to migrate their applications to and even revert back to on-premise or traditional co-located infrastructure in a domestic data centre. Again, the feasibility or attractiveness of this option will depend on termination clauses, as well as the cost and technical complexity of migrating an application and data to a different infrastructure platform. This evaluation may be simplified if the infrastructure in question is hosting development or test environments, rather than production environments.

"In terms of ability to negotiate discounts to offset current exchange rates, then 'don't ask, don't get' is probably the best mantra to adopt. If you're in a contract that was heavily negotiated at the outset and difficult to exit, then it's unlikely that the vendor will view the request sympathetically.

"However, if cancellation is not onerous and the monthly subscriptions paid in US dollars, then no cloud vendor wants to lose volume from their business, it's what makes their business model work! So, a discussion about rates over a longer commitment period, perhaps conceding some termination advantages, may enable clients to negotiate a more preferable cost in the short to medium-term," he explained.

Mark O'Conor, IPT partner at law firm DLA Piper, said that the ability to exit will depend on the terms and the type of cloud.

"There is a vast difference from commodity SaaS to complex IaaS and the market norms for the terms reflect that difference," said O'Conor.

"But the contracts are not handcuffs. Most if not all will allow termination for convenience, although there may be a financial penalty for cutting a longer contract short," said O'Conor.

He advised firms to start looking at the payment terms more closely and "see whether you can include provisions in the contract allowing an express right to terminate if costs increase over a threshold. The ability to negotiate at all will, again, depend on the type of cloud solution and is largely a function of contract value," stated O'Conor.

Can you exit a cloud contract when the prices go up?

Many cloud providers, including Microsoft, are putting enterprise cloud licences up in response to the falling pound. Can customers use this as an excuse to leave?

However, the exchange rate is proving to be good news for UK firms selling services in the US. Benjamin Dyer, founder of cloud provider Powered Now, said that his US sales have recently seen a big increase.

"Whatever your view on Brexit, one thing is abundantly clear, it's had a pretty significant impact on the dollar / pound exchange rate," began Dyer.

"While the national press has been printing pictures of sad looking holiday makers complaining about the lack of cheap sunshine, as the CEO of a UK-based Software-as-a-Service (SaaS) company I've seen an interesting side effect - our sales in the USA are booming!

"My company, Powered Now, provides software for the construction and trade industry, and as we bill in pounds we suddenly have a great price advantage over our North American rivals. There is also a secondary benefit, as buyers look to take advantage of the uncertainty in currency by buying larger upfront service packages while the price is in their favour. This has a really positive impact on cash flow, very helpful for a growing startup!

"Talking to my peers in similar companies Powered Now is not alone, UK exports especially to the hard to reach promised land of North America are now firmly in our sights.

"However there must be balance in the force and for every upside there is usually a less attractive side effect, for us it's our costs. As a software company we have multiple subscriptions for services in the other direction. For example, our hosting costs have significantly gone up and that's before we even think about expensive things like hardware.

"App producers that also rely on in-app purchases for revenue will also have to be wary. Apple and Google are not shy at adjusting their pricing bands in relation to currency fluctuations. This happened recently with changes for New Zealand, Israel, Russia, Singapore, South Africa and Mexico. Developers normally only have 72 hours notice of impending changes so you have to be quick to react."