8 Misunderstandings of cloud computing service contract

Cloud computing can often help companies solve many problems, and bring some value to the enterprise. But if the cloud-computing contracts signed by companies and cloud-computing providers are not perfect, they can lead to a big discount to their investment returns.

There are many reasons for this, and some in-house software-licensed experts assume that the cloud-computing contract is merely an agreement similar to the internal-Deployment software licensing protocol, which is essentially the same as the formal distinction.

American media Computerworld interviewed four experts to discuss the pitfalls that companies often find in signing cloud services cooperation agreements, which are often avoidable. At the same time, the experts also explored the results of these errors, as well as corporate solutions. Here are 8 myths about cloud computing contracts they point out:

1. Pre-payment cloud computing services

Frank Scavo, president of the IT consulting firm Strativa, told a 100 million-dollar contract with the ERP cloud technology service provider, which ended in failure. This ERP contract contains the customer's monthly service fee, installation support fee and follow-up support fee.

The problem is that the customer requires the ERP system to be connected to the enterprise front-end e-business application, but the integration project has stalled because of problems. The customer finds that the vendor's installation support Service does not meet its requirements.

Scavo said: "But, because the customer pays the service cost beforehand, therefore they have lost to the service provider the containment." Therefore, it is a mistake for the customer to pay the service fee upfront. In the end, the problem was not resolved, and the customer even found the supplier's CEO to ask for the solution, but there was no result. Scavo said: "It is impossible for a CEO of a company to solve a conventional construction problem." ”

"However, it is common for SaaS service providers to extend the duration of service contracts to 3-5 years today." ”

--constellation's chief executive, Ray Wang,

2. There is no provision in the contract for service level commitments and liquidated damages

Early SaaS Cloud services were paid on a monthly basis, and the customer's interests were guaranteed. If the cloud provider does not provide the corresponding cloud services as stipulated in the contract, the customer can terminate the cooperation immediately. But now it is common for SaaS service providers to extend service contracts to 3-5 years, says Ray Wang, chief executive of Constellation, an industry analyst.

Even more sadly, if cloud computing is unavailable for a day or one months, there is no provision in these long-term cloud-computing contracts to address the problem. When will the supplier tell you why this is happening? How will they solve the problem? What kind of compensation should the customer receive if the system breaks down because of the prolonged use?

If these problems are not covered in the contract, then the interests of the client is difficult to protect. Moreover, if the customer signs a long-term contract, the above situation, the contract can not be canceled, the customer is in deadlock.

Here's an example of a constellation customer, the company is a manufacturer. The company's payment system was interrupted for five days after Hurricane Sandy struck in 2012. In this week's time, the company's economic losses were estimated at around 34 million dollars. However, Wang said: "There is no compensation clause in the service level agreement (SLA)." "Moreover, most cloud-computing providers will not be able to pay their companies full compensation for business disruption and corporate losses." Wang: "In general, we will provide new features of the product or service to the customer, or extend the service period as compensation." ”

So, before signing a contract, carefully review the cloud computing supplier's qualifications and the performance of its products, and negotiate with the cloud computing provider compensation issues. If the enterprise is dissatisfied with the compensation scheme provided by the cloud computing provider, consider a different service provider.

3. No review of the contract contains the terms of the hidden charges

Even people who have reviewed internal software contracts many times are likely to fall into the trap of cloud computing contracts, Scavo said. "Your team needs to have a clear understanding of each of the terms of the contract, especially the terms that relate to stealth charges, such as how to charge for storage or bandwidth usage beyond." A few of my clients have been in trouble for stealth charges. ”

Scavo surveyed a company that provided seasonal business and found that its monthly bills soared by 20% per cent, and that the number of daily transactions exceeded the amount stipulated in the contract. Scavo said: "When signing a contract, the supplier will not remind you to pay attention to the terms of the hidden charges." ”

"Your team needs to have a clear understanding of each of the terms of the contract, especially the terms that relate to stealth charges, such as how to charge for storage or bandwidth usage beyond." A few of my clients have been in trouble for stealth charges. ”

--strativa's president, Frank Scavo.

4. Sign a contract without a "around"

Scavo said that cloud computing providers will take a number of different ways to license their services, one of which may meet your needs, and more affordable. Many cloud computing providers will be based on the number of users or seat to meet the monthly service costs, but also to provide enterprises with a variety of different service contracts for the enterprise to choose. ERP Cloud service provider Acumatica service prices are based on the number of customer system resources used to set, Scavo said: "Growth-oriented enterprises can increase the user at the same time, do not need to purchase additional seat." ”

Enterprises should choose carefully before signing the contract. This is especially important for buying large CRM or ERP system services because it is not easy to remove these system services. Therefore, before signing the contract, we must ensure that the terms of the contract is appropriate, appropriate, to meet your needs.

5. Do not consider the impact of diverse SLAs on business process End-to-end performance

When an enterprise uses cloud computing service composition in a single business process, its end-to-end performance can only meet the performance benefits mentioned in the minimum service level agreement. "The Enterprise cloud services architecture is growing, and companies are constantly adding new capabilities to their internal cloud computing architectures to better run their business processes," said Mike Pearl, a partner at PwC. Customers must consider the impact of vendor-provided services on their business processes in SLAs and negotiate service performance with service providers. ”

"A technology-buying model of the enterprise, but not really from the IT perspective, this is the biggest failure." The person in charge of the contract usually thinks they have a lot of negotiating experience, but in most cases they don't know what they have. ”

--The PWC partner Mike Pearl

The chief information officer of a company worth billions of dollars received a copy of a SaaS service contract that was signed by another colleague of his company. However, the CIO did not see any provision in the contract for data backup, storage or access. Pearl said: "A technology-buying model of the enterprise, but not really from the point of view of it, this is the biggest failure." The person in charge of the contract usually thinks they have a lot of negotiating experience, but in most cases they don't know what they have. ”

6. Add some temporarily unavailable services in the contract

If you want to deploy a new service next year, you can buy it when you need it, rather than adding the services you don't need for the time being to the contract. Pica Communications's partner, Paul DeGroot, thinks Microsoft Office 365 is a good example, Pica Communications is Microsoft Enterprise Services Licensing consultancy. Microsoft SaaS Service Suite--office 365 includes Office platform Management Components Exchange, SharePoint, Lync, and some common desktop applications.

DeGroot said: "Many Microsoft customers have purchased Office 365, but when I asked them if they were using the service, they answered no." "Early purchase of this service does not have any discounts and concessions, if the company bought the service and put it into a three-year contract terms, then the company in the contract period of three years to pay this fee." To this end, DeGroot suggested: "If you can use this service next year, buy it next year." ”

"Many Microsoft customers have purchased Office 365, but when I asked them if they were using the service, they answered no." If you can use the service next year, buy it next year. ”

--pica Communications's partner, Paul DeGroot.

Perhaps Microsoft's authorized service is not the most expensive service, so many large enterprises do not give much consideration and review when buying. "Even if Microsoft's services make up only 1% of your IT budget, that's 1 million dollars in spending," he said. "DeGroot said:" Only careful consideration and review, you can save 1 million of dollars, it is not worth it! "

7. Internal operating system and new cloud computing services used simultaneously

One of the biggest benefits of using cloud computing services is the ability to save internal management costs. For example, if you use Office 365, you don't need Exchange manager. But many companies are slow to shut down their internal operating systems or migrate only a small subset of users, such as those who are far away, into the cloud. DeGroot that it was a mistake.

"I've found that many businesses use Office365 in small areas, but in fact it should be applied to a larger range," he said. ”

When you decide to use cloud computing services, then in the cloud computing contract negotiation process, you should gradually eliminate the internal running system. If your in-house deployment software really doesn't need Software Assurance, you can cancel it and save a lot of money. The company, which employs about 10,000 people, is preparing to use cloud computing as an internal operating system, so it has saved 1 million of dollars by canceling the Software Assurance contract.

8. No consideration was given to the change in the number of seat

Most companies have fewer users at the start of their contracts, and they are completely different from those of large companies. There are probably only 50 users on your CRM platform. But in the future, what do you do if your users increase or your employees leave a lot? How do you calculate your cloud service costs when your users increase or decrease?

If you have not considered or negotiated with a cloud provider when these issues are signed, you may be able to pay an extra fee that you could have saved. When the user increases, you can not enjoy any discount, but you have to pay for those empty seat, add new users, but have to pay an extra fee.

As demand for cloud computing services grows, some veteran contract negotiators have argued that companies must be on a professional basis when they sign cloud contracts, or consult experts on the subject to prevent the return on investment in cloud computing services from being compromised. The best way to do this is to find an expert in this area to help you with the negotiation and signing of the contract.