A Guide for Negotiating Your Next Cloud Contract

Jun 19, 2015 • Apps & Software, Data
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The cloud services market continues to grow at an impressive rate. Companies all over the world are realizing how beneficial it is to move some operations to the cloud, creating a need for the services that cloud providers offer. Research from the Everest Group shows that the cloud services market is worth $40 billion, with growth expected annually at a rate of 27 percent. Cloud vendors are everywhere, with more springing up seemingly each month. That makes partnerships with these vendors all the more crucial, especially when your company needs cloud computing to grow and become more successful. Reliance on a cloud provider, however, also means negotiating contracts, and that can be a tricky proposition. Make a mistake, and you could be stuck with a bad deal that will last years. Consider this a brief guide into how best to approach the next time you negotiate for a cloud contract.

Cloud providers will want you to sign a contract that binds you to their services for as long as possible. While this is not always an ideal solution, sometimes you don’t have any other choice. Before signing a long-term deal, however, you’ll want to negotiate proper service level commitments and agree upon penalties in cases of noncompliance. These provisions basically address the unfortunate situation of when a cloud provider’s services become unavailable for any reason. Needless to say, unexpected downtime can severely damage a company that relies on cloud services. Without service level agreements, the cloud provider has no responsibility for the losses suffered by a client in the event of service unavailability. While getting the vendor to agree with full compensation for possible loss of business is a longshot, negotiating for access to new features, lower pricing structure, and service credit is doable as long as it is all done up front.

You’ll also want to negotiate for as much flexibility as possible. Many deals are made with a certain maximum user count in mind or a specific bandwidth threshold. Providers may even detail the number of transactions your company is expected to make each month using their service. If your company exceeds these limits, you could be subject to overage charges. That’s why you should always negotiate your deal to allow for flexibility, particularly if your company expects to grow or acquire other businesses in the near future. Adding employees, for example, would increase the number of cloud users. When negotiating with a cloud vendor, make sure to spell out specific situations where flexibility is needed, and take care to read each contract to spot any hidden charges providers may try to insert.

The same principle of flexibility also applies to access. Try to negotiate provisions that allow your company to transfer access to the cloud. That means avoiding situations where vendors lock you in to only one type of service or user type. Also make sure you can downgrade when needed, giving you access to services of a lower cost tier in case your business’s needs change over time.

Other more traditional negotiation tactics can prove valuable as well. Make sure you shop around whenever you’re in the market for cloud services. That way you can compare prices and features of different providers, which may come into play when you’re deep into the negotiations process. Pitting one vendor against another could lead to a bidding war, with you as the main beneficiary. Before choosing a provider, you’ll want to take the time to vet the company, ensuring they have the capabilities that make for a good fit for your business and meet your company’s goals. And as always, take special note of the security features a prospective cloud vendor offers. With cyber security so crucial these days, going with a provider that has lax security could prove detrimental to data protection.

As companies move beyond the basics of what is cloud computing, they’ll have to make some difficult decisions over what kind of vendor they want to work with. Negotiating cloud contracts is far from easy, but with the right knowledge and preparation, your company will be ready to negotiate from a more advantageous position. In this way, you’ll know what to expect, what to watch out for, and how best to handle the negotiations, all in the effort to find a provider that works best for you.

Alex Espenson

Alex Espenson is a technology writer with a passion for home automation, tech security, and wearable smart devices.

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