Negotiating Vendor Cloud Computing Contracts


I stumbled across this phenomenal paper entitled Negotiating Cloud Contracts: Looking At Clouds From Both Sides Now, written by W. Kuan Hon, Christopher Millard and Ian Walden. It was published in Stanford’s Technology Law Review in the Fall of 2012.  What’s fascinating is that it’s the first paper I’ve seen which objectively reviews the negotiating process that takes place between both buyers and sellers of cloud computing software.

In the first part of their paper, the writers describe the cloud market, “The top ten strategic trends for 2013 include, are based on, or incorporate cloud computing; those trends include personal cloud, hybrid information technology and computing, cloud-based analytics, in memory computing and integrated technology ecosystems. However, the cloud market is still relatively immature. The state of providers’ standard contract terms seem to reflect this” (Hon, Millard, Walden, 80-81).

After reading those sentences, I almost fainted. For those of you that are negotiating vendor cloud contracts alongside me, you probably just fainted as well.  This is what I’ve been jumping up and down about for the past year, that cloud vendor contracts are very poor and are not in favor of the customer.  Is “the cloud” just that bright and shiny?

I think it is and I’ll tell you why. When a customer who has been dragging around an old, patched version of an enterprise software solution is told by the cloud vendor that they can migrate that customer’s enterprise data in about ten weeks to a cloud version that doesn’t require patches, downtime, or Charlton Heston’s cast of thousands to maintain it on a regular basis, all they can think of is “Where do I sign??!!”.

I was told once that these cloud vendors are “too large to negotiate with”.  Really? My answer to that is no, they aren’t too large to negotiate with and you can negotiate with them, either from a pricing perspective, contracting perspective or both. However, the key to negotiating with cloud vendors is to plan up front.

If you’re a small organization, you can leverage your buying power. You may not have a lot of funds to spend on external counsel, but that doesn’t mean you have to take the contractual negotiations lying down. Push for business items that you need in your contract and see how far you can get. Most importantly, you can still purchase with power.  Just as the adage of the crow adding the pebbles to the jar in order to drink the rainwater, you’ll eventually have enough purchasing power to feel the leverage. Don’t allow your team to purchase $10,000 or $30,000 licenses from the same vendor separately. Plan your cloud spending so that you’re putting down a large chunk of change at one time…then ask for that discount!

For those of you who spend millions of dollars a year in enterprise cloud solutions, meet with your procurement / sourcing,  legal and IT departments to holistically understand where you’re spending now, how much is being spent and who you’re spending it with.  Is your legal department open to creating your company’s own cloud agreement? Given the paper stated above, most cloud vendor agreements are woefully inadequate. Why not come up with your own template that you can use repeatedly with multiple cloud vendors? From a pricing perspective, you are the big fish. You should remain in control, regardless of what the vendor tells you on pricing. Push for the discount and request it each time. If you don’t, you’re missing out on saving your company millions of dollars a year.

For negotiations with cloud vendors to work, the purchasing department / legal department need to work side-by-side with the business. This includes coordinated efforts with the vendor during negotiations, both pricing and contractual negotiations. Unfortunately dear customers, the cloud vendors are counting on you to be so desperate that you will swallow any bitter pill they bestow upon you and your colleagues during pricing and contract negotiations. In a previous post, I wrote about the hard truths of cloud vendor SLA’s.  However, I encourage you to truly understand the power you have when negotiating  with a cloud vendor. Take your time to choose the vendor that will support your organization and don’t settle for the scraps you’re thrown.