Brent Kelly

Brent Kelly | November 28, 2012 |


A Cloud Buyer's Bill of Rights?

A Cloud Buyer's Bill of Rights? Procurement guidance and best practices based on over 500 software contract negotiations for both on-premises and cloud-based solutions.

Procurement guidance and best practices based on over 500 software contract negotiations for both on-premises and cloud-based solutions.

Over the past weeks and months, I've had the opportunity to speak with a number of vendors in our industry about their product and service offerings. In addition to traditional on-premises solutions, many of these vendors now have cloud-based deployment options in which they are offering UC as a service (UCaaS). This is a rapidly growing market, with cloud-based UC services showing double digit growth for most vendors in the space. In fact, one vendor recently reported that more than half of its sales in 2012 are for cloud deployments in which the customer deploys no hardware on-premises except the phones; everything else, including the contact center, resides in the vendor's private cloud.

As the market for cloud-based products and services expands, many if not all of us will contract for and rely on these applications. And we will rely on them not just for communications; we will also use them for infrastructure, ERP, CRM, HRM, storage and many other business functions. Many companies already use as a cloud service; likewise Office 365, Cisco's HCS, Interactive Intelligence's Interaction Center, and other cloud-based solutions are seeing increasing subscriptions.

As we negotiate contracts for any and all of these services, it is vitally important that we do so with our eyes open. For example, unlike a premises-based solution in which we own both the software and our own data, in a cloud setting we lease the software and access its functionality. Should the vendor take a different product direction or go bankrupt, users will be at the vendor's mercy with very little recourse.

To help users navigate the pitfalls associated with procuring cloud-based solutions and to set both the vendor and its subscribers on a mutually beneficial course, Constellation Research's CEO, Ray Wang, has created an "Enterprise Cloud Buyer's Bill of Rights". This document provides procurement guidance and best practices based on over 500 software contract negotiations for both on-premises and cloud-based solutions. Ray says: "CIOs, CMOs, LOB execs, procurement managers, and other organizational leads should ensure that the mistakes they made in on-premises licensed software aren't blindly carried over" to the cloud!

The document points out that shifting from on-premises to cloud deployments can actually increase the risk of vendor lock-in for three reasons:

1. Access model means users have limited rights and control. Cutting through the hype, buyers do not own the rights to the code in most public cloud models. Buyers pay for the right to access functionality and use the intellectual property at the full mercy of the cloud vendor. Should the vendor decide to take a different product direction or find itself bankrupt, users remain at the vendor's mercy.

2. Costs to switch providers remain uncertain at best and expensive at worst. While users have access and ownership to their data, the hurdle in moving from one cloud vendor to another increases with usage. Without user rights over the functionality, users face lock-in because they cannot export their business processes that are instantiated in the vendor's functionality. Add different architectural standards, varying granularity of process flows, and complex metadata models, and users face an expensive challenge switching from one cloud vendor to another. Most migration plans lack clarity in how to successfully switch from one vendor to another.

3. Vendors currently eager for business may grow fat and lazy in the future. The rush to earn a customer's business remains intense. Most cloud vendors have customer friendly policies. However, the risk of vendor complacency grows with each percentage point shift from on-premises to cloud deployments. Unless rights are stated up front today, buyers will lose leverage over time.

At Constellation Research, we consider six phases to cloud ownership as illustrated below.

Figure 1. Cloud Software Ownership Lifecycle Spans Six Phases

For each of these phases, we have identified basic end user rights. These rights have been broken down into critical rights, those that are important, and those that are nice to have. For example, under customer experience, one of the rights is stated as follows:

Ownership of and access to data with no questions asked. Customers should know that they own all their data and have access to this at all times throughout the relationship. Tools to access data should be provided to clients. Clients should receive frictionless export of data into an open format. Customers should not have to fight for access to their own data. Data deletion policies should allow users to delete data from both the production and backup servers. Customers should sign-off on risks from deletion of data.

Consider just this one right. It involves ownership, export and disposition of data. In the cloud solutions you use today, do you have this level of control over your data, and is it in writing in the contract? Does the vendor you have subscribed with also have access to your data, exporting for its own purposes the contents of email, phone numbers, email addresses, etc.?

Overall, there are 54 different rights we identify that users should consider and use when negotiating a cloud-based solution of any kind. They apply equally well to UC, HRM, CRM, and ERP offerings delivered in the cloud. We encourage end user organizations to hold your service provider accountable to put these rights into their contracts and to provide you with guarantees that they will be met.

My own experience in this area shows that there are significant differences in the contracts and the guarantees among the different UCaaS providers. When we did the 2012 Enterprise Connect RFP, some of the RFP specifications focused on service level guarantees, transparency and time to repair. It was really quite startling to see the differences among the vendors who responded to the hosted UC services portion of the RFP: some proudly showed their service level guarantees and the financial penalties that the vendor would incur for failure to perform. However, with others, it was like pulling teeth to get any real service level agreement information out of them, and even then it was watered down with legalese. Some vendors said that service terms and contracts are always negotiated and that they could not provide even an example of a real contract.

These 54 rights found in the Enterprise Cloud Buyer's Bill of Rights can be used as a guide to help end users identify the rights that they should insist on when contracting and negotiating for cloud services. They can also help vendors recognize what users are beginning to demand as more and more organizations look to the cloud for solutions and the benefits cloud services can offer, giving proactive vendors an opportunity to differentiate themselves by assuring adherence to these rights.

The Enterprise Cloud Buyer's Bill of Rights will be discussed in a free webinar Ray Wang will host on December 5 at noon ET. More information can also be found at the Constellation Research website.

Brent Kelly is VP and Principal Analyst, Constellation Research


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