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Should you join The Cloud Crowd?

Oct 24, 2012

Earlier this year, I was asked to do a presentation to the Amazon Cloud sales team to discuss why, from my perspective, they don’t put their money where their mouth is; or in other words, why their agreements/SLAs do not support the sales pitch that they give about Amazon Web Services.   Whether they did or didn’t agree with what I had to say should probably remain confidential, but the concerns that I was expressing are relevant to any company considering offering a cloud based (aka SaaS/hosted) service to their customers. [caption id="attachment_2541" align="alignright" width="300"] Dark clouds ahead?[/caption]   Increasingly Waterfront’s software product clients, who until recently have sold their wares using a more “traditional” software licence based business model, are considering putting their applications in the Cloud and offering their customers a Cloud based model.  Attractive to end customers as it eliminates upfront CAPEX payments and generally offers more flexibility, a cloud based offering has real benefits for software owners too, not least of all as it removes the need to persuade the customers to invest in, or make available, large scale IT infrastructures before they can use your software.   Amazon Web Services (AWS), Microsoft Azure and many other Cloud providers out there say that they offer an affordable, stable, scaleable infrastructure on which to host your software.   So what’s the catch?   No matter what language you, your customers, or the Cloud providers are using to describe this new business model, as soon as you put your software into the Cloud, you are, in fact (as well as law), subcontracting an essential part of your service/product offering to the Cloud provider.  Once you have a sub-contractor involved you have created, whether intentionally or not, a “contract chain”, with your customer at the top, your sub-contractor at the bottom, and you, stuck, literally, in the middle.  It’s an uncomfortable position to be in, unless the contractual obligations and liabilities flow seamlessly up and down this newly created chain.   Any gaps between the three links of the chain and your risks increase exponentially.  In our opinion, Cloud providers, do everything that they can not to help the technology product company, stuck in the middle, close the gaps.   [caption id="attachment_2543" align="alignleft" width="270"] We find the break in the clouds...[/caption]   An example: Big Global Bank wants to use your software but without paying upfront for a perpetual licence or having to negotiate with their own IT department for server space and kit.   Your solution: supply the software as a Cloud based Service.  Suddenly, though, you need servers/kit/an infrastructure. Enter the cavalry in the shape of the Cloud providers with their “pay as you go” offers, their “vastly scaleable” server space, their “walk away at any time” promises.  BUT this pile ‘em high, sell it cheap commodity based mentality is reflected in their terms and conditions and SLAs.     Big Global Bank says: “Business critical system! We demand guaranteed 99.9% SLAs. We want Service Credits if you ever fail to achieve that!! We want to be able to sue you for £millions and your first born child if there are critical SLA issues!”   Cloud provider says: “Our system is stable, we’ll probably meet 99.9% SLAs.  But if we don’t, you can only have service credits in a very limited number of situations and NO, we won’t agree to match those situations or the credits to what Big Global Bank wants.  Oh and by the way, the most you can ever sue us for, no matter what we do wrong, is a really insignificant amount compared to what Big Global Bank might be able to sue you for because of our failure to meet the SLAs.  And did we mention, we WON’T comply with Big Global Bank’s security requirements  and NO we won’t guarantee that your software will actually be located in an EU country – it’s not our problem if that means that you can’t comply with the Data Protection Act. But we are cheap! And easy to use! And easy to walk away from!”   And there you are, stuck in the middle of a broken contract chain, wanting to take an order from Big Global Bank, wanting to become part of the Cloud Crowd, but unable to pass down the contractual obligations imposed on you – on the hook if anything goes wrong, even when it is completely out of your control.  It’s a lonely place being stuck in the middle.   And that, in essence, is what I explained to the Amazon sales team!   If you recognise this scenario, don’t follow the crowd...   Give us a call – we’ll do our best to help you repair cracks and manage your risks up and down the contract chain.   If you'd like to read more about the cloud, you might be interested in Chloe Taylor's blog highlighting the problems the cloud poses for litigation and what you should be out looking for and Anthony Purvis' tips for employers considering a move to cloud-based services.