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The Cloud Crowd – should you join?

May 24, 2012

Recently I was asked to do a presentation to the Amazon (AWS) 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 their sales pitch. Whether they did or didn’t agree with me should probably remain confidential, but the concerns that I was expressing to them are relevant to any company considering offering a cloud based (aka SaaS/hosted) service to their customers.   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 SaaS 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 the other Cloud providers out there offer an affordable, stable, scaleable infrastructure on which to host your software.   So what’s the catch?   [caption id="" align="alignright" width="275" caption="Dark clouds ahead?"]

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 let the technology product company, stuck in the middle, close the gaps.   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 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 99.8% SLAs. We want Service Credits if you ever fail to achieve that!! We want to be able to sue you for £1million and your first born child if there are critical SLA issues!!!!   Cloud provider says: “Our system is stable, we’ll probably meet 99.8% 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 failing.  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!” [caption id="" align="alignleft" width="267" caption="We can help you break through..."][/caption]   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 went to explain to the Amazon sales team!   If you recognise this scenario, don’t follow the crowd... Give us a call and we’ll do our best to help you repair cracks and manage your risks up and down the contract chain.