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"Procuring cost efficient commoditised cloud services means dealing with commoditised terms and conditions."


PA'S Alastair mcaulay, cloud exPERT

Ducking the issue

Alastair McAulay

National Computing Centre

1 February 2012


There is a well-known folksy saying that goes along the lines of “If it walks like a duck, swims like a duck and quacks like a duck then it probably is a duck”. This is usually used to describe the scenario where the supposedly honest plain talking country folk see through the sophistry of the city slicker who attempts to pass something off as new when it plainly isn’t. 

Perhaps controversially, we are now at the point where that saying could be applied to the service providers of enterprise class cloud computing sourcing agreements. PA Consulting Group recently surveyed a range of organisations who were putting in place cloud sourcing deals and there was strong evidence to suggest that the deal making was being strongly influenced by traditional outsourcing concepts. This is not to suggest that the deals were bad or that cloud technology wasn’t involved, it is just that the deals - from a contractual perspective - don’t appear to be particularly new or innovative.

The survey results will be published in full in Q1 2012, though there are four interesting points that are worth mentioning here about what we discovered.  Three points concern observed service provider behaviour and one point concerns customer behaviour.

Firstly, service providers were still keen to include set up charges. We have identified and resolved situations where Cloud unit charges included elements of service setup cost. This is standard practice in the limited scalability model of traditional outsourcing, where services are put in place once with a predictable growth pattern. In a cloud contract however, with substantial and unpredictable growth or contraction, charging for multiple deployments would destroy the value predicted by the business case.

Secondly, service providers were attempting to include substantial termination charges. The flexibility provided by Cloud is contrary to the concept of a fixed term, so agreements should be exit-able at any point with close to zero notice and without big penalties. After all, the service providers own the infrastructure and are able to maximise the investment in underlying hardware, not you. It is not uncommon for suppliers to attempt to link the exit costs of each customer with the full book value of underlying shared assets.

Thirdly, some service providers are not charging on a pure pay for what you use basis; for example charging  customers for allocated storage rather than the space actually used. And for servers, reservation fees and monthly minimum usage periods can make it uneconomical to deliver on the promise of business-led agility.

Finally, lest the blame be placed entirely at the service provider door, it is perhaps striking that on average over half of those surveyed would not unconditionally agree to a Cloud supplier’s standard terms and conditions. So perhaps this is a case of the customer wanting their cake and eating it. In our view procuring cost efficient commoditised cloud services mean dealing with commoditised terms and conditions.

Our overall perception is that the service providers are starting to move in the right direction, and are keen to broadcast their good intentions. But old habits, just like old folksy sayings about ducks, take a long while to die. 

Alastair McAulay is a cloud expert at PA Consulting Group.

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