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Lagardere Group
To Keep Control on Cloud Price Increases
In the society trend which is moving people from perpetual owners to flexible (or precarious?) renters, our old good and perpetual software licenses became precarious cloud subscriptions, potentially leading to numerous difficulties for cloud users.
With ‘old’ perpetual licenses, you could anticipate their future cost: either zero if no maintenance or support attached to these licenses, or a maintenance fee based on the licenses cost often 20 percent to 25 percent and with an increase capped typically by an inflation index about two or three percent yearly, but the price was under control, predictable.
“With cloud subscriptions, when your agreement with your cloud provider comes to expiration, then the renewal price is unknown and has to be negotiated again, and price could even double, strongly impacting your IT budget.”
But with cloud subscriptions, when your agreement with your cloud provider comes to expiration, then the renewal price is unknown and has to be negotiated again, and price could even double, strongly impacting your IT budget.
Even worse, you may not have the choice. In the ‘old’ world, if you don’t want to pay anymore the maintenance on perpetual licenses you can continue to use the software that is safe for your operations. But with cloud, as soon as you stop to pay, you lose the use rights from one day to another. In fact, if you can’t afford to lose your cloud service, you are locked in and obliged to pay any renewal price.
The first solution to this lock-in and high price increase is competition: with IaaS where Microsoft, Amazon, Google, IBM, etc are in open competition, the prices may be stable or even decrease, so it may be a bad idea to freeze IaaS prices in a contract. Reversely with SaaS, where suppliers try to create monopolistic situations, prices may increase significantly.
The first solution to this lock-in and high price increase is competition: with IaaS where Microsoft, Amazon, Google, IBM, etc are in open competition, the prices may be stable or even decrease, so it may be a bad idea to freeze IaaS prices in a contract. Reversely with SaaS, where suppliers try to create monopolistic situations, prices may increase significantly.
Best practices to keep control on SaaS cloud price increase are the following, to be included in the contract at the really beginning of your partnership with the cloud provider, at the time where the customer has a strong negotiation power, with the freedom to decide to go for this supplier or not to go (because a customer generally has no more negotiation power later in the partnership, being more or less locked-in):
• Prefer long contract duration for e.g., 5 years where
prices will be frozen
• Sign in May close to supplier’s financial closing month (typically June) where negotiations are easier
• Define and freeze ramp-up, true-up, true-down, step-up
and step-down prices
• Try to cap the price increase at contract renewal (if
possible for several renewals) or even unlimitedly but
legally tough
• Anticipate agreement renewal a long time in advance
• Have an operational BATNA (Best Alternative To Non
Agreement) meaning you have an alternative to your
SaaS service allowing you to say no to your supplier in
case of too high price increase or unbalance contractual
clause to sign: BATNA can be portability to another cloud
or to on-premise
• Ensure reversibility is easily possible by negotiating it in
the contract: enough time for it, enough bandwidth, no or
few cost, data can be retrieved in a reusable format. The
best is to have a reversibility function you can
autonomously activate anytime
• Consider portability with the numerous tools dedicated to
that on the market (Veeam, Veritas, CloudFastPath,
Mover, Aspera, Carbonite, Box, Dropbox, etc.)
• Contract renewal may be refused by any party without
any reason, in that case a prior notification of 3 months is
not enough in the SaaS world to move to another
software, so the notification should be 1 year in some
cases or even more giving time to portability
It would be very relevant to engage cloud suppliers into a code of conduct guaranteeing that price increase at contract renewal will be capped by an inflation index, like in the old world with perpetual licenses and capped increase of the maintenance/support.
