Cloud-Washed Contracts: You Could Be at Risk


As my colleague Bobby Neil and I wrote earlier this year, if you’re looking to buy Software as a Service (SaaS), it takes diligence. It’s important to understand whether you’re buying a true SaaS solution or simply a repackaged, “on-demand” version of the software. The same can be said for Infrastructure as a Service (IaaS). A true IaaS service can, at times, be difficult to discern from a more traditional managed service.

Unfortunately, many vendors continue to market and sell their legacy services as Cloud technology simply by retooling certain components. This is most commonly accomplished by repackaging the service to align more closely with some of the key features Cloud customers desire most; for example, usage-based pricing and the capability of rapid, self-service provisioning. This technique is known as “Cloud Washing.”

Buying Cloud-washed software or infrastructure creates risk for both the information technology department and for the organization as a whole. For example, take a quick look at the TPI Top 5 “Software as Service: Caveat Emptor,” and turn each point on its head. You’ll quickly see that if you’re trying to buy Cloud technology but unknowingly buy legacy technology, you may end up with dated features, limited access, significant up-front investment and, potentially, a slew of customizations.

However, there’s also a contractual risk that has not received much attention. If you are not really buying a Cloud service, why should your contract include Cloud-like terms, which are typically very provider-friendly? There is a real risk here for enterprise buyers – a double whammy, if you will: You’re potentially buying legacy technology, and you’re getting unfavorable terms to boot. No CIO wants to be in this position.

How can you avoid this sticky situation? Given that there continues to be extensive debate about what is “true” Cloud technology, it helps to dispense with the term “Cloud” and instead think of the technology as a continuum, as shown here:

As you can see, if you’re buying a custom solution, you should fully expect a more customized agreement. As the technology solution you’re considering becomes more standardized, so should the terms and service levels. It’s a fair trade-off, as long as you have all the information you need to make a rational decision. As expected, service providers have a lot more information about the solution than you do, so it’s up to you to dig for more.

A great starting point is the National Institute of Standards and Technology (NIST) definition of Cloud Computing. The industry has (for the most part) agreed to this definition, so pull it out when you’re talking to your salesperson — but don’t stop there. Ask your Cloud provider other, more-probing questions. For example, does the provider’s application programming interface (API) framework remain stable when rolling out new features? What level of automation is in place for provisioning and failover? Answers to these questions will help you to understand where the service sits on the continuum.

Remember: the more Cloud-like the service, the more you should expect to see contractual terms and service levels that favor the service provider.

Bottom line: Dig deep into the nuts and bolts of the service you’re considering so that you don’t end up buying legacy technology underpinned with a Cloud-like contract.

About the author

Stanton helps enterprise IT and sourcing leaders rationalize and capitalize on emerging technology opportunities in the context of the global sourcing industry. He brings extensive knowledge of today’s cloud and automation ecosystems, as well as other disruptive trends that are helping to shape and disrupt the business computing landscape. Stanton has been with ISG for more over a decade. During his tenure he has helped clients develop, negotiate and implement cloud infrastructure sourcing strategies, evaluate and select software-as-a-service platforms, identify and implement best-in-class service brokerage models, and assess how the emerging cloud master architecture can be leveraged for competitive advantage. Stanton has also guided a number of leading service providers in the development of next-generation cloud strategies. Stanton is a recognized industry expert, and has been quoted in CIOForbes and The Times of London. You can follow Stanton on Twitter: @stantonmjones.