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How to Sell Cloud and Shift all the Risk to Customers. (An Exposé!)

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In an earlier post I identified the types of risks that I tell customers they should address in cloud contracts. I also advise cloud providers – and they are generally willing to have an open dialogue with customers about the risks associated with cloud. This is because to give a customer the safer, more reliable cloud that they desire, it is actually an opportunity for a cloud provider to sell a better specified, more expensive cloud.

Welcome Mr Customer…

But if you really want to sell cloud without taking on any of the risk here’s what you need to know. (Of course, if you’re the type of cloud provider who wants to know how to differentiate yourself in the market, then you can address these issues as these are the ones the customers are concerned about.)

1) “As is”

Selling cloud “as is” suggests that it is new, untried and untested and the customer is lucky to have it. It is a clear way of saying “buyer beware”. If the cloud is free or cheap — “as is” cloud is often associated with highly standardised, low cost & low margin services — or is being used for non-core, less important services, then this is probably acceptable for a customer. If you want to differentiate, then define your cloud in relation to a specification that fits the customer’s needs and make assurances over the quality of the cloud.

2) Service credits

I have yet to meet a customer who is happy with credits against future payments for a service that is not performing.
Service credits are a great way of seemingly providing the customer with a form of compensation but in reality protecting the provider against unhelpful claims. Additionally, providers can make it even harder for customers by not volunteering to pay service credits but by requiring the customer to claim them. And then, to top it off, make sure service credits are the customer’s sole and exclusive remedy. But I have yet to meet a customer who is happy with credits against future payments for a service that is not performing. A better way would be to have a sensible dialogue with a customer to see what they want. Customers I advise are more interested in making sure the cloud actually works.

3) Lock in

Flexible, scalable cloud is great for customers – they can buy cloud services as they need them. And stop buying them when they don’t need them. Of course, this is not a great business model for providers and it would be much better to have a reliable, repeating book of revenue by locking the customer into a longer term relationship. Proprietary or tailored cloud is a way of achieving this. Or, you could just tell the customer he can’t terminate for 5 years. Customers I speak to recognise that, where the provider is spending money to build them a private cloud by investing in new hardware, then some form of minimum term is necessary. But even then, customers are willing to negotiate an early termination payment to recognise this. And then will want some assistance to migrate to a new provider. Most customers recognise that paying extra (standard) charges is appropriate.

4) Data loss

It is not uncommon for public clouds to contractually exclude their liability for damaging, corrupting, losing or deleting customer data.

By the nature of cloud services, the provider hosts the customer’s data. It is not uncommon for public clouds to contractually exclude their liability for damaging, corrupting, losing or deleting customer data. This is giving customers a great data storage and processing service and yet not bearing any responsibility if it all goes wrong. Data security and loss is the customer’s primary concern. Cloud providers I speak to remind me of how much they spend on building secure data centres and they’re willing to protect customer data. Selling cloud and taking responsibility for a customer’s data is a great way to be better than public cloud. The new draft EU Data Protection Regulation will impose new obligations on cloud providers and there’s no getting away from this (at least not in Europe).

5) Cap your risk

Often one of the sales messages of cloud is that is cheaper than on premise. Whether this is true is perhaps a topic for someone else to pursue. From a provider’s perspective, the money that they are making is probably significantly lower than the losses that a customer would incur if their cloud service did not work. It has long been the case that IT providers will seek to cap all their risk, all of their liabilities under the contract to the amount the customer pays them and cloud providers copy this. You could even cap all risk to just 3 months of customer payments. Of course, the worse it is for a customer, the more likely a judge will be to favour the customer. This is the big debate in the industry. Customers want more but providers can’t or won’t give more because this would mean them losing much more than they earn. But surely if your cloud is as great as you say it is, then the customer would have no need to sue you for large losses…

But surely if your cloud is as great as you say it is, then the customer would have no need to sue you for large losses…

If you’re a cloud provider, what’s your approach to dealing with the risks in selling cloud? Do you sell on the basis of a standard set of risks placed on the customer or do you negotiate with customers and use it as an opportunity to sell better cloud?