In the era of the cloud, it has been an advantage to be an early mover, but when you get into the clouds you don’t want to lose your head.
About five years ago “cloud” was the IT industry buzz word and heralded as the new revolution in IT. But while the cloud is becoming an integral part of the IT infrastructure of a growing number of companies – especially in the mid-market – the challenge now moves to how much or how little of the “cloud” we need.
“It is the ability to buy as much – or as little – as is required that makes cloud computing a powerful option for mid-sized firms.” (Ian Grayson – The Australian, Wed 6 August 2014)
However, Jason Dixon, IT and IP law specialist at Ash Street, and former regional counsel for IBM Australia and New Zealand, urges a “buyer-beware” approach to businesses looking for their cloud solutions.
“It’s not about being paranoid or scared, rather ensuring you are informed about what you are buying and on what terms,” he says.
Several years on, cloud has matured and joined big data, social media, mobility and security as one of the key cornerstones of IT, with predictions that nearly $100 billion would be spent on cloud technology globally in 2014. Australian and New Zealand investment in cloud technology is expected to double from $3 billion this year to a whopping $6 billion by 2016.
With big numbers come big challenges, especially for larger vendors who have been slow to move and catch up with early adopters. Traditional revenue streams have been cannibalised, as the cloud has caused a fog over what have been reliable channels such as outsourcing, software licensing and hardware sales.
Where vendors realise an immediate profit through those, now, “old” annuity channels, the cloud model requires a new way of charging for services. It is now all about base offerings, service levels and pricing in a competitive market.
Revenues have taken a hit in the short term, but as vendors have embraced the future and reorganised, restructured and re-tooled their businesses for the era of the cloud, they can expect higher revenues over the longer term.
In the end, it will be tomorrow’s demand for higher value cloud which will deliver the benefits to consumers large and small. It has fundamentally changed how technology is accessed and consumed.
And there lies the advantage for buyers of cloud services, especially mid-sized businesses.
The cloud delivers access to enterprise-grade, highly-configured, automated, secure and mobile infrastructure at previously unavailable levels of sophistication and affordability. “A recent study by KPMG Australia found cloud services could reduce operational expenditure by up to 25 percent and capital costs by 50 percent,” he says.
The mid-market is not restricted in the same way as, for example, big banks, telcos and utilities which have been hindered by security concerns, regulations and a general unwillingness to give up control.
Which cloud is best for you?
Many vendors offer hybrid cloud solutions combining public and private cloud alternatives as part of an overall cloud solution.
“Basically this enables customers to hold non-essential data in the public cloud and more confidential information in the private cloud – all of which should be negotiated in contracts with terms that apply to the use of each type,” he says. “Complexity occurs as the old or legacy technologies co-mingle with the newer cloud solutions, often in an environment where many vendors offer a multitude of choices.”
Here’s where buyers must be wary and ensure they understand not only the specific offerings of each category but how old and new can co-exist, contractually and technically. Says Dixon: “You, or your advisers, also need an understanding of the different types of data being stored and processed and what level of security you need for each.”
While data security is often cited as the one impediment to moving to cloud-based technologies, a recent report by the Australian Government – Information Management Office says that “cloud computing has the potential to enhance privacy safeguards used to protect personal information held by Government agencies.”
Rest assured, the big vendors are continually analysing data breaches and security risks to strengthen their controls – with poor security they will go out of business in the cloud. When negotiating contracts for public or private cloud services, it is worth remembering the differences between the two and how much room you have to move.
Public cloud basically means you have less flexibility in negotiation. Vendors would, rightly, argue (with some justification) that this is a self-managed, automated service delivered from a centralised, multi-tenant, shared environment at a relatively low price point and therefore the terms are the terms are the terms.
Private cloud services do give more scope for negotiation. The more a cloud solution moves along the spectrum from standardised, commoditised, multi-tenanted and vendor-owned to a more bespoke and higher-specifications offering, the more flexibility you can expect on terms.
“If you do not find satisfaction, ultimately switching vendors will always be your best response to bad service,” says Dixon. The caveat here is, make sure you understand the “stickiness” of a contract and ensure you consider the extent to which a vendor will or will not assist on disengagement. Think of the price many have paid, when shifting from one bank or telco to another.
In the fog of the cloud and all its challenges the lesson is - ensure you have the right technical and contractual advice from experts who can clear the air and see blue sky ahead.