Enterprise Cloud Disruption and rethinking the standard contracting model

In 2010 Steve Jobs predicted that the "center of our universe is moving from PC to cloud"1, and he has been proved right. Users of all sizes are increasingly moving to cloud based offerings, even customers operating in the most risk adverse sectors.

Cloud services certainly have been seen as a viable alternative to the more traditional IT solutions that typically bring with them significant investment and operating costs coupled with a lack of flexibility and scalability. Cloud-based solutions, by comparison, are commonly likened to the purchase of a utility; the cloud customer is able to purchase technology “as a service” as and when required, paying only for what it uses.

This shift in the delivery model has had inevitable consequences for technology contracting, forcing the market to look at the typical outsourcing contract in a different way. An enterprise cloud offering (whereby customers pool their enterprise-wide spend with large vendors to contract across the enterprise and benefit from economies of scale) is often supported by an agreement structured as a lean set of terms and conditions complemented by various sets of online-based terms containing evolving service levels, service descriptions and product terms. The fact that terms are offered on a uniform basis combined with the fact that the lower value of some "as a service” deals does not, ostensibly at least, justify significant legal spend and has forced customers to adopt a different approach to contracting – one where whole-sale negotiations and the traditional risk transfer might not be achievable or even appropriate. This challenge can be met by focusing discussions around key themes in order to ensure adequate customer protections.

In this paper we explore the key contractual themes when seeking to deploy an enterprise cloud solution, and suggest some approaches to managing the associated risk. First, however, it is helpful to have a basic understanding of the technology and the most common models for offering cloud solutions.