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How to negotiate a cloud agreement that works

In a cloud initiative, the difference between disappointment and success is connected to the quality of the contract. Consider these negotiation strategies.

Nobody wants to pay too much or not get everything they expect in cloud computing, yet some cloud users have faced one or both of those outcomes in their dealings with cloud service providers. A key reason why is that cloud customers don't do a good enough job in their negotiations with providers.

To reach a suitable cloud agreement, keep these three principles in mind as you negotiate:

  1. Know your objectives. What are you looking for in the contract? Most users focus on costs and the cloud service-level agreement (SLA), which stipulates the reliability of services being provided.
  2. Know your application. Understand the workflow that describes how information moves among components in or out of the cloud.
  3. Know who you're dealing with. To get what you want, you'll need to know how to properly approach the cloud provider.

In this tip, learn the first steps you need to take to negotiate a cloud agreement, the importance of a precise SLA and how to pursue lower cloud costs.

Where to start with a cloud contract

Don't go into negotiations in search of the best cloud agreement. You need to understand what your application needs in terms of specific service requirements, the specific SLA you want and the service cost that will allow you to make your business case.

If you have enough application specifics, you can do a rough pricing of cloud options on your own. This estimate will help to guide your negotiations later. Amazon Web Services, Microsoft Azure and Google Cloud Platform offer calculators to assist with cloud cost estimates. But before you get to price negotiations, start the discussions with non-price items, such as services and SLA.

Next, draw a diagram that shows the information flow relationship between the elements you expect to host in the cloud, as well as anything outside a particular cloud provider's facility. This is important because you can expect to be charged for most things that move in or out. Identify the information source, data element size and data volumes.

When you contact cloud providers:

  • Tell them what you need, based on your objectives and the data flow map.
  • Ask them to develop a proposal on how their services could be tailored to your needs.
  • Emphasize the cost-sensitivity of your business case.
  • Ask for a full breakdown of expenses. Make it clear that you will expect that an accepted bid from the provider will be converted into a contract.

Match your objectives and data flow diagram to the responses. What you're looking for are costs that are related to a specific feature or a specific information flow. The most common example here is the traffic charges into or out of the cloud. You'll want to reference these charges and ask whether there's a way to reduce them or cap them to avoid unpredictable cost overruns.

The SLA should be specific about how the guarantees are measured.

At this point, you might ask the provider to suggest augmented services. These services could increase your cloud costs slightly, but they should improve the user experience. Or they might reduce your own operations and support costs.

Encourage providers to suggest additional features that could further reduce your costs. Select the best option from this second set of bids, and then get ready to negotiate. Ask who in the cloud provider's organization would have authority to sign off on any special changes or accommodations that were agreed upon in the discussions. Get this out of the way -- before it looks like you're going over anyone's head.

A cloud SLA needs to be precise

The next priority is to get the cloud provider to deliver a contract they're prepared to execute, based on their bid. Be sure the contract includes an SLA section. This needs to cover service performance and availability, and it should include:

  • how service performance and availability are determined;
  • the time allowed for the provider to remedy problems; and
  • details on the cloud agreement's cancellation and renewal terms.

The SLA should be specific about how the guarantees are measured, how you report problems and how escalation progresses if the SLA isn't met. If you find any of these elements unacceptable, deal with them before you proceed to cost negotiations.

Core components of a cloud SLA
Ensure your cloud SLA includes these components.

Get specific about the costs

It's best not to start with a general request for a discount. Instead, cite a fear that the provider's current proposal won't get approval from senior executives because it won't meet company guidelines for project ROI. Another good option is to express concern that if costs escalate in the future, for any reason, the project justification is in jeopardy.

Ask if there's a different approach to your project that would lower costs or reduce cost creep. If you can't get as much of a discount as you'd like, ask for other concessions in the SLA, such as better response times.

If things hit the wall, don't make empty threats. Cloud service providers will be more reasonable with you if they see that you're being reasonable with them. Buyers often want to threaten to take their business elsewhere, but that's a last-resort strategy, and it's effective only if the offerings you need are truly available from another provider.

If you cannot come to terms on a cloud agreement that you'll be happy with, try one last time. Ask the provider to suggest a path forward that meets your goals as closely as possible. If your problem is purely cost, request a cheaper approach. If it's features or performance that created the impasse, ask the provider to suggest an alternative application model that might meet your goal. If that doesn't work, you'll need to try an alternative provider or rethink your cloud objectives.

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