Avoid Overpaying for Cloud

By  Jeff Muscarella, EVP of IT, NPI — January 02, 2013

How much money will you waste on cloud computing in 2013? It's an interesting question, given the growing reliance on cloud technologies and the attractive benefits the cloud provides. But most enterprises unknowingly pay 10% to 20% too much for cloud services. The cost and contract pitfalls associated with cloud purchases are numerous.

Here are seven questions to ask before you enter into a cloud contract in the coming year:

  • Is there a minimum purchase clause? This is especially true with SaaS. Don't buy a larger number of licenses than is needed for your enterprise (or have a minimum number of users) over the term of the contract. Buyers should also push for the flexibility to decrease users/licenses at regular intervals so that you can adjust in the event your business needs change. You may easily be locked into over-subscription that's not aligned with your needs if you don't build in this flexibility up front.
  • How can I prevent unreasonable renewal rate increases? Be sure to address renewal rates in your contract by inserting language that limits or prevents renewal rate increases. Not doing this empowers the vendor to enact sometimes unreasonable rate increases once your contract term is up.
  • What are the termination costs? At some point, you may switch vendors. Specifying termination costs and data transfer guidelines upfront in the contract makes this process far less painful and costly.
  • What is pricing a la carte? The onus is usually on the buyer to request a la carte pricing that breaks down every aspect of the cloud service to be purchased. This includes equipment costs, lease rates, discounts, front-end services, and other services/features that fall outside of the base cost of service. Unless you have this data in front of you, you can't accurately plan your spending or negotiate pricing effectively.
  • When do scheduled outage windows occur? Buyers should ask their vendors when scheduled outage windows will occur. Vendors plan these outages well in advance to perform upgrades and systems maintenance. It's up to you to determine how tolerant your business ecosystem is of this schedule. For example, a retailer can't afford to have an outage occur during the holiday shopping season. A bank, on the other hand, can easily weather an outage scheduled on a Sunday when financial institutions are closed.
  • What is the refresh rate? Technology and business change rapidly. How will your vendor keep up? It's important to understand how often your vendor updates servers, security and other infrastructure components, and how that cost is accounted for in the contract. Is it bundled in? Is it at an extra fee? Determining those answers now will help you determine which vendor is best for your long-term IT, business and budgetary needs.
  • How can the process and solutions be optimized for greater cost efficiency? Cloud vendors have made a science out of efficient service delivery, but that doesn't mean there isn't room for improvement. To avoid overspending, companies should have their own IT professionals review vendor processes, solutions and suggestions. For example, do you really need additional tape backup for development servers, or is snapshot imaging stored on less expensive disk storage adequate? These are the types of questions that are best answered by your internal teams and will be instrumental in reducing your cloud spend.

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