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Why Most Cloud Contracts Shouldn’t Be Negotiable

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This week brought news that pharmaceutical giant Eli Lilly has ended its use of Amazon EC2 because of an inability to negotiate contractual liability with Amazon Web Services in the case of outages or data breaches. Though subsequently retracted in this particular case, these negotiations will become more common as large enterprises think about moving more workloads to the cloud. However, as I explain in my weekly column at GigaOM Pro, what’s not so certain is whether cloud computing providers will have to budge.

Cloud computing terms of service — not just from AWS, but from every provider — uniformly deny all liability for outages or data losses, disclaim all warranties of any type, and limit damages to those outlined in the SLA. Although these terms might sound unfair, courts have, in similar circumstances, (i.e., Google AdWords and clickwrap contracts) been quite willing to let those terms stand as they are. This is especially true in cases like that of AWS and Eli Lilly, where both parties are commercial entities perfectly capable of understanding contractual terms and obligating themselves however they please.

When viewed in light of the cloud computing model, there’s even better reason to see why such terms are allowed to persist. The multitenant and anonymous natures of cloud offerings like Amazon Web Services mean that a single failure could result in untold numbers of customers filing lawsuits, even if the cloud provider might not have known they were customers in the first place. That’s a lot of risk for a low-margin business like selling bare VMs.

If self-service cloud providers, such as AWS, really want enterprise customers, they must consider how far they’re willing to bend to earn that business. In some cases, negotiation might be an option. Enterprises, in turn, need to figure out what they actually want from the cloud, because with most cloud providers, they can’t have their cake and eat it too. There are plenty of cloud options offering negotiable contracts, meaningful SLAs and even dedicated resources, but they don’t accept American Express.

Read the full post here.

11 Responses to “Why Most Cloud Contracts Shouldn’t Be Negotiable”

  1. Insurance companies will need to come in and offer policies for this (at extra cost to companies). Amazon might even develop some relationships with insurance companies. Cloud Computing is just a further case of the commodity consumer tech and we will see the all the similar services of consumer Tech: extended warranty cover etc etc.

  2. So this is just coming to light. I worked as an advisor to a professional lines insurer that will be underwriting cloud infrastructure. From my serieis on the uninsurability of same:

    “In other words, since AWS and other cloud providers usually credit services interruptions with usage credits, the best you are going to get, if anything from an insurer, is a payment of some token multiple for what you would have paid for services from the provider – NOT costs incurred for the loss of business continuity. If any commercial line carrier knows of any such services that I have missed, please leave a comment.”

    See the series

    The underwriting of cloud hosted services will have to go through the same travails as the managed services went through- it tool years for the insurers to get a handle on machines that you could identify. Let’s see how fast they can come up with products where the processes and the instances can’t be identified.

  3. Perhaps in your first sentence you should replace “news” with “wild and unsubstantiated report”. And “retracted” doesn’t apply: the rumor was squashed, but the blogger involved still hasn’t apologized for the misrepresentation….

    • I’ll leave the definitive language to others. ;-) There was a news story that was later retracted, which is as accurate as anyone without inside knowledge can be. For all we know, the negotiations actually took place, even if there are questions around the outcome.