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.

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