Don’t let poor contracts interrupt your business on the cloud

GARTNER forecasts that enterprise spending on SaaS will reach almost US$31 billion worldwide in 2018, up 23 percent from last year. As enterprises rush to adopt cloud, they must be careful to keep their exit strategy in mind, to avoid putting mission-critical data into the hands of providers that offer no practical recourse for the return of that data.

Enterprises will likely switch providers at some point — or even move back to on-premises deployments in some cases. However, in doing so, companies can face a number of serious hurdles surrounding their data, including:

# 1 | High data extraction and migration fees: SaaS archiving vendors can charge as much as US$50,000 per TB to extract data when customers exit contracts with them.

# 2 | Bandwidth throttling: Many cloud vendors make it easy to get data into their cloud, but some throttle bandwidth when trying to take that data out. Throttling can be so severe that hundreds of TB extractions could take years to complete.

# 3 | Data formats: A recent Gartner survey showed that, on average, about 20 percent of the transition costs from one application (on-premises or SaaS) to another application are data cleansing and migration fees, regardless of data formats.

# 4 | Ownership of metadata: There is data beyond “your data,” which has made it valuable in the cloud. This usually includes things such as metadata, taxonomies, “likes” or even a folder structure. While this metadata is valuable, vendors may not consider it to actually be yours when you extract your data from their system.

# 5 | Lacking skills: Cloud adoption has enabled IT departments to offload certain skill sets to their cloud vendors. When it comes time to switch cloud providers, IT departments can lack the skills needed.

Therefore, businesses moving to the cloud must pay attention to the terms of the contract they sign with their vendors. In an exclusive interview with Tech Wire Asia, Gartner’s Research Director Luke Ellery explains what businesses should watch out for and how they can better protect their interests.

“There are a lot of things organizations don’t consider before signing a SaaS contract,” said Ellery.

Businesses should review their contracts to understand what they should do if their software as a service (SaaS) vendor gave them 30 days’ notice that it will not be renewing the service contract, or how they would handle a transition if the business decided not to renew due to ever-increasing costs with of the incumbent vendor.

Would you have sufficient time to retrieve your data and move it? What if you hadn’t worked out where your data needed to go and who was going to move it? Is the data in a format you can easily handle? Will the vendor give you any assistance? Do you know the likely cost of your migration? Will you need a system integrator?

Failure to develop and maintain a thorough exit plan in advance can raise your barrier to exit to a prohibitive level, trapping you with a cloud vendor in a de facto relationship.

Gartner predicts that by 2020, over 25 percent of projects to migrate off of a SaaS application will fail because the cost of leaving the data there is far less than unreasonable extraction costs and timelines.

According to Ellery, the costs of exit or transition fit into several buckets such as training users and help desk, integration with other systems, implementation of cloud capability, process changes, costs of migrating and cleansing data.

The costs in each bucket varies by organization size. For example, the results of a Gartner survey of cloud services planning and adoption showed that smaller organizations spent less (15 percent) than the largest organizations (18 percent) on integration costs.

Therefore, as part of any cost benchmarking activity, ensure that your proportional costs are in line with the market.

Most vendors’ SaaS contracts do not have any explicit terms about transition assistance and, even those that do, typically do not go into adequate detail about what happens in a particular termination scenario.

If exiting due to a breach by the vendor, it is reasonable that the customer should receive the necessary professional services free of charge. Unfortunately, you will have no negotiation leverage at the time you are exiting.

You’re already on the cloud. Now what?

Too many organizations find out too late that they had no data extraction protection in their initial SaaS contract. When it comes time to extract the data, they are surprised by much higher bills than expected.

Unfortunately, an organization has little leverage to change the terms and conditions after the contract has been signed.

One archiving SaaS vendor has a clause in its contract that says, “Extraction of data will be US$50K/TB” while other vendor contracts state, “Data will be delivered at the going rate at the time of termination,” and other vendors make no mention of these details at all in their contracts. At this point, there are a few options that can be considered:

#1 | Take advantage of renewal windows to negotiate extraction language into existing contracts.

#2 | If a current vendor is quoting hefty extraction costs and long time frames, look for any leverage you may have. Do you do other business with this vendor that can be leveraged in this negotiation? Are you a member of an association where this issue can be brought up and discussed (something the vendor might not want to happen)?

#3 | On a regular basis, work on reducing the amount of data that you have with the SaaS provider.

#4 | Can you move to your new system and conduct new business there, while leaving all of the old data on the legacy cloud provider’s infrastructure to be aged off?

Ellery, who will be sharing more on the topic at the Gartner Security and Risk Management Summit in Sydney later this month, IT leaders should insist that their cloud vendors include data extraction provisions in their contract.

“Negotiate with SaaS vendors to include contractual obligations to help customers move their data if needed,” exclaims Ellery.

IT leaders must seek to establish contract terms that guarantee a minimal cost for extraction or migration of their data. Worst-case terms should consist of normal professional services fees, and best case, free through a self-service portal.

Reasonable timelines based on contractual bandwidth agreements should be set according to the amount and criticality of the data.

SaaS vendors typically retain customer data for a set period of time following contract termination/expiry. Gartner recommends that you negotiate at least a 60-day period in which to retrieve data following termination.

Enterprises should also require a minimum six-month notice in the event of termination by the vendor to allow planning of the migration of data.

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