In this video, we look at how cloud contracts differ from other types of IT contract, such as outsourcing contracts, and software licenses. What is outsourcing? Well, outsourcing involves a company hiring an outside supplier to provide services that could otherwise be sourced internally. For example, imagine a company that runs an online marketplace. The company has an in-house IT department responsible for design, development, and maintenance of the website, as well as management of the company's servers and other IT equipment. Now the company decides instead to outsource this function by engaging an external supplier to carry out these roles. This would be an example of IT outsourcing. How does outsourcing differ from cloud? Well, traditional outsourcing at least differs from cloud services in four important respects. First, the conventional IT outsourcing model involves a customer moving its existing in-house IT resources out to a service provider. In contrast, with cloud a provider builds a service first, and then a customer buys that service in, so the direction of travel is reversed. Second, an outsourcing provider typically provides a service tailored to a specific customer's needs. In contrast, most cloud services are standardized. The cloud provider offers a single uniform service to all its customers. Third, an outsourcing supplier actively manages a process for the customer. In contrast, cloud services offer self-service. Often the cloud provider has a largely passive role providing access to computing resources which customers can then use themselves as they choose. Fourth, and finally, outsourcing providers typically know a lot about the customer's business because they actively manage a process, and have agreed to provide a specific service. In contrast, cloud providers often have little or no idea what their services are being used for, or even who the ultimate end-users may be. What does this mean for contracts? These distinctions mean that there are key differences between cloud contracts and outsourcing contracts. First, instead of negotiating detailed arrangements to outsource an existing in-house service, a cloud customer enters into a contract to buy a service which the cloud provider has already developed independently. This has a significant impact on the way in which commitments are made to provide the service, with cloud contracts being much more generic in terms of their features, and scope. Second, because cloud services are standardized, providers will rarely modify their service or contract terms to meet specific customer needs. With outsourcing, however, a customer may be able to agree service requirements and terms that are very specific. With cloud, a provider generally offers a standard service on standard contract terms. Third, because cloud services are self-service, a provider typically offers tools for customers to use to manage the service. For example, customers might be able to activate additional security features or select a region where their data will be stored. Indeed, the customer will often have a better idea than the provider has as to how the service should be configured. Fourth, and finally, these differences also help explain why cloud providers try to exclude liability. Not knowing how customers might use their service means it's hard for providers to predict potential losses. Well, what about software licensing? Software is protected by copyright, and simply put, this means the right holder has the exclusive right to permit others to copy the software. This permission is referred to as a software license. In traditional software licensing, the right holder gives the customer a license to install and run the software on their devices. This traditional model is sometimes also referred to as software as a product. Now, software-as-a-service also involves customers using a software application. However, unlike traditional software licensing, access to the software is provided as a service, delivered via the SaaS provider's or another cloud provider's infrastructure. This means that cloud contracts differ from traditional software licenses. First, since the cloud customer doesn't install or run the software application on their own device, they may not even need a software license. Second, the customer relies on the cloud provider to manage the IT environment in which the software runs. As a result, a SaaS contract may need to cover more things than a traditional software license, such as where the provider's servers are located, and how they are secured. What does this all mean in practice? Well, these differences should be borne in mind by customers or lawyers who are used to dealing with outsourcing contracts or software licenses. They shouldn't expect the same clauses to carry over into cloud contracts. Now, this doesn't mean that cloud customers can never negotiate specific terms. However, if you're a customer, it's worth thinking about cloud business models and technologies to understand the constraints these impose on what a provider can and cannot agree to in a particular negotiation.
