In this video, we look at cloud providers' willingness to negotiate contracts with customers. So, can I negotiate the contract terms with my cloud provider? Well, the answer depends in large part on what type of customer you are. If you're a consumer or a small to medium sized enterprise, then the answer is, unfortunately, probably not. Cloud providers offer their services on a one-to-many basis. And as a result, a single provider may have many thousands or even millions of customers. It simply wouldn't be practical for the provider to negotiate specific terms with each customer. Instead, cloud providers offer their services on standard contract terms on a take-it-or-leave-it basis. Now if the customer is satisfied with the terms, they can click through and start using the service often straight away, without any human interaction with the cloud provider's staff. Indeed, on-demand self-service is part of the NIST standard definition of cloud services. And if the customer is unhappy with the service, they can typically terminate the contract at any time, again often without any human interaction with the cloud provider. So, in sum, for smaller customers, opportunities for negotiating contracts are very limited. But what about large enterprise customers? Well, for larger customers, cloud providers may be more willing to enter into contract negotiations. A 2020 survey, by the Cloud Industry Forum, found that among cloud customers with a turnover, or revenues, of more than £1 billion a year, some 70% had negotiated a contract with a cloud provider. On the other hand, among customers with a turnover of less than half a million pounds a year, only around 30% had negotiated a contract. Now, various factors may influence whether a cloud provider is willing to negotiate with you. For example, what's your predicted spend on that deal? This will indicate what the deal is worth to the provider. And what's your annual revenue and your company's overall IT budget? This may indicate potential spend in future. Do you offer a strategic advantage? In some cases, a cloud provider might be looking to land a big name customer to bolster its credibility or to help it expand into a new industry or sector, and this may give a particular customer extra leverage in negotiations. Will cloud providers agree to the terms that customers want? Well, that's a very different question. As with any commercial negotiation, the outcome will depend to a large extent on the parties' relative bargaining power. Now our interviews indicate that cloud providers will typically take their standard contract terms as the starting point in any negotiation. And they're generally inclined to accept only minor amendments. For example, in 2020, a large multinational customer told us that even for a contract worth over £100 million, it struggled to negotiate any meaningful changes. Similarly, another multinational customer reported that their cloud provider was prepared to negotiate around the edges, but that it would not agree to any changes of substance. Now this is echoed by survey evidence. For example, in the 2020 Baker McKenzie survey, 95% of respondents said that their cloud agreements were either on the provider's standard terms, or on the provider's standard terms with some limited negotiated amendments. So, what does this mean in practice? Well, in practice if you're a smaller customer, you may simply need to review the standard terms and decide whether they are acceptable to you. But if you're a larger customer, you have a bit more chance of negotiating tailored terms. However, you may in practice find that you still have to start from the provider's standard contract and then propose amendments to specific clauses.
