Will IBM’s simplified cloud contract suit everybody?

IBM has announced its intention to make contracts for cloud computing services more simple, but will this suit all customers?

IBM has announced its intention to make contracts for cloud computing services more simple through a standardised two-page document, but will this suit all customers?

The IT giant wants to make cloud contracts as easy to put in place as the cloud-based IT services themselves.

In December 2014, IBM vice-president and assistant general counsel Neil Abrams said it is ironic cloud computing represents a faster and more innovative approach to doing business, yet complex and lengthy contracts from suppliers remain an obstacle.

“By dramatically simplifying and accelerating how clients contract for cloud services, IBM is making it easier and faster for companies to reap the benefits of cloud,” he said.

IBM has also invested $1.2bn in plans to build 15 datacentres in Europe and recently extended the global reach of its cloud computing services by adding 12 locations to its network of cloud centres.

Locations for the latest IBM cloud centres include Frankfurt, Mexico City and Tokyo. Nine more centres have been added through a partnership with communications provider Equinix in Australia, France, Japan, Singapore, the Netherlands and the US.  In July 2014, the company’s London SoftLayer datacentre went live.

Since 2007, IBM has invested more than $7bn in 17 acquisitions to increase its cloud offerings. The company now processes more than 5.5 million client transactions daily through IBM's public cloud.

IBM reported cloud revenue of $4.4bn for 2013, which was 69% higher than 2012.

Contracts not suitable for large companies

Berwin Leighton Paisner outsourcing lawyer Mark Lewis said standardised contracts would be ideal to expand the use of cloud computing in the mid-market, but questioned its appropriateness for large corporate organisations.

“For mid-sized companies willing to trade off utility services, lower costs and plug-and-play capabilities against standard terms where the rights are restricted, that is fine,” he said. “But for the big corporates you need a different contract. This does not need to be a full-blown contract, but it needs to have more than a standard contract.”

At the moment, each supplier – even IBM – has lots of different contracts, so this is a good move by the company

Lee Ayling, KPMG

Lewis added that many cloud contracts he has seen are only a couple of pages long but refer to lots of other rules on supplier websites.

The massive outage experienced by Microsoft Azure in November 2014, which put customer websites offline, was a reminder of the importance of getting contracts right.

Paul Hinton, commercial technology partner at law firm Kemp Little, said big businesses are eager to harness the cloud but incidents like the Azure crash have raised questions.

He added that as more large companies start using the cloud, suppliers are having to offer more legal guarantees. However, large companies are now negoitiating better terms around this.

“Smaller businesses probably have to make do with standard terms, but big businesses can negotiate,” said Hinton. Their negotiating position is stronger because there is competition in the sector, with the likes of Microsoft, Amazon and even Google battling for business.

KPMG partner Lee Ayling said the industry needs to simplify cloud contracts: “I think this is a good move by IBM. Contracts need to be simplified, shortened and understandable.

“At the moment, each supplier – even IBM – has lots of different contracts, so this is a good move by the company.”

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