Long-term Cloud Contracts: Endangered Species?

A funny thing happened amid your journey to cloud computing. Somewhere along the way, vendors started to think they could apply legacy on-premises sales tactics to the cloud business model. A case in point: Many cloud services contracts require multi-year commitments.

As Virtual Clarity recently put it:

"Amazingly, large customers with budgets that can potentially force vendors into long-lasting change continue to miss the opportunity to make IT more agile. Unnecessary long-term contracts are still the norm."

But that model won't last forever.

Indeed, consumer-driven cloud apps often offer free trials (no credit card needed) and no long-term contractual commitments. That mindset is increasingly spilling over into the corporate cloud market, where enterprise IT vendors will face an increasingly difficult time trying to lock customers into long-term deals. 

Aggressive SMB cloud startups increasingly allow customers to walk away from an engagement with 30 days notice -- no questions asked. It forces the startup to earn the customers' cloud business every month. In essence, the vendor owns most of the risk.

I'm not suggesting all long-term cloud contracts are a "bad" thing. Many SaaS applications are quite complex and require months to really optimize -- including extensive hand-holding between the vendor and customer. Surely, the vendor's time commitment warrants more than a 30-day "trial" commitment from the customer.

Moreover, vendors that promote hybrid-cloud options face tricky times. Storage companies, for instance, often require one-year (or more) minimums for deals that involve on-premises appliances tied to cloud services. You can't just give customers all the hardware and software for free with no long-term contract, cross your fingers, and hope profits materialize over the long haul. 

Still, the market is changing fast. New hardware as a service (HaaS) models for customers are set to debut this fall (stay tuned). And as one trusted pundit recently told me, "monthly billing with no minimums and no long-term contract will become the market norm. It's inevitable." 

Keep that in mind as you kick the tires on a range of cloud services...