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8 sure-fire ways to screw up a cloud contract

Robert L. Mitchell | Nov. 20, 2013
Read these tips before you sign anything

Pearl thinks that IT will eventually see the rise of a new breed of external integration brokers that can stitch together the cloud services that make up an end-to-end business process and make sure the SLAs are aligned. "They will act as resellers, and overlay their SLA over the SLAs they're getting from various cloud providers," he says, adding that he's had conversations with some vendors that have expressed an interest in entering that business. Today, however, it's up to IT and its procurement partners within the business to do all of the contract spadework.

6. Let the salesperson talk you into adding services that you're not ready to use
If you're thinking of deploying a new service next year, buy it when you're ready to implement rather than allowing it to roll into a renewal contract. Microsoft's Office 365 -- a SaaS suite that includes back-office components for Exchange, SharePoint and Lync as well as the familiar desktop apps -- is a prime example, says Paul DeGroot, principal at Pica Communications, which specializes in helping his clients navigate the Microsoft licensing maze.

"Many customers have bought Office 365, but when I ask how they use it they say they don't," DeGroot says. There's no price benefit to buying the service early, and if it's rolled into a three-year renewal contract you're stuck paying for it for the entire contract term.

"If you're going to use it next year, buy it next year," he says.

In DeGroot's experience, only about 40% of businesses try to negotiate on new contract proposals from Microsoft. One reason may be the confusion businesses face when contemplating Microsoft's myriad licensing options. Three years ago Microsoft offered 46 choices for enterprise agreements. Since then that number has ballooned to more than 178, and most of the increase is cloud related. "It's insanely complex," he says.

Many customers have bought Office 365, but when I ask how they use it they say they don't. If you're going to use it next year, buy it next year. Paul DeGroot, principal, Pica Communications

But pushing back has another benefit: Microsoft has been willing to cut deals. One Pica client demanded that Microsoft remove a Yammer component worth $50,000 from a proposal, but later relented when the salesperson offered a $78,000 discount on something else.

"The customer has no intention of using Yammer, but the Microsoft rep got credit for selling it to him, and the client knocked $28,000 off his licensing bill," he says.

In another case a global Fortune 500 client refused a seven-figure proposal that included Office 365, but accepted the deal after Microsoft offered a discount on the rest of the contract that added up to three times what the vendor would charge him to add Office 365. "Microsoft is buying some of these agreements," especially for large firms that can serve as marquee customers, DeGroot says. "We have customers paying $1 a seat for Office 365 Enterprise E3, which is normally $20 a seat."


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