What do cloud vendors want, part 2?

Lisa R. Lifshitz
Last month, I wrote about part of my recent conversation with in-house counsel from several major public Canadian and U.S. cloud vendors in connection to the Canadian IT Law Association’s Annual Meeting in October. Here are some more thoughts from them on the big issues surrounding cloud computing.

While most financial institutions and governments now want to see their cloud vendors comply with various security standards, and in fact many large vendors agree to do so in their marketing materials, fewer are willing to represent and warrant compliance with such standards in their contracts.

Part of the problem here is cloud computing standards are still in their infancy and many are in their draft phase. Also, there is a veritable alphabet soup of standards/associations in this space, including the CSA (Cloud Security Alliance), ENISA (European Network and Information Security Agency), INCITS (International Committee for Information Technology Standards), and ISO (International Organization for Standardization), to name a few.

Some cloud vendors will only agree to comply with financial standards rather than specific cloud computing standards; others will only contractually agree to comply with certain key elements of the standards but not the standards themselves (or even worse, industry specific standards) to minimize liability.

Others proudly state they comply with various standards, including ISO 27001, ISO/IEC 27002 code of best practices for information security management, NIST controls, PCI compliance, and even the newer ISO 27018 standard to protect personally identifiable information (PII) for the public cloud computing environment.

This last standard, published Aug. 1, 2014, provides control objectives, controls, and guidelines for implementing measures to protect PII in public cloud computing environments and is applicable to all types and sizes of organizations, including public and private companies, government entities, and not-for-profit organizations, which provide information processing services as PII processors via cloud computing under contract to other organizations.

ISO 27018 seeks to address such issues as keeping customer information confidential and secure and preventing personal information from being processed for secondary purposes (e.g., advertising or data analytics) without the customer’s approval. If this standard takes off in Europe, compliance in Canada will remain a definite possibility and there will be some onus on cloud vendors here to comply with it.

Transition services

My cloud vendors all agreed the ability of the customer to retrieve data is critical but unfortunately most companies do not spend enough time thinking about transition.

While some SaaS vendors allow customers to export their own data, such vendors are not in the extraction business per se and do not provide transition services. Vendors acknowledge that sometimes the details relating to transition — especially regarding what happens to customer data post-termination — are not always in the contract itself and that details of the actual destruction policies may be found, if ever, on their internal web sites and do change over time.

The clauses should continue to be negotiated carefully as the vendors frankly stated it is unlikely that they or their competitors will destroy their archived data in the absence of explicit legal requirements to do so. Even then it is difficult to ensure the process is carried out thoroughly.

And of course, this level of detail regarding destruction — which is required by regulated industries — does not come cheap. As one vendor noted, “for any kind of data transfer or destruction, expect to pay some data charges . . . you will need to get granular in the agreement. There is no easy solution.”

Are cloud agreements becoming more commoditized?

The SaaS vendors were all over the map on this. Many felt quite strongly that public cloud agreements are supposed to be straightforward, standard, and basically unchangeable.

The “yes” camp firmly believed in “very standard terms and parameters” for their public cloud services offerings and would not change them unless absolutely required to meet “OSFI requirements.” One vendor bluntly said while there are more attempts by clients to negotiate these agreements, “our prices for standard services are set for non-negotiation” and therefore they try not to negotiate to maintain efficiencies.

Other cloud providers said “no” regarding commoditization and were adamant SaaS cloud agreements are becoming less commoditized. Saying such contracts were originally not always negotiable, the “market power of key clients is now influencing decisions to negotiation.”

Also, companies in this space are very conscious of their competitors and are always watching others in the industry to see what they are doing; if one company changes their position on a clause (i.e. by increasing the scope of a key indemnity, for example), often others will do so as well.

A number of vendors did complain clients often want to use their own forms of legal paper — whether the document is appropriate or not — and the “battle of the forms” causes negotiation delays. One vendor noted there is “lots of back and forth — it’s getting worse, not better.”

Another vendor found that they were “spending too much time revising our agreements” and reacted by recently reviewing and revising their standard terms. They seemed to have a much better acceptance with their revised document. “We still have to make changes when dealing with universities and the public sector but there are generally fewer changes,” said the vendor adding, “We will negotiate terms to get the business.”

The bottom line: a customer’s ability to make changes to their cloud agreement (particularly a public one) will depend upon the general willingness of the cloud provider, the size of the deal, the nature of the customer (regulated industry, public sector, etc.), and what the competition is doing.

Service levels

Interestingly, and somewhat surprisingly to me, most cloud vendors indicated service levels in their SaaS agreements were not being hotly negotiated. Is it because often lawyers leave this section to the business team? Or is it because by their very nature of being a shared service, service levels for a public cloud offering are hard to change?

Some vendors believe clients don’t always understand service levels and it is “lawyers [who] will always ask for something here to impress the business.” Some clients do have internal expertise and seek changes to specific service levels but “you have to understand how this one change will affect other service levels in a public cloud so this is not easy to do.”

Most vendors felt there should not be a lot of changes to service levels created for public clouds and that clients really need to understand what those numbers actually mean, i.e. does downtime affect the availability of product or the underlying infrastructure? It’s fine to demand high uptime of software/systems but what about guarantees re performance, functionality?

What do customers want when they seek changes to service levels? Most are looking for increased uptime ratios and credits and many vendors felt clients were in fact “overly tied to percentages and availability, looking for credits.” Rather than getting credits, one vendor said if a client is unhappy, it should just negotiate a termination right, because vendors too want to keep service up as much as possible.

Service levels are frankly difficult to measure as different clients want different things. As one of my own (user) clients expressed it, “It’s less about numbers — what is downtime?  It’s more about how this will impact the business. I typically want money back but this is hard to get from a vendor. I will definitely seek credits. I want meaningful fix times, validate fix times, and a right to terminate if things go wrong.” All this should be included in any negotiated cloud agreement.

Private clouds

While acknowledging private clouds are useful for some clients (including those that want a hybrid cloud), many vendors felt such structures were “not the real cloud” as “private clouds lose the point.” Others felt private clouds cost too much for most clients and are therefore not a real option for most non-regulated clients.

Noted one vendor: “There is a perception that [private clouds] are more secure but we think that using a multi-tenancy approach accomplishes this anyway.”

While some clients are clearly willing to pay more to feel more secure, other clients are satisfied directing vendors to store data in certain jurisdictions, i.e. the E.U. rather than the U.S. At the same time, given rapid shifts in the marketplace, vendors are watching one another to see what sells and whether the private cloud market becomes ever more attractive.

“Private clouds are the new wave,” said one. “Private clouds are not currently part of our business model but we are watching closely.”

While I am grateful these cloud vendors took the time to speak to me about these important issues, I definitely walked away feeling our discussions represented only a small and brief snapshot of this rapidly changing industry and if I came back to speak to these same individuals in a year, much would be changed. Accordingly, watch this space for updates!

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