A new research report on cloud-software buying trends is chock-full of warnings for those companies who blindly ignore the “massive potential” for vendor lock-in in the cloud.
“Despite a perception of simplicity in software acquisition,” writes Ray Wang, CEO of Constellation Research Group, in the report, “many cloud contracts come with all the rigor and due diligence of on-premise licensed software.”
Wang contends that cloud software sales (or Software-as-a-Service) have “dominated” most new enterprise app license sales. In the report—“The Enterprise Cloud Buyer’s Bill of Rights: Applications (SaaS)”—he estimates 81 percent of all new enterprise software license sales offer a cloud deployment option.
In the report, Wang offers SaaS 101 information for newbies—for instance, “buyers do not own the software license,” he writes. “Instead, the software is leased and accessed while the purchaser owns the data.”
But as more organizations go the cloud route, Wang points out three reasons that buyers will face a surge in vendor lock-in. According to the report:
1. Access model means users have limited rights and control. Cutting through the hype, buyers do not own the rights to the code in most public cloud models. Buyers pay for the right to access functionality and use the intellectual property at the full mercy of the cloud vendor. Should the vendor decide to take a different product direction or find itself bankrupt, users remain at the vendor’s mercy.
2. Switching costs remain ambiguous at best and expensive at worst. While users have access and ownership to their data, the hurdle in moving from one cloud vendor to another increases with usage. Without user rights over the functionality, users face lock-in because they can not export their business processes that are instantiated in the vendor’s functionality. Add different architectural standards, varying granularity of process flows, and complex metadata models, users face an expensive challenge switching from one cloud vendor to another. Most migration plans lack clarity in how to successfully switch from one vendor to another.
3. Vendors currently eager for business may grow fat and lazy in the future. The rush to earn a customer’s business remains intense. Most cloud vendors have customer friendly policies. However, the risk of vendor complacency grows with each percentage point shift from on-premises to cloud deployments. Unless rights are stated up front today, buyers will lose leverage over time.
The report goes on to list the strategies that buyers can follow to avoid lock-in and many unhappy fiscal surprises.
“Client-vendor relationships in the cloud are perpetual and it is imperative that these agreements provide a chance for a new slate,” Wang writes. “Thus, CIOs, CMOs, LOB execs, procurement managers and other organizational leads should ensure that the mistakes they made in on-premises licensed software aren’t blindly carried over.”