How to Address Public Cloud Commitments, Contract Burndown and Consumption
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As a global solutions provider, we routinely engage with executives and technology leaders from the Fortune 1000. These enterprises, like most around the world, invested in cloud computing incredibly fast in recent years — driven by a pressing need to compete through agility, innovation, consumption-based infrastructure, flexible and scalable deployment options, and the promise of speeding products and services to market.
One recurring theme from these C-level discussions has been a worry about potential overcommitment in the public cloud.
Some have expressed frustration in the wake of signing a large commitment with a cloud service provider like AWS, Microsoft Azure or Google Cloud. These leading service providers often look at your historical cloud spend, add a growth percentage (e.g., 20 percent) and quickly move to negotiations — all without fully understanding your cloud migration or development plans, optimization state, and other factors that should influence your true commitment number.
Through our expertise as a technology adviser with deep experience across all three public cloud service providers, WWT has learned a few tips that can help organizations avoid feeling overcommitted to public cloud contracts.
One common mistake that can lead to overcommitment is assuming public cloud is the optimal operating model for your business.
While enterprise cloud commitments certainly offer advantages in the right circumstances, they also have their shortcomings. This is particularly true for those who rushed to the public cloud without first developing a well-rounded cloud strategy that incorporates the right mix of cloud tools and services needed to achieve the organization's business objectives.
Choosing between public, private, hybrid and multicloud deployment models is an important decision. A strategic one that must align with your level of cloud maturity, desired outcomes, critical business applications and workload requirements, industry security standards, existing IT infrastructure and much more.
If your organization has rushed to the public cloud without first validating whether it's the best long-term model for your business, the good news is it's never too late revisit your cloud strategy and rationalize your application environment. Even if you've already signed an enterprise cloud commitment. The sooner you can right-size your investments, the closer you'll be to realizing the full promise of cloud.
It is important that organizations fully understand the terms, conditions and structure of their cloud contracts. Failure to do so can quickly lead to overcommitment.
Often pitched as the best value for organizations with high levels of public cloud consumption, these committed-use discount contracts almost universally feature a burndown clause that ties ongoing costs to predetermined consumption commitments and termination dates. In other words, they include a discount in exchange for contractually agreeing to use a minimum amount of cloud provider services over the course of the agreement (usually one to five years). Additional savings can materialize from swapping capital expenditure (CapEx) for operating expenditure (OpEx) models, where your new subscription to cloud-native products and services replaces the need to own, maintain and upgrade on-premises hardware.
If organizational cloud consumption is not properly managed and you under-consume your commitment targets, your rates can change. Meaning you pay more per cloud-service usage or even forfeit the unused portion of your commitment altogether.
Some factors that can contribute to the improper scoping of cloud commitment contracts include:
- An inability to accurately forecast enterprise-wise consumption.
- The contract was negotiated by siloed business unit owners within the organization.
- The contract contains time schedules too aggressive for workload migrations.
- A lack of access to skilled cloud talent, slowing project execution.
- The impact of Covid-19 on cloud adoption and consumption across the organization.
Strategic planning and assessment prior to contract signature can put you in a much better position to extract the full value of your investment in cloud.
Today, cloud computing plays an increasingly vital role in an enterprise's IT environment. Not only is it important to first identify the right cloud operating model for your business, it's equally important to understand the nuances between the contracts and services offered by competing cloud service providers. Particularly as each provider can be more effective at delivering certain types of business outcomes versus others.
WWT is uniquely positioned to help you achieve cloud success. Unlike traditional consulting organizations, boutique firms and service providers, we offer independent expertise across all areas of cloud, from strategy through execution. We are an accredited solutions provider that performs extensive consulting and services work across all major cloud providers, plus we're among the largest partners in the world with most of the major independent software vendors (ISVs) and original equipment manufacturers (OEMs).
For organizations with enterprise cloud commitments, we can help you understand the most effective ways to assess and manage your consumption. Our Cloud Marketplace Assessment can help you understand and meet your commitments with cloud service providers in a predictable and measurable way. And our Public Cloud Commitment Contract Assessment can help you maximize negotiating power and reduce the risk of overcommitment when you're weighing a new agreement or preparing for a renewal.