Friday March 19 2010 by Peter Hanselman

 

The new offerings to the market by Cloud Computing vendors like Amazon, Google, Microsoft and IBM raises the question if there is a need for special Cloud computing contracts? The Outsourcing industry has developed contracts to formulate the rights and obligations of the vendors and the outsourcing party. Do these contracts cover the Cloud computing offerings of today?

 

To answer this question we need to know what Cloud Computing is. Gartner defines Cloud computing as follows:

 

“A style of Computing where scalable and elastic IT capabilities are provided as a service to multiple customers using Internet technologies”

 

From a legal point of view nothing special. A vendor offers ‘scalable and elastic IT capabilities’ as a ‘service’ to ‘multiple customers’. I am not a legal specialist, but to me it is just a service contract between a vendor and a number of different customers. The market is already familiar with this kind of contracts, like Software as a Service, Platform as a Service, Infrastructure as a Service, Integration as a Service, etc.

Forrester, McKinsey and the vendors all are defining Cloud Computing a little bit different. For the key question if the market needs new legal contracts these academic differences are not very relevant.

 

 

In many articles the virtual character of the Cloud is described as a new phenomenon. Is that really the case? SaaS and PaaS contracts already had a virtual character, so lawyers will tell you that there is nothing new about this virtual aspect. What is so special then that everybody uses this marketing buzzword? Let’s look again at the definition of Gartner. In my opinion the scalability and elastic character of the services set Cloud Computing apart from the usual Outsourcings services. This means that the customer can turn the services on and off any time they want.

 

From a legal perspective this is nothing special. However for you and me this is really an important change in the market. From now on you can handle IT as a commodity, just like you handle your electricity and gas supplier.

 

This is too good to be true. You just pay what you are using, without an obligation to the vendor for a certain minimum usage level. Not all the big vendors are offering this kind of elasticity. However there are already contracts in the market with this limitless scalability up and down. So do shop around till you find the right vendor. 

 

 

Cloud computing is just the next step in IT. Through standardization IT vendors can offer services to the market against low prices and high scalability. From a legal perspective it just seems to me ‘business as usual’. Based on the knowledge and experience of the Outsourcing business a lawyer can formulate Cloud sourcing contracts. But is this necessary? 

 

A big difference with the Outsourcing industry is the use of standard contracts by the Cloud providers. Standard conditions formulated for the multi tenants. The market should be aware that there is less or no room at all for negotiations. You can subscribe against standard conditions and standard prices. So before you subscribe to a nice Cloud service have a thorough look at the standard conditions of the different vendors. In most cases they will not be in your favor.

 

Another important aspect is the privacy legislation. Although this was important as well with pure Outsourcings contracts, in the case of Cloud services it is more important. There are many differences in privacy legislation between the countries, even in the Euro zone. Through the virtualization of the data you don’t know where privacy sensitive data are at a specific moment in time. It is often forbidden to store your data outside the jurisdiction of a country. You really need legal advice from an expert in the privacy legislation before you trust your data to the Cloud.

 

Although Cloud computing offers new possibilities to the market I don’t believe that we need a new kind of legal Cloud contract. The focus from lawyers may change from specific Outsourcing contracts to advice on standard contracts and to the mine fields of privacy legislation.