Migrating to the cloud is never an easy task – and keeping costs under control is especially difficult when migrating with incumbent, legacy IT vendors. Companies like Oracle are reported to be paying sales people three, five or even seven times higher commissions to get customers to sign new cloud contracts. That, combined with mixed degrees of cloud buying experience on both the buyer’s and seller’s side of the table, has made it easier than ever to get rushed through the cloud sourcing event and miss some important cost control elements.
If you’re migrating to the cloud with an incumbent, you can neutralize some of your cost risks by asking the following questions:
1. What’s the best contract term duration for your business? Many enterprises are opting for shorter contract terms to avoid the vendor lock-in that’s rampant in on-premise IT. The trade off here is that a shorter term gives the vendor the opportunity to increase pricing as their solutions gain market share. Companies need to run multiple contract scenarios to weigh the benefits of locking in at a low cost now for a longer term versus the flexibility of a short-term deal.
2. How will your discounts and incentives compare in the cloud? On-premise and cloud discounts are not an apples-to-apples comparison, which means companies need to get creative in how they negotiate. Start by demanding strong discounts for your initial migration to the cloud, and creating a strategy that will protect these discounts at renewal time. Be sure to aggressively leverage your vendor’s motivations to improve the pricing, discounts and terms of non-cloud purchases and renewals too.
3. What’s the right initial base count? Volume discounts still apply in the cloud. The more users or usage a company has, the cheaper the cost per unit will be. For that reason, many companies overestimate their usage needs and oversubscribe or overprovision in the beginning – positioning them to sacrifice discounts should they choose to “true-down” base counts in the future. Do your homework up front to understand your true usage needs and to eliminate headroom in your base count.
4. What are the scaling costs moving forward? Let’s say you’ve locked in low pricing for your base count – what happens when you need to scale usage up or down? Chances are the initial low price won’t apply and you’ll be subject to higher fees. To keep costs in check, explore tiered pricing options for a shorter contract term, which will give you greater pricing flexibility. If your vendor offers it, you can also opt for variable pricing that is based on actual versus anticipated usage. Lastly, don’t forget to get rid of minimum purchase clauses, which effectively prevent the business from reducing the number of users in the event of downsizing.
5. What about the customizations and integrations already invested in your on-premise solution(s)? Vendors may be eager to push you to the cloud version of their offerings, but that doesn’t mean you’ll get the same features and functionality. This is especially true if you’ve invested in on-premise customizations or special integrations. Work with your vendor to determine if these customizations and integrations will be supported in the cloud, and if there are any cost implications.
6. How will migration to the cloud affect your other IT costs? Businesses often overlook the secondary costs associated with the cloud. One is indirect access license fees. Many vendors require additional licenses for a cloud service to access their on-premise software or hardware. For example, Oracle has been known to charge customers for every server running VMware, regardless of whether the server is actually running Oracle’s database. Another concern is the contractual obligations for incumbent on-premise solutions.
Migrating to Microsoft’s Office 365 may seem like a no-brainer, but what happens if you still have a year left on the Enterprise Agreement that covers the 300 Exchange servers that support your current Office environment? What about the lease at the data center facility? In these cases, companies need to explore options that will keep them from doubling up on costs as they migrate – such as working with Microsoft and the colocation facility to move the existing agreement term up, or finding ways to redeploy those assets.