Cloud Consolidation Impact: Make Sure Contracts in Order

Ann All

Last January I wrote about industry concern over the viability of vendors selling software-as-a-service solutions. And the year did see some notable SaaS failures, including that of business intelligence-as-a-service provider LucidEra.

I couldn't help but flash back when I saw a post by InfoWorld's David Linthicum on what he thinks will be a huge year for consolidation of the nascent cloud computing industry. To be sure, it's less serious when a cloud provider is purchased vs. going belly-up. But it can still be disruptive for clients of acquired companies, who must worry about how new owners will handle data integration, data back-up and recovery, service-level agreements, licensing costs and a myriad of other "housekeeping" issues, not to mention the broader product roadmap.


And cloud consolidation will likely affect the SaaS market as well, since so many SaaS providers create and run their products on cloud infrastructures.


Linthicum expresses concern that cloud companies are angling to sell, instead of doing a public offering. Indeed, IT Business Edge's Lora Bentley in January wrote about startups' aversion to IPOs in which she attributed at least partly to the high cost of complying with Sarbanes-Oxley and other regulations. Just 18 tech startups have gone public in the past two years, down from the 143 startups that did so in the two years prior. Linthicum calls this desire to be acquired "a model for the next Internet bubble."


Linthicum's final suggestion:

... Make sure your legal agreements are rock-solid and spell out what happens if your provider is acquired. ... You need to make sure that having a different cloud landlord won't affect your business.

That's good advice for buyers of any tech services. But considering the current environment, it's especially true for cloud customers.

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