Getting to no: 3 things your cloud vendor won’t give you (and what to ask for instead)

When a company properly prepares for successful cloud negotiations, beyond ensuring they have the proper pricing and they don’t leave any dollars on the table, they need to make sure all the terms and conditions they need to ask for from their cloud vendors are pushed through and make their way into the contract.  Based on best practices, experience, and knowledge of what each cloud vendor is willing and able to do, there is a list of asks that the client can feel confident their cloud vendor can say “yes” to.  

However, a counter-perspective that is also important to focus on when preparing for your cloud negotiation is understanding what each cloud vendor is going to say “no” to. It’s just as empowering and impactful to know what the vendors will say no to when you also know how to leverage those no’s to get yes’s somewhere else in your negotiation.

When your organization is at the negotiation table with the cloud vendor, artfully leading your cloud vendor to say no to the following three asks can often help influence your ability to achieve other key terms and conditions you should have in your deal.

Refunds or credits for underutilization or no use

Your cloud vendor will say no to giving you a refund or credit for products or product features you did not use during the term of your subscription, often citing revenue recognition issues that prevent them from doing it.

Unfortunately, underutilization of products and features during your subscription term is a common issue in cloud arrangements.  In preparing for any cloud negotiation, it is critical for your organization to carefully assess your utilization and obtain a granular knowledge of what specific products and features you are and are not using, even if it will not lead to a refund or credit.

If you finds that you are not using all of the products or features and your organization has over-subscribed, your cloud vendor will not give you a refund for those unused products and features.  Given cloud subscriptions are built on a model where the customer pays annually in advance for the subscribed products and volumes and given the inability to obtain a credit or refund or even roll forward use, a cloud subscription essentially becomes a use-it-or-lose-it proposition.  The customer is held accountable for obtaining the appropriate products and volumes at the outset of the subscription term or they risk swallowing the costs for unused products or features.

Nevertheless, you should ask your cloud vendor in your renewal negotiation for a refund or credit for any shown unused products and features.  You should also ask for this level of flexibility when establishing a relationship with a cloud vendor.  Getting your cloud vendor to say no to this ask helps paves the way to secure other crucial terms in your cloud deal. 

The “yes” this should help you get:  When your cloud vendor says no to a refund or credit for products that you have shown have not been used, this allows you to gain leverage and enhances the opportunity to achieve swap rights in your cloud deal.

Cloud customers should ask for a commitment to have the flexibility to swap products and unused volume for other products and/or volume equivalent in value.  You are not asking to lower your spend, but you are obtaining products that your organization could actually use, ensuring you are getting the value of what you paid for rather than paying for “air.”  After being forced to say no to your ask for a refund and having to essentially acknowledge that they have been paid for things their customer have not used, it puts the cloud vendor in a difficult spot to also be unwilling to allow you to have swap rights.

Additionally, leading your cloud vendor to say no to a refund or credit for unused products or product features opens the opportunity for a conversation about price increases at renewal, especially for products that your organization relies on but is not using to the product’s full capacity (i.e., only some of the features will be used moving forward).

If you did not achieve renewal term price protections as part of your initial or prior negotiation (a circumstance that is more likely than you may think) your cloud vendor is going to implement a price increase upon renewal—this is common for all subscription-based models.  However, if your organization finds (and has shown the cloud vendor) that you are using specific features in certain products and therefore must renew, but you are not using all the features that come with that product, that initial no to obtaining a refund or credit to offset the fees paid for non-use of features could provide an opportunity to minimize often hefty price increases.

Leverage the fact that your cloud vendor knows you are not using all of the features in these products, and at the very least, they should be willing not to increase the associated price to compensate for the features you did not use that you still paid for in the previous term.  You can position the disappointment that there is no offered refund, but you can move past that as long as the cloud vendor is not also looking to significantly increase the price moving forward.  

A true volume discount structure

Your cloud vendor will say no to allowing all of your unit pricing (often called user pricing) to be reset to a lower per unit price once a certain volume threshold is met.  The best they can do is reset the per unit price for the units at and above the volume threshold.

As part of your cloud deal, you commit to a certain number of units based on your organization’s understood or forecasted needs at that moment leading up to signature, but those needs are likely to increase throughout the upcoming subscription term, especially when most cloud subscription terms are three or even five years in duration. 

Also, depending on the solution or product involved, growth is a good thing as it signals success and growth is what the organization is trying to ultimately obtain.  A volume discount structure is a committed, additional level of discounting that affords your organization the ability to get a better per unit price once you pass a certain set of established thresholds over the subscription term.

If you are able to obtain a volume discount structure from your cloud vendor, which is not a given, one major and common caveat is that the discounted per unit price only applies to the volume (e.g., units/users) that are added after passing the particular threshold.  Prior volume, unfortunately, will stay at the original price point.

When you ask your cloud vendor to apply the newly obtained lower price to all of your volume, they will say no.  Revenue recognition is often citied.

The “yes” this should help you get:  Having your cloud vendor say no to allowing the discounted price to apply to all of your volume (at the outset and added volume), creates the opportunity during your renewal negotiation to set the go-forward baseline price for all units/users at the lower per unit price.  You can remind the cloud vendor that they did not lower the per unit price for all the committed volume even though this increased level of use also resulted in increased committed fees back to the cloud vendor.

Effectively, you did not get the full benefit you would have expected given the significant increased benefit the cloud vendor obtained.  You can let the cloud vendor know that you were willing to accept this during the term but now (at renewal), there is no way you will be willing to accept having some units/users set at a higher cost profile moving forward.  The same value is being received and you have now seen that the lower price point is available.

Terminating your subscription during the term

Your cloud vendor will say no to giving you the ability to terminate your subscription during your subscription term.

When the cloud was first introduced, it was touted as an option based on utility and flexibility.  As we have learned, it never actually became that.  You still commit to a term-based contract for specific products and users at certain volumes and are held to that level of commitment (including the associated fees) during the entire length of the subscription term.  This is part of the dreaded “vendor lock-in” issue associated with cloud subscriptions that so many have opined about. 

As a refresher, when you agree to a multi-year subscription term with your cloud vendor, you are locking yourself into a committed set of annual payments based on an established set of products and volumes throughout the full term without the opportunity to cancel your subscription, other than for default-based reasons which are often difficult to prove and tied to service-level agreement (SLA) non-conformance. 

Nevertheless, you should ask for the ability to terminate your subscription during the subscription term for convenience and without penalty (throw in an ask for a refund for any prepaid fees while you are at it).  You can center your ask around the need to have true flexibility.  Your cloud vendor will still say no and will only often provide an ability to terminate for SLA non-conformance or uptime failure, or legal circumstances (i.e., a breach on the vendor’s part).  

Many times, cloud vendors will bring up revenue recognition rules as the reason they have to say no but they will also mention the fact that they were able to get great pricing for you, which was also dependent on you making a commitment not to walk away. 

The “yes” this should help you get: By having your cloud vendor say no to your ask to have the ability to terminate for convenience, you open the opportunity to remind them that you are looking to form a partnership with the cloud vendor and not have a transactional relationship.  A partnership requires flexibility on the part of each party, and when one party essentially is forcing another to stay in the partnership even if it is not going as expected (while also making them pay to stay in it), it is tough to see it as a true partnership.

Also, if the cloud vendor is confident that the products will provide the intended solutions and deliver the expected value, there should be no concern that you would even think about terminating the relationship.  This is especially true when everybody understands there is no ball to take home with you and there are significant challenges that come with selecting and moving to a new solution.

If you are going to accept not having the ability to terminate for convenience, your cloud vendor needs to understand that you must have, beyond compelling pricing, the highest degree of flexibility available (i.e., swap rights, the ability to reduce users without penalty, etc.), long-term price protections, and investments from the cloud vendor to ensure the full expected value is being received (the full use of the products).  These concessions will not only assure you have chosen a cloud vendor with confidence in their product, but it will allow for a sense of true partnership to be established.

The bottom line

It is critically important that you understand what your cloud vendor will agree to when preparing and executing your plan during cloud negotiations.  But there is power and leverage to be gained by getting the cloud vendor to say no throughout your discussions and negotiations, especially when you understand what they are going to say no to in advance and what they can ultimately say yes to.