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I came across an interesting write up in The Data Center Journal regarding the future of virtualization. I agree with the author that hypervisors are pretty much a commodity today. Microsoft proved that point by including support for VMWare in their virtualization management applications.
Negotiating contracts for datacenter services is a tricky business. I’ve been fortunate to be on both the buying and the selling side of the datacenter business over the past ten years. During this time I have gained some insights into some of the “gotchas” in the ways contracts are written. Let me share some of these insights with you today.
Autorenewing contract terms
Most datacenter service contracts incorporate autorenewing contract terms. The customer must notify the datacenter provider that they intend to cancel the service within a specified amount of time before the contract ends. If the customer doesn’t notify the datacenter provider the contract is automatically extended a certain length of time. For example, a contract could state that the customer must notify the datacenter provider within 60 days of the contract expiration otherwise the contract is automatically extended one more year. Datacenter providers love this type of contract language because they know that most customers forget about this notification requirement. As a buyer I would flip this requirement and make the datacenter provider notify me before the contract expiration. If they fail to notify me then the contract goes month-to-month.
1 year or 3 year deal?
Most managed service providers want their customers to sign multi-year contracts. The fact is that most providers don’t make any profit the first 6-12 months of the deal. The datacenter provider is basically supplying all the upfront capital and betting that the customer will stick around a few years. That’s one of the reasons that most providers offer multi-year discount pricing — i.e., 10% discount for signing a 3-year deal. So should a customer sign a 1 year or a 3 year contact? I think it depends on the type of service. If we are talking pure colo and your organization doesn’t plan to move for a couple years and you don’t like renegotiating contracts then I think a multi-year contract makes sense. If you are looking at managed services then a cost-benefit analysis is required. You need to understand that if you sign a multi-year contract your equipment will not be refreshed for the term of the contract. So while you are receiving a 10% discount in year 3 you will be using equipment that is over 2 years old. As a buyer I would rather sign a one-year contract and refresh my equipment on an annual basis. This makes even more sense if my infrastructure is completely virtualized. Because every year I would upgrade the performance and capacity of my services at little or no additional OPEX.
Co-terminus contract lengths
Here’s a very common gotcha in the service provider business. A customer signs a 2-year colo contract. After one year they decide they need more power. The customer then signs a 2-year power agreement. What they don’t realize is that they just extended their original colo contract for one more year. Service providers conveniently forget to tell their customers about that contract extension provision. As a buyer I would ensure that the contract length for any additional services I buy from the service provider expire at the same time as existing services — co-terminus contracts. So the customer that signed the power contract should have signed a 1-year agreement that terminated at the same time as their original colo agreement.
I found this funny quote from Nathan Myhrvold, former CTO of Microsoft, on the Wikipedia page pertaining to the responsibilities of CTO’s:
“Hell if I know. You know, when Bill [Gates] and I were discussing my taking this job, at one point he said, ‘Okay, what are the great examples of successful CTOs?’ After about five minutes we decided that, well, there must be some, but we didn’t have on the tip of our tongues exactly who was a great CTO, because many of the people who actually were great CTOs didn’t have that title, and at least some of the people who have that title arguably aren’t great at it. My job at Microsoft is to worry about technology in the future. If you want to have a great future you have to start thinking about it in the present, because when the future’s here you won’t have the time.”
America was founded by people willing to take a chance. They were men and women that risked everything for a better opportunity. To fail meant nothing less than their lives. The ones that survived were rewarded with new opportunities and new found freedom.
Today we live in a country where some companies are too big to fail. We live in a country where banks are bailed out before businesses. We live in a country where politicians manipulate financial controls to win votes.
Our children’s children will have more debt than any beings on this planet. They will be forever indebted to the failures of our generation and the generation before us.
