SM: In terms of business models, what changes are there with the introduction of the cloud in your environments? The contracts and licensing deals that you had with these software vendors, did they all lend themselves naturally to your move to a cloud environment?
JD: I wish they did! We had to go in ourselves, take the lead, and renegotiate a number of the agreements in to order to move them to cloud environment.
SM: Can you elaborate on that? One of the big things with cloud adoption is the business model and delivery model transformation. Did that happen?
JD: That is correct. Most of the software contracts we had signed at GCI when I was CIO during my last seven years at GCI did not have any cloud aspect to them. When we signed those contracts, we had no concept of the cloud. Neither I nor the software vendors had a concept of it. Some of them were oblivious to the fact that the cloud computing environment was even needed to be taken into consideration as you negotiated the contract. What we did find, which I was pleasantly surprised by, was that the software vendors are happy to renegotiate the contract and to put components in the contract that allow you to move their software into that sort of a cloud-based environment. They were positive and productive in those discussions. It definitely is a new area and one they are unfamiliar with as well. We were educating a number of software vendors as we were calling them to ask to renegotiate and explain what our cloud computing environment was going to be doing for us there and what we needed the contract to reflect. I would say, until it becomes a more standard production component of most data centers or most IT environments, I do not know if you are going to see the contracts , even those being written today, having that sort of wording related to cloud environment.
SM: Can you describe some of the key areas where there was a need for significant contract renegotiation pertaining to the business model change?
JD: I think the key difference is that in a traditional contract, the vendor would expect you to take 100% ownership of their software, run it within your environment with your staff doing nearly everything in terms of deployment to managing that software. They assume there is a physical presence associated with the contract. In this case, when companies move to a cloud environment, they are basically telling vendors, “We are going to run your software in a virtualized environment, and it could be running anywhere in the world, maybe in multiple data centers, and we will not be operating the software ourselves.” We needed to make the software vendors consider the fact that SunGard, our cloud environment provider, would be administering the software. The security that they have outlined within the contract or the context of security may be radically different in a cloud computing environment than it is in a traditional environment.
I believe as part of our cloud move and contract renegotiation with software vendors, they also are looking to figure out are if we are somehow using the cloud environment to skirt their licensing agreement. Are you going to be using their software for more subscribers than you have signed for?
I think it is a natural tendency to be skeptical on their part when they hear clients are going to move things out of their data centers into a cloud computing environment and that they are going to scale that environment up and down as they do as part of their project work.
Well, 99% of the vendors we went back to renegotiate the contract with were very productive and helpful. It is just a new area for them. Frankly. they do not even know the right questions to ask, and you may be required to walk them through the evolution from a traditional environment into a blended environment such as ours, where we use cloud computing and a traditional in-house owned data center and a hybrid where we have our own equipment in a hosted data center.
SM: As per your contract terms with these software vendors, are they still selling you licensed software which you then deploy in a flexible cloud environment?
SM: Then how do you manage this scaling up and down of subscriber volumes? How does the question that vendors are skeptical about the cloud – how do you think this question is resolved in this evolution? Maybe it is not resolved yet, but how do you think it should be resolved?
JD: Well, I can share with you what we have done today to deal with that fear. This is part of the administration specifications that we outline for SunGard. In terms of impact, well, all of a sudden we have another party actively involved and need to document and communicate to our software providers where we deploy their software outside the GCI data center for GCI usage in terms of the number of environments. The number of environments relates to the number of licenses that are used. Earlier, before we moved some of our environments to the cloud, that was pretty simple and straightforward. I had my DBAs check on the number of licenses within a given environment, and we just communicated annually to the software vendors that their environment is located at this address and that we were using so many numbers of licenses as per our agreement. Now, I have to collect this data from multiple sources in order to put that document together. That is just one aspect.
The second aspect is that now we are relying on another organization to validate our license compliance. Much of the software we use also has security aspects to it. In the telecom industry you deal with things like customer proprietary network information (CPNI), customer privacy issues, payment card industry (PCI) or point of sale, and compliance with payment process issues. As a public company, we are required to deal with all sorts of soft implications of where our data sits and how we manage it. All of a sudden, there is a third party in that process. Part of what we end up doing, both with software but most specifically in this case with SunGard, is to educate them about what those business processes have to be in order for us to maintain our compliances.
SM: That is very interesting to know!
JD: It is not just about, for instance, license count in our case. I am just as concerned about license count as I am about how we handle customer data itself in the cloud environment. Otherwise, I can create other compliance problems for myself that go far beyond the number of seats of a particular license that we have acquired.