Will Cloud SLAs keep pace with the demands of enterprise SaaS?


By Charlie Alsmiller,

CEO, Appterra I recently spoke with an enterprise software company that had launched a “Cloud” initiative. Like so many others, ourselves included, they had flocked to the variety of services available from Amazon, Azure, Softlayer, Rackspace and others to “scale” their business using the latest cloud technology.

I have examined all these services in some level of detail, and have found them all to be very good when paired with the right job. In our business, we rely on our technology partnerships to help ensure 100% uptimefor our customers. In turn, our customers rely on us for dependable service that allows their business to run smoothly. Downtime is a really big problem. As such, they expect us to write a fairly intense SLA (Service Level Agreement) into our contracts, because if we are down, they are down. There are usually substantial financial implications of downtime, and it’s important to ensure that all parties are fully “incented” to react quickly if a downtime situation arises.

As we all know, downtime has been a problem with many of the larger providers recently. I understand that downtime happens, but where this gets to be a challenge is in the SLAs of these firms. Are you willing to bet your business on this? Below is an excerpt from a leading firm’s Service Level Agreement, which is typical.

“XXXXXX will use commercially reasonable efforts to make XXXXXX available with an Annual Uptime Percentage (defined below) of at least 99.95% during the Service Year. In the event XXXXXX does not meet the Annual Uptime Percentage commitment, you will be eligible to receive a Service Credit.”

This firm goes on to note that the service credit will equal 10% of your bill for the affected period. Thanks.

I have a former customer that once calculated downtime costs for his business at $1000/minute. I also have a current customer that received EU 500/minute penalties for downtime in their ability to communicate and take orders from their customers. So, let’s run some quick math. 99.5% uptime translates into approximately four hours and 23 minutes of downtime per year, or around 22 minutes per month. In the case of my former customer, 22 minutes of downtime per month equals $22,000 of lost revenue. If a business pays $10,000/month for cloud services, they would only receive a $1000 credit for their loss. That’s not acceptable, and I can assure you, they won’t wait around for it to happen again – they WILL look elsewhere.

The bottom line is that while the outage will have financial impact, both in terms of lost revenue and SLA payouts, the major hit will be that of customer confidence. Any credits offered will be insignificant in replacing either revenue or customer perception.

As a SaaS company, we have a lot of moving parts — our network, hardware, operating systems, database systems, our code base, etc. All must work flawlessly together to ensure a great end customer experience. As enterprises seriously consider cloud services, take a cold, hard look at the Service Level Agreements and the real commitment to uptime that the supplier can provide. I think you will be surprised and choose your partner very carefully

Charlie Alsmiller

Throughout his career, Charlie Alsmiller has focused on customer problems in difficult industries such as Energy and Telecommunications. Prior to starting Appterra in 2005, Alsmiller was VP of Global Operations for Allegro Development, a leading provider of software for the energy sector. He has also served as president of OmniSpace Technologies, a leading SaaS provider that he founded in 1999. He spent over 10 years in the consulting world with Price Waterhouse and Deloitte Consulting, where he participated in a wide variety of projects for very high profile clients. Mr. Alsmiller holds a BBA from Baylor University in Management and Information Systems and a MBA from the University of Dallas in International Business. Specialties: Technology ventures, Enterprise Software, Contract Negotiation, International Operations, Private Equity, Product Management, Strategic Alliances, Software Implementation, Software Development

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