Far too often I find myself in conversations with cloud customers that are living with a false sense of security, thinking they have future price protections in place to protect them when their subscription term is up. They genuinely think they know what their pricing is going to look like at renewal. What I most often hear is that these customers are not worried because they are covered, since they have a contractually committed cap on the increase (e.g., 5% above current per unit pricing) that can be applied by the cloud vendor at renewal.
The fact of the matter is this. After having a chance to probe deeper, these cloud customers may have achieved a cap but because they did not remove included conditions and did not really read the fine print, they are not as protected as they thought. On top of this, and as I, unfortunately, have to explain, the cloud vendor knew this when they made the “concession” to provide a price increase cap and has been planning accordingly as they prepare for your renewal and what they want from it.
The interesting thing is that this issue applies pretty much across the board. In other words, whether you have a relationship with Salesforce, ServiceNow, Workday, Microsoft, SAP, Oracle, etc., it does not matter. You are most likely not fully protected come your next renewal and that is a problem.
Price Protection Problems in Cloud Contracts
In order to shed light on this issue, here are few of the key “gotchas” that often come along with the price protection cloud customers believe they have. Unfortunately, there are even more than these, but I’ll outline a few.
- Promo “One-Time” Discount Excluded
Products that are in your order form that have a special promo price tied to them are often excluded from the price protection. The deeply discounted price you achieved for the cloud vendor to win your business is not only not covered under the price protection, often the price that is listed at renewal is list.
- Support Excluded
Renewal price protections often only cover product pricing and not support. This is a significant issue given support is often a percentage of the total fees (e.g., 30% of the fees tied to the products subscribed to). If you were able to achieve a lower percentage for support (i.e., 15%) but did not get a protection covering support, the increase applied at renewal can have a significant impact on your go-forward fees.
- Must Maintain Products and Volume
In order to have the cap on price increases applied, often cloud customers need to maintain (or increase) the annual spend, all the products being currently subscribed to, and/or the volume tied to the products (user counts). This even applies when you added a few users of a product in term to “try it out.” That product and the user volume is now part of the baseline that must be maintained. This condition applies and wipes out the price protection even when a product that has been paid for throughout the term was never used and will never be used moving forward.
- Still Commercially Available and Licensing Metric Unchanged
If the product is renamed or the licensing metric associated with it has changed over the term, come renewal time, the price protection in place may not be available, even if the product (features, value received, etc.) is unchanged. In most instances, where this condition is included, the resulting price is once again list.
- Good Unless Notified
The fact that this is found as often as it is within the price protection language cloud customers are living with, simply blows my mind. I can also tell you that cloud vendors that have gotten away with including language that allows them to remove any price protection and reprice, as long as they give 60 days’ notice, absolutely have programmatic reminders in place to send the notice out exactly when they need to.
If your renewal price protection is not what it should be because it also comes with any one of these items, the good news is that you can correct this. It is not easy, and it requires not only an understanding for what each particular cloud vendor is specifically amendable to doing and changing (using benchmarks) but it also requires a well thought-out approach that is part of a much larger negotiation strategy tied to the renewal itself.