Understanding Cloud Renewal Price Protections: You May Not Be as Protected as You Think

If you’re like most enterprise customers, you may feel confident that you have the right protections in place for your upcoming cloud renewal.  Most likely, your procurement department has told you not to worry – you have price protections and an increase cap in your standard cloud contract language, or you made sure to negotiate those protections into your order form last renewal.

Based on what I have seen and learned from working with many cloud customers, often these customers have renewal price protection language in place, but the conditions and fine print that are included often diminish the protection.  In some regards, these conditions effectively remove the protection altogether.

To better understand whether your renewal term price protections will hold up come renewal time, here are some examples that you can weigh against your own contract to see if you have effective renewal price protections in place for your upcoming cloud renewal.

Terms Requiring You to Renew the Same Products and the Same Quantity of Products

Looking at the fine print of your cloud contract, there is likely an expectation when you renew that in order to get the price protections and increase cap, you must renew the exact set of products at the exact same quantity or more.

Let’s say that at renewal, you don’t need all the products in your current order form because it was determined certain products were not going to be of value as expected.  As far as renewal price protections go, that doesn’t matter.  You must renew all of these products, otherwise you can say goodbye to the price protection you thought you had in place. Additionally, for the renewal price protection to stand, the quantity for that product must stay the same or increase.

This will put you in an unfavorable position where you are left contemplating renewing certain products at certain quantities that you know you do not need in order to maintain the renewal price protection.  That’s an obvious problem, and if renewing these products doesn’t meet your actual requirements, in order to get that protection, you are going to be left renewing and paying for “air.”

Unfortunately, cloud vendors very quickly raise the requirement of maintaining products and volumes come renewal time and only offer a willingness to look away from the condition if the customer is willing to add a new product to the portfolio.

It is important to point out that if you add volume in term, thus increase your spend, you also need to maintain those products and volumes at renewal and can’t go back to the volumes you had at your last renewal.

On the other hand, you may have determined that you don’t need all the features included in a particular cloud bundle.  For example, if you’re a Microsoft customer who made the decision to jump into Microsoft 365 E5, you may no longer need Microsoft 365 E5 because over time, it was proven that Microsoft 365 E3 was more fitting for your requirements.  The fact is, many Microsoft customers I speak with are in a dire situation where Microsoft 365 E3 no longer makes sense because Office 365 E3 is sufficient.

That becomes an issue because the renewal price protection you put in place is likely only for Microsoft 365 E5.  If you want to move down to Microsoft 365 E3 or even break up the bundle, you likely don’t have a discounted price protection in place or pre-negotiated pricing for Microsoft 365 E3 or Office 365 E5.  With Microsoft’s recent price increases, this becomes even more problematic.

Overall, you are going to lose a significant amount of leverage when negotiating your renewal because of these price protection conditions.  You will effectively be starting at square one and will be completely susceptible to the cloud vendor’s proposed price increase when you were going in thinking you had a cap to work down from.

Terms Requiring You to Maintain a Certain Dollar Spend

Additionally, you must investigate whether there is a component of your cloud contract that is going to require you to maintain a certain annual spend.

Even though this may provide some flexibility when determining which products you include in your renewal, this condition can still be problematic.  What if, for example, after removing and adding particular products, your requirements still result in the go-forward annual spend going down?  In that scenario, your requirements don’t actually matter.  What matters is spend, and if you don’t meet or exceed the spend leading up to the renewal, your prices will increase.

Bottom Line

These are a few of the conditions that we highly recommend you pay attention to as you prepare for your upcoming cloud renewal.  If these conditions are part of the renewal term price protection you negotiated last time, it is likely you do not really have a true renewal term protection, or at least not the level of protection you should have.  You will need to approach your renewal negotiation with the goal of getting the proper protections put in place moving forward while overcoming the unexpected price increases and go-forward spend.