Outlook unclear for cloud

Despite compelling cost savings, there are still a number of commercial and legal challenges to be overcome before chief executives and their information officers embrace cloud services.

Cloud services are on-demand software and computing services delivered to customers over the internet, using resources, software and equipment shared by those customers. The business model is similar to the delivery of utilities such as telecommunications and electricity.

Customer benefits

Sharing resources through internet-based computing provides many benefits to the user:

• Reduction in capital expenditure on technology due to the monthly service fee model;
• Access to external specialist technology resources rather than developing and maintaining costly in-house resources;
• Cloud suppliers can provide more resilient and reliable technology services at a lower cost;
• A combination of the above provides small and medium-size enterprises access to cost-effective, best-of-breed and scalable technology solutions previously out of reach due to budgetary constraints.

Drawbacks

Despite the potential benefits, there is still reluctance among social landlords to adopt cloud services. The main concern that holds them back is the uneven allocation of legal and commercial risk by suppliers in the following areas:

• Customer data: suppliers’ service terms do not always comply with applicable regulatory regimes. For example, suppliers typically try to exclude their liability for data security, but this is inconsistent with the requirement that customers (in their role as data controllers) ensure their processors (the suppliers) adopt technical and security measures to keep data secure.
• Service availability: currently there is no consistency of approach to a customer’s contractual remedies for failure of a cloud service. Many suppliers are adopting standard web-hosting/consumer-orientated remedy models by offering low-value service credits as a customer’s sole remedy for poor or failed performance, in preference to an ‘outsourced service’ approach which contains more robust customer remedies.
• Technical constraints: many customers have experienced supplier ‘lock-in’ due to their cloud suppliers using non-standardised or redundant file formats for the creation and storage of content and data.
• Jurisdictional issues: suppliers use globally based infrastructure and re-sources to provide cost-effective services which can result in local and international legal compliance problems.
• Transparency: many customers have no right to audit their cloud provider so have no way of knowing where the services are physically located. But ensuring customers remain legally compliant will, in many cases, require full transparency of the location of the services so that the customer can put in place mandatory compliance arrangements to underpin the services it uses.

Silver lining

While cloud services have a silver lining in cost-saving terms, there is still a stormy period ahead which will need to be navigated by customers, such as housing providers, as well as suppliers and regulators, before the barriers to widespread adoption described above are resolved.

Simon Morrissey is partner and head of technology at Lewis Silkin
simon.morrissey@lewissilkin.com

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