Cloud and SaaS SLA's

Daniel Druker over at the SaaS 2.0 blog recently posted an extremely thorough description of what we should be expecting from Cloud and SaaS services when it comes to SLA agreements:

In my experience, there are four key areas to consider in your SLA:

First is addressing control: The service level agreement must guarantee the quality and performance of operational functions like availability, reliability, performance, maintenance, backup, disaster recovery, etc that used to be under the control of the in-house IT function when the applications were running on-premises and managed by internal IT, but are now under the vendor's control since the applications are running in the cloud and managed by the vendor.

Second is addressing operational risk: The service level agreement should also address perceived risks around security, privacy and data ownership - I say perceived because most SaaS vendors are actually far better at these things than nearly all of their clients are. Guaranteed commitments to undergoing regular SAS70 Type II audits and external security evaluations are also important parts of mitigating operational risk.

Third is addressing business risk: As cloud computing companies become more comfortable with their ability to deliver value and success, more of them will start to include business success guarantees in the SLA - such as guarantees around successful and timely implementations, the quality of technical support, business value received and even to money back guarantees - if a client isn't satisfied, they get their money back. Cloud/SaaS vendor can rationally consider offering business risk guarantees because their track record of successful implementations is typically vastly higher than their enterprise software counterparts.

Last is penalties, rewards and transparency: The service level agreement must have real financial penalties / teeth when an SLA violation occurs. If there isn't any pain for the vendor when they fail to meet their SLA, the SLA doesn't mean anything. Similarly, the buyer should also be willing to pay a reward for extraordinary service level achievements that deliver real benefits - if 100% availability is an important goal for you, consider paying the vendor a bonus when they achieve it. Transparency is also important - the vendor should also maintain a public website with continuous updates as to how the vendor is performing against their SLA, and should publish their SLA and their privacy policies. The best cloud vendors realize that their excellence in operations and their SLAs are real selling points, so they aren't afraid to open their kimonos in public.

Considering the sad state of affairs in existing SLA's, I'm hoping to see some progress here from the big boys, if nothing else as a competitive advantage as they try to differentiate themselves.