The risks of using cloud based services

Most software which businesses use in their operations is used under license and hosted on a local server. That server might be located in the office, or it might be in a large data centre which holds a number of servers, but is within the same city or country.

Even if the software is hosted on a server that belongs to someone else, that software is still licensed to the particular company using it.

Although many data centres advertise that by hosting your software in their servers, you’re hosting it in the cloud, true cloud-based software isn’t licensed, it is provided as a service, (software as a service or SAAS) and typically requires ongoing payments to access.

Cloud-based software users sign agreements over the provision of the software instead of licenses, and those agreements need to be checked thoroughly to make sure they address the major risks of cloud-based software.



“The cloud” is a nebulous concept, but the software, and your data, has to be hosted somewhere. That could be overseas, which brings up issues of jurisdiction. Some data, particularly financial data, can’t be moved from one country to another. And once your data is in another jurisdiction, it is subject to the laws of that jurisdiction – so it’s important to know what those are. It’s also important to ensure you will get some notice if the SAAS provider plans to move the servers – this could mean a change in country and a change in data laws. 


Every piece of software, wherever it’s hosted, will have downtime. This is necessary to carry out maintenance on the server and on the software. If the software is hosted on servers you control – be they in your office or in a data centre locally – you can dictate when the downtime occurs.  So if you have some particularly important work to do using the software, you can make sure the server will be up when you need it to be. But with cloud-based software you lose this ability, meaning you could be without access to your software when you most need it. The SAAS agreement should be clear about how much uptime you can expect in a month – which could vary across the type of service provided. It’s also worth remembering that most agreements around minimum uptime don’t count exceptional circumstances – like a failure of the telecommunications service they’re using, or a major power outage.


The agreement needs to have provisions for you to access the data you have stored on the servers – both during the agreement, and when the agreement ends. You could find you are only allowed to access a portion of it at any time. At the end of the agreement you may find your data doesn’t come back to you for six months - which will make it hard to change providers if you’re unhappy with the service.


Further to the question of access, is the question of migration. When the agreement ends with your SAAS provider, what happens if you want to change services? Along with the problem of getting your data back in a timely fashion, what format will the data be in? You could find that the data is unreadable by other services. The agreement should include provision for what assistance the provider will give you if you do want to migrate your data, and tell you what’s involved in the migration process.


Because with large cloud service providers there is often no room for negotiation, businesses may feel they have to blindly sign the agreement. But with a bit of knowledge you can compare different services and choose one which best suits your needs.

IT Contract Templates includes checklists of what you need to be particularly aware of when signing an agreement, so you can be confident you know the risks and won’t be hit by unexpected problems.

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