Beyond the SLA: Choosing a Financially Sound Cloud Provider

Shawn Mills is a technology entrepreneur, founding member and president of Green House Data. You can find him on Twitter at @tshawnmills.

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Cloud computing brings a certain set of risks. By nature customers put their faith in service providers to protect their data and keep it readily available. Service Level Agreements (SLAs) are meant to protect the customer in case of downtime, allowing them to sue if data is inaccessible. Part of an SLA is generally a degree of redundancy, guaranteeing that every server and piece of infrastructure is backed up with an equivalent version. Customers often had their own data backups as well. An SLA, however, doesn’t protect anyone once a company is bankrupt.

In September, Nirvanix, a cloud storage company founded in 2007, suddenly revealed they were declaring bankruptcy. Users had two weeks—later extended until mid-October—to migrate their data, or lose it forever. With large customers storing 10 to 20 petabytes of data, those few weeks suddenly seemed like a few days. These types of shutdowns happen infrequently, but they do occur. In 2011 four cloud storage companies shut down, including one owned by EMC. Provider shutdowns raise two vital questions. How do companies escape from a sinking cloud? And more importantly, how do they choose a provider who is financially stable and won’t shut down their cloud services in the first place?

Cloud Exit Strategy

With cloud growth continuing unabated, it seems like even these shutdowns can’t slow down adoption. But companies would be wise to have some sort of exit strategy available. There are limited options for migrating directly from one cloud storage or virtual server to another provider. A remote backup stored with a different service provider can be one way to quickly restore data to a new cloud. Otherwise, companies are left with limited windows to transfer enormous amounts of information to their own servers (which they may not have) and then onward to another provider. That downtime can severely affect daily business operations.

A hybrid cloud is another solution, allowing enterprises to connect their existing infrastructure with external storage providers. Because storage is expensive to procure, this is an economic solution and one in which data can be more quickly retrieved from a floundering service provider.

To state the obvious, though, the whole problem can be avoided if companies choose a cloud partner who has solid financials. That may be easier said than done, but there are ways to feel confident that an infrastructure service provider will be around for years to come.

Financial N+1

Cloud shutdowns change the conversation from one of redundancy to one of business practices. It’s not just about how many data center locations one provider can offer, or their backups of your data. N+1 doesn’t add up when the company itself goes under. In a natural disaster, one data center might go down, but your data might be backed up elsewhere. When the entire provider shuts down, the other four data centers they operate won’t help customers, as they’re getting shut down too.

What happened with Nirvanix? We can’t be sure, but it seems like they were in a negative burn, spending more money than they could raise even as they continued to receive additional funding. The one fact we do know is that operating a data center comes with massive financial investment. The sheer cost of cloud storage technology may have combined with mismanagement to run the company under.

Check Finances Before Migration

Redundancy will always be an issue. Many companies may start to keep more of their data backed up locally or with a second cloud provider. But with the shift to business confidence rather than data security as a primary issue, how can users evaluate a potential service provider for financial integrity?

One essential division in business funding is between equity and debt spending. In the case of Nirvanix, they had raised a significant amount of equity from outside investors in exchange for a stake in the company. That makes them liable to pressures from investors, as well as keeping money flowing even if they operate with a loss. Companies taking on their own debt face banks, who are much less likely to take risky bets on a company.

To evaluate a potential cloud services provider, customers can inquire about finances including documentation of cash flow, debt, backers, and spending forecasts. Ask for reports from previous years, budgets, anything that could give you an idea of the financial state of the company.

Develop a Real Relationship

Large providers seem safe. Cloud users may jump to Google or Amazon and feel good about the safety of their data. Even with large companies, when a product is no longer profitable, it gets the axe. One advantage of a smaller company, once you’re comfortable with the financials, is getting to peek under the hood. Come on by and look at their servers. See how they’re growing. Chat with their CEO or even their banker. This can be difficult to do with the giants of the industry.

A confident and financially stable service provider will be prepared to demonstrate financial acumen to assure clients they are a safe bet. The cloud may always be a bit of a gamble, but with the right preparations you can get the additional computing power you need, at a great price, and be able to sleep knowing vital business information is safe.

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