The federal government's "cloud first" policy, as part of the Federal Chief Information Officer's "25 Point Implementation Plan to Reform Federal Information Technology Management," requires federal agencies to consider cloud computing before making new IT investments and to move at least three applications to the cloud by May 2012.
Requests for information, issued by the Department of the Navy in July 2011, indicated that the Next Generation Enterprise Network (NGEN) will transition to a cloud-based delivery model. In an August 2011 media roundtable, the Department of the Navy CIO, Mr. Terry Halvorsen, said cloud computing, along with thin-client and zero-client technologies, are some of the models that the DON can use to cut 25 percent from its business IT budget in the Future Years Defense Program financial plan.
With the department's goals to decrease IT costs, improve deployment speed and agility and operate more efficiently will come shifts in IT funding. For example, there are funding allocation differences between the traditional procurement of IT licenses, which are normally capital expenses that are depreciated over time, while the subscription procurement model for cloud services is normally an operational expense that is not depreciable.
The cloud concept encompasses a variety of service models: Software as a Service (SaaS); Platform as a Service (PaaS); and Infrastructure as a Service (IaaS). These service models can be delivered in a variety of ways, from a private cloud (operated solely for an organization whether hosted internally or by a third party over a virtual private network), a public cloud (operated by a third party over the Internet), or a hybrid cloud that combines private and public clouds to coordinate a solution.
In all instances, the difference from traditional procurement is that some or all IT resources (hardware, software and support services) are rented instead of purchased as perpetual software licenses, thus creating the hardware infrastructure to support software and data, and maintaining the selected solution.
SaaS, which is the most widely adopted service delivery model in these still-early stages of cloud computing, provides a timely example of negotiating "cloud first" contracts. From an overall contractual perspective, the SaaS cloud model does not vary greatly from traditional on-premise software licensing because the same quality of software and functionality is supplied by a software provider. However, a few of the key licensing differences are in the granting of a software license and payment terms.
Grant Software Licenses
With the cloud delivery model, software use is subscription-based and paid on a monthly or annual basis. In contrast, traditional software is normally purchased for perpetual use with one lump sum payment upfront. It is important to understand that sometimes traditional on-premise software can also be offered via a subscription model.
Perpetual Licensing: When purchasing the right to use a software license in perpetuity, the full license rights may depend on how payment terms are structured. Perpetual licensing is not an option for SaaS through a public cloud. Whether this perpetual licensing model will be available for private or hybrid clouds is yet to be seen; it may depend on the ability to move existing applications into a private cloud. However, there are software providers that are making it easier to set up such private cloud instances.
Subscription Licensing: This is the most common licensing model for public cloud solutions, and it allows use of the software service only while the subscription is current and valid. Subscription licensing may be possible for hybrid cloud solutions where terms can be negotiated in the following ways:
– Paying a maximum subscription licensing fee over a specific term of service. Thereafter, the subscriber would ha