"Pay up or lose access to your data" - that is a choice no customer wants to be given, but it is one with which 2e2's datacentre customers were faced when the firm entered administration last month. The fallen giant asked its customers for ￡960,000 collectively to keep its datacentre running for just one extra week, leaving them stuck between a rock and a very hard place.
And while 2e2's end users continue the battle to salvage their data, the cloud industry has looked on, wondering if the saga has exposed weaknesses in its business model. As more customers are migrating to the cloud, they rely on resellers and cloud providers for long-term support, storage and services. But are they risking everything by putting all their eggs in one basket, and what can they do to protect themselves if the company they trusted hits the buffers?
Independent IT lawyer Dai Davis explained that some customers head into the cloud in a state of blissful ignorance, and do not pay enough attention to the small print in their contracts.
"2e2's contract [which was available online] said that a customer can terminate [following] an administrator being appointed, but there was nothing about getting data back. A court would be able to order the administrators to allow the company to come and retrieve its data, but it would be very expensive to obtain a court order," he said.
"It is a common assumption when going into the cloud that everything is OK when, in fact, it is not. Most cloud contracts do not talk about termination under the circumstances of administration, and when they do, often there are no practical suggestions as a defence."
Davis added that customers can only pay the money and pray their data is retrievable, or try to come to an arrangement with the administrators to redeem their data.
And while legal details play an important role in ensuring there are contingency plans should the worst happen, trust is also a key part in any cloud-based business, according to the Cloud Industry Forum's (CIF) chairman Andy Burton (pictured). He warned that the 2e2 saga should sound an alarm for the whole industry.
"The market is waking up to the risks of a 2e2-style issue. The issue is whether proper procurement processes are taking place, and if there is a clear, trusted business model in operation. It boils down to correct contracts, certification and contingency plans," he said.
But it is not just the small print in contractual arrangements that need to be studied more closely, according to Computacenter's practice lead for cloud, virtualisation and automation Paul Casey. He claimed that customers should pay more attention to the financial stability of the organisations with which they work, and warned that banks may have lost confidence in the cloud.
He said: "Those about to choose a supplier will now more obviously check the ratings and financial stability of providers for cloud and other services. Although service providers' cloud solutions are selling, most will have not yet covered the cost of the cloud investment, never mind made a profit from cloud services.
"So they will rely on investors or other revenue streams to subsidise cloud until they have the volumes of business to see cloud stand on its own feet. With that in mind, 2e2 may not be the last cloud service provider to go out of business as the banks lose confidence in what for many are tough market conditions."
CIF's Burton agreed, but argued that 2e2's collapse was more to do with its specific financial situation than the cloud model in general.
"It is a shocking breach of trust from 2e2," Burton said. "You cannot tell me [the problems] only came to light the day before administrators were appointed. It does not matter what the business model is, there was a lack of transparency and the directors are accountable for that."
Ian Moyse, sales director of cloud-based CRM vendor Workbooks, did not think 2e2's demise should be taken as a black mark against the cloud market either.
"Undoubtedly this will leave a bad taste in the mouth for some, but it should not put people off using cloud or managed services. Where there is one failure there are a thousand cases of highly successful stories," he said.
"[With 2e2] we have a resale provider, not a cloud vendor, that overstretched itself in acquisition costs in an economically challenged time and did not manage its way out from this.
"I would suggest for customers not to simply validate their providers' sustainability at the outset of a contract, but also keep abreast of any exposure risks that may come down the line that were not apparent at the outset."
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