While anyone would be hard-pressed to argue that large cloud vendors aren’t raking in huge sums of money, experts suggest looking beyond financials when making important decisions.
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After making the initial decision to introduce cloud-related service offerings, the very next question an MSP often has to answer is which vendor to partner with.
To make that decision, an MSP might reasonably compare the respective products, consider relationships with current partners and review the cloud provider’s financial health to ensure they’re not mastering technologies of a vendor that might not be around for the long haul.
But the settlement today of a closely watched court case is renewing old questions about the veracity of revenue claims made by major vendors, and whether they actively gin up results amid pressure to show momentum in cloud computing divisions.
“Assessing vendor cloud revenue claims has become more challenging, with many vendors' IT-related businesses being complicated and nuanced,” analysts David Mitchell Smith and Ed Anderson wrote in Gartner’s December 2015 report Vendor Cloud Revenue Claims – Should Enterprises Care.
The report found that cloud vendors overstate revenues from the emerging technology, making it difficult to assess financial health or make comparisons between vendors.
Lawsuit Sheds No Light
Many cloud vendors have for years aggregated or disaggregated cloud business lines with other technologies, fueling assertions of deliberate efforts to make such accounting opaque.
But a federal lawsuit filed last year by a senior finance manager at Oracle’s cloud division threatened to lay bare one tech giant’s alleged blatant misrepresentation of cloud services results.
Staff accountant Svetlana Blackburn said she was fired after repeatedly refusing orders “to add millions of dollars in accruals to financial reports, with no concrete or foreseeable billing to support the numbers,” according to a report on the filing by Computerworld.com.
Blackburn was fired in October of 2015, two months after receiving a positive performance review.
In the meantime, she alleged, her bosses at Oracle proceeded to add the accruals on their own, ignoring her objections
Oracle attorneys argued that Blackburn’s termination stemmed from forecasting errors for the quarter ended Aug. 31, 2015.
“She refused to accept responsibility for them,” Computerworld reported of Oracle’s filings. “The company’s managers lost confidence in her ability to ‘effectively perform her job as a manager and generate accurate forecasts.’"
Blackburn claimed whistleblower protections under the Dodd-Frank and Consumer Protection acts.
During a regularly scheduled hearing today, attorneys for both sides informed the judge they had reached a settlement and asked for a 30-day continuance to hammer out details, and request a dismissal.
Terms were not disclosed.
Opaque Cloud Accounting
The challenges of evaluating revenues from emerging technologies is an old problem that is even more difficult in the cloud age, senior editor Brandon Butler wrote in an article for Network World.
A common “trick” involves using non-cloud technology to beef up cloud earnings.
Some vendors include sales of cloud-enabling technologies, like servers, virtualization software or management tools. Others lump in hosted or managed hosting revenues.
In some cases, consulting and professional services revenues are included to increase the figure.
“Technology transformations like the emergence of cloud computing can be tumultuous times for vendors who have made a living selling hardware, software and services to large businesses,” Butler wrote. “Legacy IT vendors want to show Wall Street investors that they’re rapidly making the shift to sell new cloud technologies while hoping it does not cannibalize their existing revenue streams.”
While anyone would be hard-pressed to argue that large cloud vendors are not raking in huge sums of money, Gartner’s Smith and Anderson suggest looking beyond the financials when making important decisions.
“We recommend CIOs direct their organizations to never take vendor cloud revenue at face value, and evaluate vendors on their strategy and service mix,” the report states.