Best Practices for EDP/PPA Negotiations -

Best Practices for EDP/PPA Negotiations

Eli Mansoor is an accomplished cloud transformation leader with ALMOST TEN YEARS‘ EXPERIENCE IN THE INDUSTRY, including four years’ experience working at Amazon Web Services (AWS). Eli left AWS this past May to start a business focusing on improving cloud customers’ gross margin by optimizing vendors’ agreements and cloud spend.

Over the past 18 months I have provided support to several organizations in their AWS EDP (Enterprise Discount Agreement, now called PPA – Private Pricing Agreement) negotiations. Some are agreements signed directly with AWS and others via AWS resellers. In this blog I will share what I consider some of the best practices, based on my experience in consulting and AWS days.

Let’s start by explaining EDP agreements – an EDP agreement is a one-year (or more – usually three or five) agreement in which an AWS customer commits to a minimum yearly cloud spend against a discount and other investments that AWS offers at that time. EDPs are relevant to cloud users who spend (and are willing to commit to) over half a million dollars per year and can show a trending increase or an intention to grow this spend during the agreement period. The rule of thumb is simple: the higher the committed amount and the longer the commitment period, the higher the discount.

Now, let’s look at some best practices to better prepare for EDP negotiations and achieve the best (and most relevant) terms for your organization.

1. Cloud spend – Cloud spend becomes organizations’ second largest spend, second only to employee salaries. Signing or renewing an EDP is a huge milestone in which organizations commit millions or even hundreds of millions. Accordingly, the terms of EDP agreements require special attention and thorough preparation to ensure alignment with the actual cloud usage, the business growth plan and a discount model that brings maximum value to the organization.

2. How long does it take to negotiate an EDP agreement? Signing a new EDP agreement takes time! Usually much longer than customers expect. I have found six months to be the absolute minimum time required but I strongly recommend allowing 12 months for the process. As you will see below, thorough preparations are not only necessary but worth it.

3. Optimization should come first – As mentioned above, EDPs are offered to customers who wish to commit to their growing cloud spend. But what if, as part of the preparation process, we identified several savings opportunities that could lead to a 20%-30% reduction in the cloud spend? Would you then agree to increasing your cloud spend commitment? And what if your investment in these optimization projects decreased your cloud spend, preventing you from being able to commit to any cloud spend growth?

My recommendation is to allow enough time for the optimization projects prior to the EDP negotiation discussions. In many cases these optimization projects are performed by DevOps or R&Ds teams and take months to prioritize and implement. Doing so will save the organization valuable dollars even before signing the commitment agreement; and you will be able to base your cloud spend projection on a much more accurate and healthier spend baseline.

4. Who should be involved in the EDP process? EDP negotiations may be led by different stakeholders in the organization. These might be the procurement manager, COO, head of finance, founders, or others. The main requirement is that someone be in charge of this long process, with cross-team collaboration and the support of various stakeholders. This will ensure optimal preparation and full agreement on the committed amounts and terms. Here are some examples:

The FinOps team should share details about the cloud spend baseline and projection, the optimization pipeline including the savings opportunity, and the timeline to achieve these savings. It should also advise the unit of economics per system, so the projected cloud spend aligns with business growth plans.
The finance team should be involved and run various financial models to project the cloud spend per system. They can do so based on the unit of economics per system, the projected business growth or the budget allocated per system. They should also weigh the commitment amount and duration against the company’s financial situation, interests and other financial factors.
The business development and alliance managers should give input regarding business growth initiatives and projected impact on the cloud spend.
The AI team should share their projection for modeling new AI models and the expected costs.
The data team should share their projection for data related projects or for plans regarding data collection growth.
The management team (including the CEO) should also be consulted and updated throughout the process. They need to approve its initiation, provide guidance – mainly on the commitment duration and amount, raise questions, ideas and concerns, eventually approve and sign the agreement. Avoid an unfortunate situation in which negotiations are completed, and then the organization’s CEO or CFO hear about the agreement terms for the first time!
The legal team should be brought on board a few months before the signature due date. The objective is familiarization with the agreement wording in advance so that all legal questions can be raised and addressed in advance. Once the financial terms are agreed upon, the legal review process can be gone through much more quickly.

Any other teams in the organization that contribute to the cloud spend should be brought into the picture as well.

5. Know your workloads – Another best practice is to know your cloud workloads from the technical and business perspectives. Compile data to understand the services that are mostly used, the usage trends, the unit of economic KPI per each, the growth trend and projection per each and so on. This is true both on a per-system basis (let’s say you have several BUs, each running a few systems on the cloud) and from a top-down view consolidating all inputs about these systems in an accumulative cloud budget. When gathering and analyzing all this information you will most likely find some hidden gems. They might be systems that are running idle, services used on a large scale, workloads that are great candidates for optimization or that run over budget, units of economics trending opposite from the required direction, and so on. All these data points are prerequisites for EDP discussions. They will help you better understand the baseline cloud spend, justify growth projection and ensure a high level of certainty in the financial models that will later translate into your commitment amount as part of the EDP agreement.

6. Factor in marketplace purchases – AWS allows the commitment amount to take into account purchase transactions performed via the AWS marketplace. For example, ISV licenses for tools like Monday.com, Coralogix, Snowflake, Orca Security and so on can be purchased through the AWS marketplace. In such cases, they count toward your commitment to AWS, up to a certain amount. This helps increase your commitment amount which should result in a higher discount offer.

My recommendation is for procurement teams to list annual potential of marketplace purchases and evaluate the business value of making them on the marketplace. How would they impact the commitment amount and how much would the discount increase? Keep in mind that you have various options – you could also transact these purchases directly, via the GCP or via the Azure marketplace. You should estimate the value each option offers and make a knowledgeable decision on the marketplace that gives the most value before counting this amount automatically into your overall commitment.

7. Commitment duration – As mentioned above, EDPs are commitments for one or more years. The longer the duration the higher the discount you will receive. In most cases the dilemma is whether to commit to three years or five, but you can decide what is best for your business. When extending the agreement duration, you should be 100% confident you can achieve this spend (including its growth) to AWS for that duration. Falling short on your commitment amount is not an option as you will be asked to pay the shortfall amount at the end of the commitment period.

Now, what if during the commitment period your business faces some challenges and instead of the 30% growth YoY that was factored into your commitment plans, you only grow at a 10% rate? What if your organization decides to sell or shut down a business unit that accounts for 15% of your committed cloud spend? Or what if GCP, Azure or other cloud providers launch a new service that could save 30% of a specific workload you run? All these scenarios would impact your ability to hit the committed spend and should be factored into your decision.

8. Fine tune the EDP terms – Once you collect all the necessary information and estimations, you can make an informed decision about the commitment amount the organization feels comfortable committing to. You should also know which cloud services you use the most and the projection for using those in the future. Then it is finally the time to hear the AWS proposal and make sure you negotiate to receive the discount percentage that will give you the most savings.

9. Collect notes, data and decisions in a shareable report – All through the process you will be asked many questions by various stakeholders within your organization as well by the AWS team negotiating the agreement with you. They may ask or make assumptions about the baseline spend, the YoY growth, optimization projects, marketplace purchases counted for the commitment, projected data usage growth and so on. It will save a valuable amount of time if you share your documents and worksheets online, backed with as many data points, inputs and graphs as necessary. Especially as the decision point approaches it makes sense to set up review meetings with the relevant stakeholders to update them on the process, share the various considerations, collect feedback and when the time comes get the thumbs-up from the decision makers.

10. Explore competitive offers – Over the course of the negotiation process, organizations get to know their cloud workloads better than before. This includes identifying independent workloads that are not tightly coupled with the main core systems. These might be reporting engines, AI modeling workloads, AI inference workloads, marketing platforms, websites, etc. In addition, you might identify workloads that currently run on-premises and are prime candidates for running on the cloud. Such insights could tempt you into an exploration phase in which you shop around for the cloud provider that can offer the best terms for each specific workload separately. Bear in mind that this kind of search can be distracting, time consuming and require running several cloud procurement processes in parallel. It will also impact your technical team who will need to gain expertise in managing systems over multiple cloud platforms. I recommend that you only engage in this time-intensive effort for workloads that are real candidates for transition and focus on the provider who can technically support all your cloud needs and is hungry enough to offer you an attractive, competitive offer.

One last thing – Since founding OskaQ Consulting, I have met many stakeholders who hired my services for optimizing their cloud spend, forming FinOps culture into the organization and negotiating better EDP agreements. On the other hand, I also met others who ‘knew it all’ and did not need any help. They were able to finalize agreement terms in mere weeks just like any other agreement. Well, negotiating EDP agreements has so many moving parts and a language of its own. Most stakeholders need professional help in ”speaking” this language so we can pinpoint the terms that will best meet the organization’s objectives and that will be fully embraced and signed by the CEO. Over the past 18 months I have developed a methodology that maximizes terms in favor of my customers when signing an EDP agreement, whether via a cloud reseller or directly with AWS.

About

Eli Mansoor is an accomplished cloud transformation leader with 25 years’ experience in the technology market and ALMOST TEN YEARS‘ EXPERIENCE IN THE CLOUD INDUSTRY, including four years’ experience working at Amazon Web Services (AWS). Recently, Eli left AWS to pursue his passion and start a business focusing on improving cloud customers’ gross margin by optimizing vendors’ agreements and cloud spend.

In his four years with AWS, Eli was an Account Manager, supporting Enterprise customers with their cloud transformation journey and more recently, was Business Development manager, part of the AWS (EC2) Compute team. Before joining AWS, Eli was the Israel manager for CloudHealth Technologies (acquired by VMware), a Cloud Financial Management SaaS platform and, previously, was the Israel manager for Rackspace (acquired by Apollo Global Management). In these roles, Eli helped numerous organizations with their digital transformation journey, set up Cloud Center of Excellence (CCoE) teams, saved millions of dollars of cloud spend, built their FinOps practice and negotiated better terms for their cloud vendor or cloud resellers’ agreements. At AWS, Eli was part of a team defining content for AWS Cloud Financial Management certification and training and presented in various Cloud Financial Management / FinOps events including AWS Summits around the globe.

In 2019, Eli co-authored the book Mastering AWS Cost Optimization, that has since become a cornerstone for all FinOps engineers around the globe. The third release is now available in English and will soon be released in additional languages.

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