July 19, 2013
While we can appreciate conclusions from various consultants and bloggers on No Jitter that many cloud-based vendors have an “emerging-technology premium price” for their services, we think the hypothesis that all cloud services have a higher TCO is far too broad (see Total Cost of Ownership in 2013). Dave Michaels recently followed up and does an admirable job of addressing many of the issues with TCO comparisons (The Pitfalls of TCO). While UCaaS and disparate configurations may have unique parameters that result in specific TCO outcomes, looking deeper at specific markets will yield very different results that shouldn’t be “colored” by a broad cloud indictment. A case in point is the contact center market that has matured deeply into its maturity cycle over the past 13 years of its existence, which consistently shows lower star-up costs and also a continuing long term financial benefit lasting far beyond the initial five year period.
A good example is the recent 5 year post-implementation TCO study done by Echopass Corporation on Overstock.com that demonstrated a $13M lower infrastructure TCO over the five year lifecycle study that their cloud solution has been implemented. Overstock.com is not an outlier. Rather, they illustrate the point that for most large enterprises with at least 100 contact center agents, the cloud-based solution will be less expensive and a lower TCO than an equivalent premises-based contact center implementation alternative.
Our largest cloud client thoroughly tested this hypothesis and ran over 115 extensive and separate TCO studies with agent sizing in excess of several thousand agents to validate their cost savings, before fully expanding to beyond 8,000 seats. In each case the “all-in” analysis demonstrated that the cloud alternative always resulted in a lower TCO from 19-32%, depending upon the specific labor distribution, labor costing elements, and infrastructure scalability estimates.
So why the disparity with the IP/PBX (UCaaS) study results? First: the cloud based contact center market is more mature in adoption and models than UCaaS. Second: one has to be cautious that any comparison to a cloud model requires a very close review of all of the resources and costs dedicated to support both solutions. A comprehensive analysis must take into consideration existing labor cost offsets in IT (a major expense for system maintenance and management of on-premises solutions often greater than $100K per FTE annually, and an expense burden that continues for the life of the system), periodic software patches and upgrade labor and software costs, redundancy costs for both cloud and on-premise equipment with potential data center redundancy to provide critical business continuity, 3rd party databases for reporting and monitoring software, lab software, physical facilities expense (for larger implementations), hardware and internal resource costs for refreshes at the 3 year timeframe, actual agent pay per use benefits for highly scalable environments (typical in the contact center), and an estimate for version upgrades (usually at an every three year cycle).
Considering all the apparent and hidden financial impacts is crucial for a full analysis on the viability of moving to a cloud environment. It will differ by technology, as well as market segment, but the overall cloud market is still too heterogeneous to draw broad generalizations. Individual situations should be viewed specific to the applications and solutions desired. Echopass agrees that while most enterprises move to the cloud initially for financial reasons, they also find that the downstream real benefits greatly exceed the financial savings with enhanced agility, improved speed to market and IT transformations that enable significant competitive advantage.
Chief Marketing Officer, Echopass