When trying to determine which communications option – on-premises or cloud‐based – is right for your business, ROI (return on investment) and TCO (total cost of ownership) comparisons inevitably come into play. Which type of solution drives better value for your business? Unfortunately, this can be a difficult question to answer.
ROI and TCO models are typically designed to compare similar options—for example, two similar on-premises communications systems built by two competing vendors.
On-premises and cloud‐based communications solutions are NOT similar options. Plus, there are lots of costs and assumptions that you must determine when evaluating your options. Ultimately, the answer to the question “Which solution is better for our business?” may depend on more subjective measures, like the value your organization places on flexibility and risk avoidance.
It’s somewhat analogous to purchasing an airline ticket: Which is better? A non‐refundable $325 ticket, or a refundable $466 ticket that can be changed for a nominal fee?
The answer largely depends on the amount of flexibility your travel plans require and the level of risk you’re willing to assume that your travel plans won’t change.
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Making a large capital investment in technology, like an on-premises communications and collaboration system, requires a commitment to a particular path.
But how do you know that the technology or solution you’ve committed to is the right choice? How will the technology change over the next 18 to 24 months? What new innovations will be introduced to the market during that time that may benefit your organization?
The answer to that question is hard enough, but most financial models depreciate capital technology investments over five or seven years, so you’ll need to really shine your crystal ball to see five to seven years into the future!
Beyond predicting the future of a particular technology, a premises‐based decision also requires you to see the future of your organization.
How much growth will occur over the next five to seven years? Incremental growth over the next 12 to 24 months may be relatively easy to forecast, but any projections beyond that time frame become increasingly challenging.
If your company experiences rapid growth, the premises‐based communications system you invest in today may be woefully inadequate, requiring costly upgrades. Or, if your company undergoes a merger or acquisition, how difficult will it be to integrate with the other organizations involved in the deal?
Finally, ask yourself the following questions:
- How do I know that the solution I’m investing in will still be around in five to seven years? It’s hard enough to predict how my own company will be doing in five to seven years, let alone how a vendor will be doing.
- What is the vendor’s product roadmap for the solution I’ve selected?
- Is the vendor financially soluble? Will it put its source code in escrow for me, and does my company have the resources to maintain the source code if the escrow is released?
- Is the vendor the target of a merger or acquisition? If it is acquired, will the solution I’m purchasing be supported for the foreseeable future?
- Will new development on the solution continue? Or will the parent company kill off the solution as a competing product line?
None of this is to say that ROI and TCO models aren’t valid. You just need to understand the limitations of these models and how cloud‐based technologies change the paradigm.
A cloud‐based communications solution typically doesn’t require a large capital investment because it’s a subscription‐based, “pay‐as‐you go” service.
The solution can be easily scaled up or down as your business requirements change. Switching to another cloud service provider, whether due to a change in technology (if your cloud communications provider doesn’t support the new technology), a change in your business requirements (perhaps due to a merger/acquisition), or a change in your relationship with your cloud communications provider (possibly due to a change in terms or poor customer service, financial insolvency, or a change in strategic direction) — though not necessarily easy — is relatively painless when compared to switching from an on-premises communications system that requires significant reinvestment.
Understanding cloud communications costs and assumptions
According to Transparency Market Research, the unified communications market is expanding at a compound annual growth rate (CAGR) of 16 percent. Revenue is expected to grow to $61.9 billion by 2018.
So what’s driving unified communications growth? In a recent Webtorials State‐of‐the Market report, companies cited each of the following benefits as factors in their ROI calculations:
- Savings on conferencing services (53 percent)
- User productivity gains in the office (50 percent)
- User productivity gains while mobile (46 percent)
- Reduced travel expenses (55 percent)
Tough questions and clear answers about communications systems
Expect your CFO to push for answers on the following:
Q: What are the CapEx vs. OpEx implications of investing in cloud communications?
A: If we use the cloud in a managed services model, costs will shift squarely to OpEx and can predictably scale up or down based on the needs of the business.
Q: Are there service level agreements (SLAs) that protect core business processes—and revenue?
A: Reputable cloud communications providers use their own third‐party data facilities with SLAs covering uptime and availability, business continuity, disaster recovery timetables, support for demand spikes, mean time to resolution (MTTR) of issues, and more.
Q: Will cloud communications be a forklift upgrade that makes key investments in the IT infrastructure over the last three to four years obsolete ahead of depreciation schedules?
A: No. The right cloud communications solutions not only support, but also leverage, currently installed platforms and the latest IT frameworks. They integrate seamlessly with virtualization, cloud computing, customer relationship management (CRM) applications and more.
Addressing business continuity with cloud communications
Cloud communications can be an integral part of business continuity and disaster recovery planning. Cloud service providers typically build highly redundant systems in robust, geographically dispersed data centers with multiple points of presence across the Internet. Failover in a cloud environment can be seamless to cloud subscribers, helping businesses continue functioning normally through various contingencies.
Assigning value to flexibility and risk
The value of flexibility is difficult to quantify and varies widely among different businesses—even among those of comparable size and in the same industry.
"A Forrester Total Economic Impact (TEI) study prepared for Mitel defines flexibility as representing “an investment in additional capacity that could be turned into business benefit for some future additional investment.”
For example, cloud communications might provide an organization with the ability to extend business communications to a mobile workforce, enable remote worker setups for contact center personnel to work from home, or use application programming interfaces (APIs) to integrate or develop third‐party mobile apps and plugins.
Technology changes very quickly, often making large multiyear investments obsolete.
For this reason, flexibility with regard to a communications investment can be extremely valuable to a business. Plus, risk avoidance is valuable. In a cloud communications model, the service provider assumes most of the risk, including buildout costs, licensing, training, adoption of the technology, and obsolescence.
With cloud communications, you have the flexibility to grow at your own pace. For example:
- Are you a seasonal business? Cloud communications makes it easy to add employees to the conversation and scale back again when the season is over.
- Is your 9‐to‐5 customer care center shutting out 30 percent of your sales? With the cloud, you can easily route calls to mobile devices to extend your hours without extending your office space.