HOW TO KEEP UCC COSTS DOWN AS COMPLEXITY GROWS

©NemertesResearch2016±www.nemertes.com±888-241-2685±DN5348

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HowtoKeepUCCCostsDownasComplexityGrowsNowisthetimetocomparevendorsandassessyourTotal

CostofOperation

ByRobinGareiss

President,NemertesResearch

Compass Direction Points:

± Mostdeploymentsremainon-premises,butmovementistowardcloud

andhybridIPT/UCCdeployments.Researchshows52.4%ofIPtelephony

and48.1%ofUCCdeploymentsareon-premises.Anevaluationofall

architecturesiscrucialtogainthemostbenefitfromyoursolution.

± Conductathoroughcostassessment.Totalcostofoperationhas

increasedinthepastyear,soit’stimetore-examinewhatyou’respending.

± ShoreTelTCOislowest.InNemertes’2016TCOresearch,ShoreTel

customersspendtheleastontheirIPTandUCCsolutions.

Q316


2

Executive Summary

WiththegrowingadoptionandcomplexityofUnifiedCommunicationsand

Collaboration,ITleadersmustconductathoroughassessmentofarchitecture,

providers,featuresandoperationalcosts.Evaluatingthosecostsisnota

straightforwardinitiative,notonlybecauseofmulti-vendorenvironments,butalso

becausecompaniesareshiftingarchitecturestohybridorcloud.

Nemerteshasconductedresearchtoanalyzereal-worldcostdata,includingcapital,

implementation,andoperationalcosts.Theresearchhelpscompaniescomparehow

overallcostschangebasedontheproviderselected.Mostimportant,itincludesongoing

operationalcosts,whicharehardtofactorintoabusinesscaseuntiltheITstaffactually

mustmanagetheproviderinquestion.Thispaperdocumentsthosecostsandprovides

thethreedifferentsampleoutputsfromacostmodeldevelopedbyNemertes,populated

withtheresearchdata.

Weenteredinthecostmodelactualdatafromcompanieswith100employees,750

employees,and1,500employees.Ineachofthesecases,whethercloudoron-premises,

ShoreTelistheleastexpensivesolutionoverafive-yearassessment.

The Issue

IPtelephonyandUCCtechnologiesarerisingtothetopofmanyITprioritylists,

drivenbytheneedtoimprovecommunicationsinternallyandtobolstercustomer

experience.What’smore,thenumberofapplicationsincludedaspartofUCCare

growing,asaretheintegrationrequirementsbetweencommunicationsand

enterpriseapps.GiventheexpandingscopeofUCC,itisnotsurprisingthatcoststo

implementandoperatetheappsareincreasing.

Asaresult,it’simperativeforITleaderstobuildsolidbusinesscases,examiningtotal

costofoperationsamongproviderstoensurethebestpossibledecision.Forexample,

initialacquisitioncosts(licensingandassociatedcapital)maybeveryappealing,but

theunknownimplementationandongoingoperationalcostscanrapidlyeraseany

costbenefitassociatedwiththoselowerinitialcosts.Forexample,initialacquisition

costsforMicrosoftoftenarelowerthanAvaya,Cisco,orShoreTel.Butongoing

operationalcostsarelowerwithShoreTelthananyoftheproviders,makingthetotal

costofoperationsovertimemuchless.


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TotalCostof“Ownership”isn’tasrelevantasitoncewas,particularlywithemerging

cloudandhybridarchitectures.Now,weanalyzeTotalCostof“Operations,”which

betterreflectstheimportanceofongoingoperationalcosts.Uncoveringthosetrue,

real-worldoperationalcostscanbeachallenge,ifnotimpossiblewithoutresearchor

substantialexperienceatpreviousorganizations.

For11years,Nemerteshasconductedresearchtosubstantiatethecostsby

interviewingandsurveyinghundredsofcompanies.Thisyear’sstudyincludesinput

fromabout300companiesthatareusingvariouscombinationsofIPtelephonyand

UCC,architectedinthecloud,on-premises,orboth.Thisreportprovidesinsightinto

theoveralladoptiontrends,themovementtocloudandhybridenvironments,andall

associatedcosts.Italsoprovidesexamplesofcostcomparisonsbetweenproviders.

ThoughIPtelephonyoftenisapartofUCC,weseparatedthetwoforthisstudy.IP

telephonysimplyincludesvoicecommunications,whileUCCincludesinstant

messaging,presence,audio/video/webconferencing,andunifiedmessaging—

typicallyinanintegratedsuite.

IPT/UCC Adoption Trends

On-premisesarchitecturescontinuetobethemostprevalentacrossbothIPtelephony

andUCC,butthat’schanging.Asofthe2016research,almosthalfoforganizations

haveadoptedsomeIPtelephonycloudservices,comparedto29%in2015.ForUCC,

morethanhalfofcompanieshaveadoptedcloudservices,comparedto26%in2015.

MostorganizationsalsousemorethanoneproviderforIPtelephonyandUC

capabilities.DuringdiscussionswithITleaders,themajoritysaytheywouldliketo

consolidateonasinglevendorforallapps,buttherealityisthatitisnothappening

withtheexceptionofsmallandthelow-endofmidsizecompanies.Amongcompanies

withfewerthan1,000endpoints,41.1%usethesameproviderforIPtelephonyand

UCsuite.It’sworthnotingthatanother11.3%onlyhaveIPtelephonyanduseasingle

provider,comparedtoonly28.6%ofthosewith1,000ormoreendpoints.

Move to Hybrid, Cloud

Weexpectthemarkettosegmentinafewwayswhenitcomestoarchitecture

decisions.Thedriverstowardthosedecisions—aswellasthebenefitsorfallout—

varybycompany.Figure1describesthearchitecture“camps”thatarepossible.

Single-vendor,single-architectureenvironmentstypicallyarethemostefficientto

manage.ITstaffsonlyneedexpertiseinoneprovider’stechnology.Whenon-prem,

theyonlymanageoneproviderandonlyhavetotrainemployeestouseoneuser

interface.Wheninthecloud,theyonlymanageonepartnerandfocusonuser

adoptionofoneservice.


4

Inmovingtoahybriddeployment,ITleadersshouldpayparticularlycloseattention

tointegrationoffeaturesetsandcallcontrol.Lookforaproviderthatoffersa

commonplatformforitscloudoron-premisessolutions,ultimatelydeliveringthe

sameuserexperienceregardlessoftheplatform.FromanITmanagementstandpoint,

thismeanscallcontrol,features,anduserinterfacearebasedonthesameunderlying

technology.AlthoughITstaffsstillmustmanagethetechnologyandthepartner

relationship,theintegrationchallengeswithacommonplatformaregreatly

minimized.

Architecture Providers TypicalCompany Benefit/Concern

Allon-premises

Single Small Singlesystemiseasytomanage/

Responsibleforday-to-daymanagement

whenitcouldbeoffloadedtocloudprovider

Multiple Large,oftenbecause

ofmergers

Best-of-breedfeatures;depreciatewhat’s

installedandavoidcostofupgradetosingle

vendor/Requiresknowledgeofmultiple

systems,increasingcoststomanageand

integrate

Allcloud

Single Allsizes,heavily

weightedtoward

smallandmidsize

Consistentservicesoeasyforusertraining/

Lossofsomecontrol,potentiallymorestaff

tomanageservice

Multiple Fewusetoday,but

willapplytoanysize

companythatneeds

specificfeature

Willenablebest-of-breedphilosophytoadd

capabilityprimarycloudproviderdoesnot

offer/Cloud-to-cloudintegrationwillbea

challenge

Hybrid

Single Primarilysmalland

midsize

Gradualmigrationfromon-premtocloud,

usingsingleprovider(andpotentiallysame

platform)easesmanagement,orplanned

hybridarchitecturemoreseamlesswith

singlevendor/Easier,lesscostlytoadopt

eithercloudoron-prem

Multiple Large,usuallyinthe

midstofmigration

Fewbenefitstothisarchitecture;usuallynot

theendgoal/Significantchallengesto

managingandintegratingmultiplevendors

acrosson-premandcloud

Figure1:ArchitecturalDifferences


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A Look at Costs

Asstated,NemerteshasgathereddetailedcostsforIPtelephonyandUCCforseveral

years.Wegatherdataoncapital,implementation,andoperationalcosts,eachofwhich

includessub-components.(PleaseseeAddendumfordetailsonthecosts.)Costshave

beendroppingsince2011,butinthepastyear,on-premisescostsgenerallyhave

increasedamongallprovidersinbothIPtelephonyandUCC.(PleaseseeFigure2.)

Figure2:On-PremisesCostChanges

Capital

CapitalcostsareincreasingslightlywithIPtelephonyanddecreasingwithUCC.InIP

telephony,costsincreased7%yearoveryear,drivenprimarilybycompaniesbuying

newdevices,suchasheadsetsandvideophones,alongwithcapital,suchasSBCs.We

donotfindprovidersincreasingtheirpricesforIPtelephonycapital.ForUCC,capital

costsdroppedyearoveryearby25%.Thedecreaseisnotsurprising,giventhe

competitivelandscapeandprovidersbattlingforcustomeracquisition.

Implementation

Year-over-yearimplementationcostsnearlytripledwithforIPtelephony,andthey

roseby60%forUCC.Inbothcases,theincreaseisdrivenbyadditionaltimespent

planningandengineering.Additionally,companiesaredevotingmoreresources

duringtheimplementationphasetointegrationofIPtelephonywithadditional

functions(contactcenter,mobileenablement,collaborationapps),andintegrationof

UCwithenterpriseapps(ERP,CRM,analytics).Andinbothcases,companiesare

usingmorethird-partyprofessionalservicesandsystemsintegrators,whichaddto

implementationcosts.

Operational

ForbothIPtelephonyandUCC,ongoingoperationalcostsareincreasing(32%and

21%,respectively).ITstaffsarenotgrowing,whiledemandsfrombusinessunitsare.

Therefore,moreareusingmanagedservices.Inaddition,theyarespendingmoreon

trainingoftheITstafftopreparefornewintegrationsandservicedelivery

architecturechanges.Andfinally,equipmentmaintenancecostsareincreasing.

$275

$188

$140

$102 $127

$204

$577

$206 $250

$-

$100

$200

$300

$400

$500

$600

$700

2014 2015 2016

UC Costs, 2014-2016

Capital Implementation Operational

$540 $500

$341 $364

$61 $82 $108

$310

$704

$353

$275

$366

$-

$100

$200

$300

$400

$500

$600

$700

$800

2013 2014 2015 2016

IPT Cost Changes 2013-2016

Capital Implementation Operational


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HistoricalCosts

Inevaluatingon-premisescostsfromrecentyears,ShoreTelmostfrequentlyhadthe

lowestandMicrosoftthehighestfirst-yearcosts—acombinationofcapital,

implementation,andthefirstyearofoperationalcosts,notedabove.(Pleasesee

Figure3.)

Figure3:IPTFirst-YearCosts,AllSizes

Figure4:IPTFirst-YearCosts,RolloutsWith<1,000Endpoints

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2013 2014 2015 2016

IP Telephony First-Year Costs, All Sizes of Rollouts

ShoreTel Cisco Avaya Microsoft OVERALL MEDIAN

$882

$670

$870

$1,379

$1,008

$1,176

$1,017

$995

$1,322

$1,670

$1,267 $1,383

$1,234

$951

$1,480 $1,408

$785

$1,519

$1,872

$999

$1,520

$500

$700

$900

$1,100

$1,300

$1,500

$1,700

$1,900

$2,100

2014 2015 2016

IP Telephony First-Year Costs (<1,000 Endpoints)

ShoreTel Alcatel Lucent Avaya Microsoft Mitel NEC Cisco


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Whenevaluatingfirst-yearcostsforspecificsizesofrollouts,moreprovidersemerge.

Forexample,amongcompanieswithfewerthan1,000endpoints,ShoreTel,again,has

thelowestfirst-yearcostsperendpoint,andeitherNECorCiscohasthehighestper

endpoint.ThoughShoreTel’scapitalcostsaregreaterthanmedian,its

implementationandoperationalcostsarethelowestofallproviders.NEC’shigh

implementationcostsandCisco’shighoperationalcostscontributedmosttotheir

highestcosts.(PleaseseeFigure4.)

Cost Model Tool

NemerteshastakenthedatacompiledinitsUCTCOresearch,andpopulateditina

costmodeltool.The2016projectincludedinterviewswith25ITleaders,andpre-

qualified,electronicsurveysofanother274companieswithmorethan100

employees.Toaugmenttheresearchwithadditionaldatafromsmallercompanies,we

conductedanothersurveyfocusingon341companieswithfewerthan100

employees.

Weanalyzedthedatabysizeoforganizationandbyprovider,normalizingcloudcosts

bynumberoflicensesandon-premisescostsbynumberofendpoints.Wethen

populatedthetoolwithdefaultdatafromourresearch,alongwithdataentrythatIT

professionalscanentertocustomizetheoutputtotheirownuniqueconfigurations.

Cost Model Examples

Weevaluatedthreescenarios:Companieswith100,750,and1,500employees.In

eachfigurethatfollows,readerscanseeactualoutputfromthetool,populatedwith

our2016data.

Ineachscenario,ShoreTeldemonstratesthegreatestcostsavingsandlowestoverall

costoverafive-yearperiod,whencomparedtotheindustryaverageandvarious

providersforbothon-premisesandcloud.(Thetoolcanruncalculationsforseveral

vendors;wesimplyselectedvendorsrandomlyforillustrativepurposes.)

Weassumeeachcompanystartswithanon-premisesdeployment(andassociated

numbersforstaffing,ITbudget,equipmentmaintenance,managedservices,etc.)of

widelyusedvendors–Cisco(100-employeeexample),Avaya(750-employeeexample),

andMicrosoft(1,500-employeeexample).Wethencomparewithaselectionof

providerstheongoingoperationalcostsofrunningthoseenvironmentswitha

completechangetoanewon-premisesrolloutorcloudservice.

Forcloudservices,wefactorininitialimplementationoftheservice,monthly

subscription,andongoingoperationalcostsforstaffingandmanagedservices.The

cloudanalysisincludesanoptiontorenthandsets.Inthescenariosweran,weopted


8

tonotincludehandsetsintheanalysis(eitherrentedorpurchases)becauseactual

pricesafternegotiationsareconsistentforlike-for-likehandsets,regardlessof

vendors.

Notethatourresearchgenerallyshowsstaffingactuallygoesupduringatleastthe

firsttwoyearsofaclouddeployment,socostsavingsdonotalwayshappen.In

evaluatingthecloudscenariosfor750and1,500employees,thelackofcostsavingsis

drivenbythestaffingoperationalcoststomanagethesolutionandthepartner,the

initialimplementationcosts,andthemonthlysubscriptioncosts.Thereal-worldcosts

foreachofthosecomponentsvariesbyproviderandisreflectedonthecostmodel

output.

Theon-premiseschartsillustrateannualizedsavingsovertheexistingsolution.We

calculatethecostoverthefive-yearterm,andannualizeittoshowtherelativecost

savingsamongvendors.Wethenshowwhattherelativeannualcostsareforeach

solution—thefirstyearbeingthehighestbecauseitincorporatescapitaland

implementationcosts.Inscenarioswherecompaniesspreadoutthedeployment

beyondthefirstyear,thecapital,implementation,andadditionaloperationalcosts

wouldfollowfromtheyearofinstallation.

Thecloudchartsalsoshowannualizedcostsavingsovertheexistingsolution.Asour

researchdemonstrates,costsdropforsmallrolloutsmovingtothecloud.However,as

therolloutsizesincrease,thesavingsovertheexistingsolutionsarenotascommon.

InShoreTel’scase,thesavingsaresizable,insomecases.WefoundthatShoreTel’s

implementationcostsareaboutthesameormorethancompetitors,butresearch

participantswhousedShoreTeldevotedfewerITstaffmemberstomanagingthe

solutionandrelationshipthandidthoseusingcompetitors.Additionally,ShoreTel’s

actualsubscriptioncostswerelowerthancompetitors.Sooverafive-yearperiod,the

savingsaddsup.ShoreTel’soperationalcostshavebeenthelowestornearlythe

lowestsinceNemertesstartedtheresearch11yearsago.


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Scenario1:100-EmployeeFinancial-ServicesFirm,On-Premises


10

$56,681

$71,296

$52,116

$98,400

5

$491,999 with ShoreTel

0.39%

8%

On-Prem Cost Analysis The Nemertes Cost Analysis Tools has calculated the following

results for your organization. This section provides an overview of the cost benefits of this technology.

TCO Overview for IP Telephony/UC On-Premises

Prepared for: Mary Smith Acme Corp IPT/UC ANALYSIS

Your annual savings with Industry Average:

Your annual IPT/UC savings with Mitel:

Years for cost analysis:

Best 5-year financial gain

Your annual IPT/UC savings with Avaya:

Your annual savings with ShoreTel:

Percentage of annual IT budget saved

Percentage of annual revenue saved

$0##

$50,000##

$100,000##

$150,000##

$200,000##

Year#1# Year#2# Year#3# #Year#4## #Year#5##

Annual Costs

#Industry#Average## Mitel# Avaya# ShoreTel#

#$?####

#$20,000##

#$40,000##

#$60,000##

#$80,000##

#$100,000##

#$120,000##

Industry#Average# #Mitel## Avaya# ShoreTel#

Annualized Cost Savings Over Current Solution


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Scenario1a:100-EmployeeFinancial-ServicesFirm,Cloud

$41,079

$38,125

$21,808

$67,916

5

$339,579 with ShoreTel

0.27%

5%

TCO Overview for IP Telephony/UC CloudPrepared for: Mary Smith Acme Corp IPT/UC ANALYSIS

Cloud Cost Analysis The Nemertes Cost Analysis Tools has calculated the following results for

your organization, comparing costs for your current solution with cloud offerings. This section provides an overview of the cost benefits of this technology.

Your annual savings with 8x8:

Your annual savings with Vonage:


5-year financial gain

Your annual savings with Mitel:


Percentage of revenue saved

Percentage of IT budget saved

!$#!!!!

!$20,000!!

!$40,000!!

!$60,000!!

!$80,000!!

8x8! !Vonage!! Mitel! ShoreTel!

Annualized*Cost*Savings*

!$#!!

!$20,000!!

!$40,000!!

!$60,000!!

!$80,000!!

!$100,000!!

!$120,000!!

Year!1! Year!2! Year!3! !Year!4!! !Year!5!!

Annual*Cost*Comparison*

!8x8!! !Vonage!! !Mitel!! !ShoreTel!!


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Scenario2:750-EmployeeManufacturingCompany,On-Premises

$281,840

$229,158

$207,372

$514,524

5

$2,572,618 with ShoreTel

0.30%

11%


results for your organization, comparing costs for your current solution with ShoreTel's new Cloud and On-Site offerings. This section provides an overview of the cost benefits of this technology.




Your annual IPT/UC savings with Cisco:



Your annual IPT/UC savings with Microsoft:




$0##

$200,000##

$400,000##

$600,000##

$800,000##

$1,000,000##


Annual Costs

#Industry#Average## Cisco# Microso?# ShoreTel#

#$D####

#$100,000##

#$200,000##

#$300,000##

#$400,000##

#$500,000##

#$600,000##

Industry#Average# #Cisco## Microso?# ShoreTel#



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Scenario2a:750-EmployeeManufacturingCompany,Cloud

$32,031

($12,841)

($111,962)

$281,912

5


0.17%

6%












!$(200,000)!

!$(100,000)!

!$)!!!!

!$100,000!!

!$200,000!!

!$300,000!!

!$400,000!!



!$)!!

!$100,000!!

!$200,000!!

!$300,000!!

!$400,000!!

!$500,000!!

!$600,000!!

!$700,000!!

!$800,000!!

!$900,000!!





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Scenario3a:1,500-EmployeeHealthcareCompany,On-Premises

$280,521

$163,154

$293,277

$709,058

5


0.24%

9%

Your annual IPT/UC savings with Avaya:





Your annual IPT/UC savings with Cisco:




results for your organization. This section provides an overview of the cost benefits of this technology.



$0##

$500,000##

$1,000,000##

$1,500,000##

$2,000,000##

$2,500,000##


Annual Costs

#Industry#Average## Cisco# Avaya# ShoreTel#

#$@####

#$100,000##

#$200,000##

#$300,000##

#$400,000##

#$500,000##

#$600,000##

#$700,000##

#$800,000##

Industry#Average# #Cisco## Avaya# ShoreTel#



15

Scenario3b:1,500-EmployeeHealthcareCompany,Cloud

($305,408)

($354,457)

($653,432)

$325,123

5


0.11%

4%












!$(800,000)!

!$(600,000)!

!$(400,000)!

!$(200,000)!

!$+!!!!

!$200,000!!

!$400,000!!



!$+!!

!$200,000!!

!$400,000!!

!$600,000!!

!$800,000!!

!$1,000,000!!

!$1,200,000!!

!$1,400,000!!

!$1,600,000!!

!$1,800,000!!





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Conclusion and Recommendations

IPtelephonyandUCCdeploymentsareincreasinglybroadandcomplex.Moreapps

areincludedintheintegrationforanoverallUnifiedCommunicationsstrategy.And

althoughITleaderswouldliketocentralizeonasingleproviderandasingle

architecture,thatdoesnothappenfrequentlyenough.

Providersarerapidlyimprovingtheiron-premises,cloud,andhybridsolutions.In

particular,theyareawarethatmanyorganizationswanthybridarchitectures,either

temporarilyastheytransitionfromon-premisestocloud,orpermanentlyforvarious

businessreasons.Selectingaproviderwithacommonarchitectureiscrucialto

successintechnology,vendor,andendusermanagement.

AlongwithanincreasedfocusonhowUCCsolutionscanmakethecompanymore

effectiveandproductive,ITleadersmustre-examinecosts.Movingtocloudmaydo

wondersforagility,butorganizationsoftendonotsavemoney.Soifcost-savingsis

theprimarydriver,besuretoevaluateallcostsanddeterminewhichvendorwill

achievethatgoal.Regardlessofwhicharchitectureultimatelywins,selectinga

providerwithanaffordableoperationalcostisthemostimportantTCOcomponent

(vs.capitalorimplementation).Operationalcostfiguresextendmuchlongerthanthe

one-timecapitalorimplementationcosts.


17

Addendum

Nemertesgatherscostdatainthefollowingareas:

Measurement Includes FormulaOn-Prem FormulaCloud

Capital PBX,endpoint

devicesandlicenses,

servers,other

hardware.Insome

cases,bundled

licensesinclude

certainUCapps

=(stafftime*loaded

hourlyrate)+3rdparty

costs/numberof

endpoints

=totalcapitalcosts/numberof

licenses

Implementation Stafftimeandthird-

partyconsultants

andintegrators

=(stafftime*loaded

hourlyrate)+3rdparty

costs/numberof

endpoints

=(stafftime*loadedhourly

rate)+3rdpartycosts/numberof

license

Operational Stafftime,

equipment

maintenance,3rd

partymanaged

services,training

andcertification.

Monthlyservicefor

Cloudservices

=((numberofFTEs*

averageannual

loadedsalary)+

(equipment

maintenance+

managedservices+

training/certification))

/numberof

endpoints

=((numberofFTEs*average

annualloadedsalary)

+(equipmentmaintenance+

managedservices+

training/certification))/number

oflicenses

AboutNemertesResearch:NemertesResearchisaresearch-advisoryandstrategic-

consultingfirmthatspecializesinanalyzingandquantifyingthebusinessvalueof

emergingtechnologies.YoucanlearnmoreaboutNemertesResearchatourWebsite,

www.nemertes.com,[email protected].

HOW TO KEEP UCC COSTS DOWN AS COMPLEXITY GROWS

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