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The Compelling TCO Case for Cloud

Computing in SMB and Mid-Market

Enterprises

A 4-year total cost of ownership (TCO)

perspective comparing cloud and on-premise

business application deployment

A Hurwitz wHite PAPer

SanjeevAggarwal,PartnerLaurieMcCabe,Partner

StudysponsoredbyNetSuite


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Huriz whi Papr

Conns

ExecutiveSummary...............................................................................................................1

Introduction...........................................................................................................................2

Figure1.Four-YearTotalOwnershipCostDistribution-NetSuiteandMicrosoft

DynamicsGPandCRM.....................................................................................................2

Section 1: SMB & Mid-Market Enterprises Face Difcult Business and Economic

Challenges.............................................................................................................................3

Section2:CloudComputingShiftstheTCODiscussion.............................................4

Figure 2. Key Benets of Cloud-based Business Application Solutions................... 4

Section3:WhydoesTCOmatter?....................................................................................5

Section4:WhatdoesthisTCOmodelinclude?..............................................................6

Section5:AssumptionsforDevelopingtheTCOModel.............................................7

Section6:TCOMethodology............................................................................................8

Figure3.KeyFunctionsandFeaturesforMid-MarketCompanies............................9

Section7:TCOComparisonforCloudvs.On-premiseBusinessSolutions.............9

Figure4.100-UserTCOforNetSuiteandMicrosoftDynamicsGP/CRM..............10

Figure5.TCOComparisonfor52-users,100-user,200-userforNetSuiteandMicrosoftDynamicsGP/CRM.........................................................................................12

Section8:RecommendationsforSMBandMid-MarketEnterprises........................13

Section9:Conclusions.......................................................................................................15

th Complling tCO Cas for Cloud Compuing in SMB and Mid-Mark enrpriss


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Executive Summary

Cloudcomputingessentiallyeliminatestheneedforcustomerstobuy,deployandmaintainITinfrastructureorapplicationsoftwareindividually.Regardlessof theapplication,thecloudcomputingvendortakesresponsibilityforallof the

infrastructurerequiredtorunthesolution--servers,backup,software,operatingsystems,databases,updates,migration,powerandcooling,facilityspace,etc.,andassociated internal and third-party stafng costs. Because cloud computing vendors

manageallof theircustomersonasingleinstanceof thesoftware,theycanamortize

costsoverthousandsofcustomers.Thisyieldssubstantialeconomiesof scaleandskill,andlowerstotalcostof ownership(TCO).

Key ndings from our analysis include:

Overall TCO for NetSuites cloud-based integrated solution suite is signicantlylowerthanacomparableon-premisesolutionconsistingofMicrosoftDynamicsGP and CRM. This holds true for both SMB and mid-market rms. The TCOforcloud-basedvs.on-premisebusinessapplicationsolutionswas:

55%lowerfor52users 50%lowerfor100users 35%lowerfor200users

ITInfrastructurecosts(hardware,softwareandon-goingmaintenancerequiredtoruntheon-premisebusinessapplications)accountforabout11%of thetotal

costof deployingon-premisebusinessapplicationsalmost$172,500inthe100userscenario(Figure1).Comparably,therearenoITInfrastructurerelatedcostsforcloud-basedbusinesssolutions.

TotalCostforcloudcomputingisafull$730,745lessthanon-premisefor

the100userscenario.Withcloudcomputing,theoverallcostofrunningthesolutionismorepredictablethanon-premise.Figure1showsthatapplicationsubscriptioncostsaccountedfor65%ofthetotalsolutioncost,whereastheon-premiselicensecostonlyaccountedfor26%oftotalcost.

Spendingforapplicationimplementationandsupport(includinginternalITstaff and/or VAR, consultant or SI resources) is signicantly higher for on-premisesolutionsthanforcloud-basedsolutions,asmuchas3.5timesmorefor

the100userscenario.

Pre-integrated front and back ofce functionality in the NetSuite offeringincrementallycontributestoreducingintegrationcomplexityandlowers

applicationimplementationcosts.



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Figure 1. Four-Year Total Ownership Cost Distribution - NetSuite and MicrosoftDynamics GP and CRM

Sourc: Huriz & Associas

Introduction

Smallandmediumbusinesses(SMBs)faceatrickydilemmaintodayschallengingeconomic climate. Its no longer business as usual; companies need to gure out

howtooptimizefortoday,andgetontracktocapitalizeonnewopportunitiesthat

willemergeastheeconomystartstogrowagain.Theyneedbusinesssolutionstohelp them to manage more efciently day-to-day, and also provide them with theintelligencetheyneedtomovethebusinessforward.

AsSMBsevaluatedifferentbusinessapplicationoptions,totalcostofownership(TCO)isoftentopof mind.Manycustomershavebecomeinterestedinhowcloudcomputingorsoftware-as-a-service(SaaS)canhelplowertheircostsbyeliminating

upfrontcapitalinvestmentsandongoingmaintenancecostsassociatedwithon-premisesolutions.

Inthisstudy,webeginwithabrief overviewof SMBrequirementsandchallenges,andprovidecontextonhowcloudcomputingisreshapingtheeconomicsandTCOof thebusinessapplicationslandscape.Then,weexamineandcomparethetotalcostof ownershipforplanninganddesign,infrastructurehardware,softwareandsupport,

applicationsoftware,deploymentandtrainingcostsof MicrosoftsDynamicsGPandCRMtraditionalon-premisesolutions,withthoseof NetSuite,whichprovides an integrated front and back ofce SaaS solution. We conclude with our

recommendationsforSMBcustomersevaluatingthesealternativecomputingmodels.

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Overall TCO forNetSuites cloud-based integratedsolution suite issignicantly lowethan a comparablon-premise solutioconsisting ofMicrosoft DynamicGP and CRM.


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Section 1: SMB & Mid-Market Enterprises Face Difcult Business

and Economic Challenges

Justlikelargerenterprises,SMBsandmid-marketenterprisesneedbusinesssolutions

that help them to manage day-to-day operations and processes more efciently. At thesame time, they want insight and intelligence to successfully adapt to uid businessenvironment,andensurecompliancewithregulatoryrequirements.

However,SMBshavesmallerbudgetsandfewerITstaff thanlargercompanies.Small

businessesof 50to100employeesmayhaveonlyonefull-timepersontypicallyanITgeneralisttosupportacomplexarrayof ITresourcesandusers.Inmediumbusinesses (100 to 999 employees), IT stafng grows, averaging about one full-time

ITpersonforevery100employees.But,businessandITcomplexityoftenoutstrip

the growth of IT resources, especially in mid-market rms, who face the complexitiesof managingseverallocations,multipleservers,anexpandingarrayof desktopsanddevices,andamoremobileworkforce.

Asaresult,reactingtodailyapplicationavailability,maintenanceandsupportissuescanmaxouttheITstaff,leavinglittletimetodeploynewsolutionsoreventoupdateexisting ones. The difcult economic climate only heightens SMB requirements foreasiertouse,fastertodeployandmorefunctionalsolutionstohelpthebusiness

effectivelynavigatethroughuncertaintyandimprovethebottomline.


Business and ITcomplexity oftenoutstrip the growtof IT resources,especially in mid-market rms...

Easing the upgrade process and improving operations

When a new CEO came on board at this 50-person insurance rating, quotingand policy solutions in 2000, he was frustrated with the lack of communicationand coordination within the firm. Everything was in silos, and it was dicult tocommunicate, according to the IT Director. We had internal people managingit, but they didnt understand all the diferent applications, and upgrades weredicult. In 2005, the firm implemented NetSuite, attracted by the clouddelivery model, and built-in integration capabilities. This provides us with thelatest version, all the time, without downtime, she notes. Having one systemand a unified dashboard has also helped us to improve service levels andincrease customer satisfaction.


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Section 2: Cloud Computing Shifts the TCO Discussion

Cloudcomputinghassteadilygainedmarketacceptanceasanalternativetotraditionalon-premise solution deployment and maintenance because it offers several benetstocustomers(seeFigure2).Thecloudcomputingmodelcanhelpcompanies

conservecashandfocuslimitedresourcesonthebusiness,insteadofreactingtoITinfrastructure-related re drills. In the cloud computing model, vendors provide Web-basedaccesstoapplicationsasaservice,throughasubscriptionpricingmodel.This

eliminatestheneedforcustomerstobuy,deployandmanageITinfrastructureandsolutions.Vendorstakeresponsibilityforeverything:theservers,storage,operatingsystem,database,businesssoftware,updates,migration,powerandcooling,datacenterspace,andsupportservices.Asaresult,cloudcomputingshiftstheITburdenfrom

thecustomertothecloudcomputingapplicationvendor.

Figure 2.Key Benets of Cloud-based Business Application Solutions

Sourc: Huriz & Associas

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Cloud computingshifts the IT burdfrom the custometo the cloudcomputingapplication vend


Feature Customer Benefit

Eliminate capital

costs

Vendor pays for shared multi-tenant infrastructure

SMBs access solutions through a web-interface over the

internet

Pay for usage on a per month/user basis

Faster

deployment and

productivity

SMBs are up and running in 3-4 weeks vs. 3-4 months as

there is no need to acquire, install and test infrastructure

Applications can be accessed from anywhere, anytime

and through any device

Everyone in company has access to real-time information

Streamlines use

and management

Web-based, self-service access to business solutions

Vendor manages and updates infrastructure

No software to maintain and upgrade

Automated upgrades to new versions of applications and

functionality

IT focuses on higher value, more strategic initiatives

Increase flexibility SMB can expand or contract services as their needschange

Support a increasingly mobile workforce

Easier to investigate solutions prior to acquisition

Improve customer

service

Direct customer connection to resolve problems

Incentive to achieve high customer retention and upsell

additional solutions

Better reliability

and performance

Enterprise class IT infrastructure that is affordable Vendor provides high-availability for business continuity

and disaster recovery

Vendor provides required data backup services

Reduces power consumption and data center space

Proactive support and management


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Cloud computing vendors can provide these benets because theyve built their

solutionsasWeb-basedservicesfromthegroundup.Insteadofbuildingtheirsolutionstorunin-house,asaseparate,individualinstancesforeachcustomer,theyarchitecttheirsolutionsforaone-to-many,ormulti-tenantmodel.Thismeansthattheycanrunthousandsof customersonasingleinstanceof thedatabaseandapplicationsoftware.Byoptimizingtheirsolutionsforthissharedenvironment,they

can achieve efciencies throughout the solution lifecycle that would be difcult for on-

premisevendorstoachieve.

Section 3: Why does TCO matter?

IntheITindustry,TotalCostof Ownership(TCO)isusedtocalculatethetotalcostof purchasing(orinthecaseof cloudcomputing,subscribingto),andof operatingatechnologysolutionoveritsusefullife.TCOprovidesarealisticandholisticmeasureof thelong-termcostsrequiredtoacquireandoperatetechnologysolutions.

Returnoninvestment(ROI)isanothermethodtoevaluateandprioritizetechnologyinvestmentsinacompany.Thismeasureistypicallyusedtocompareinvestmentsthat

uncovernewtoplinerevenueandgrowthopportunities.However,ROItendstobemore subjective in nature than TCO, because ROI looks at business benets, whichoftencannotbemeasuredasobjectivelyascosts.

Hurwitz&AssociatesviewsTCOasapreferredmethodtocomparetechnology

investments when two solutions provide roughly equivalent benets over the solutionlifecycle,buthavedifferenttypesof costsassociatedwithacquisition,maintenanceandoperation.Forthesereasons,aTCOcomparisonoffersamoretangible

assessmentof thetotalcostsinvolvedindeployingcloud-basedSaaSandon-premisebusinesssolutions.


The fact thatthere was little ono infrastructure internal supportrequired drove usto a software-as-service solution.Security softwarrm

Lean and mean IT

Headquartered in Slovakia, the U.S. division of this security software firm hasgrown from 1 to 135 employees over the past 10 years. The division had beganby using multiple brands of packaged software for accounting, contactmanagement and reporting functions. But as it grew, the organization wanted

tighter integration across functions, better reporting, and an easier way toprovide access to an increasing number of remote employees. It also wanted tokeep upfront capital and ongoing support costs low. The fact that there was littleor no infrastructure or internal support required drove us to a software-as-service solution, according the firms Business Systems Director. Since deployingNetSuite in 2006, the company has kept IT lean and mean, and the singlesystem, real-time view of customers helps our sales and support teams to offerbetter service to customers.


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Section 4: What does this TCO model include?

TheTCOmodelthatHurwitz&Associatesusesinthisstudycomparesfunctionallysimilarcloudandon-premisebusinessapplicationsolutionsoveraperiodof 4years

(theusefullifeofasolutionforbothhardwareandsoftwarewithouttheneedforamajorreplacementof solutioncomponents).TheTCOcalculationmodelincludesthefollowingcategoriesandcomponents:

1. Evaluation and Selection:

Solution evaluation & analysis:Evaluatefeaturesandfunctionalityofcompetitiveproducts.

Vendor review and SLA analysis (as applicable).Reviewandauditvendorlicenseagreements,service-levelsandsecurityrequirements.

2. IT Infrastructure hardware, software and support (primarilyrequiredforon-premisesolution;theseareincludedinthesubscription

costsforcloudsolutions):

Server and storage hardware and maintenance.Capitalexpenditurerequiredtoacquireserversandstoragetorunapplications,databases,andtestenvironment.Operatingexpensesformaintenance,space,powerandcooling.1

Operating system, database, security, backup software and maintenance.Capitalexpendituretoacquireoperatingsystem,database,security,anddatabackupsoftware;operationalexpensesforsoftwaresupport,upgrades,patchesandbug-xes for this infrastructure.1

Administrative IT costs for systems and database.Percentageof full-timeequivalent(FTE)ITadministratorssalaryforhardwaresystems,softwareanddatabases.2

3. Application subscription costs OR application license costs:

ERP and CRM application subscription or license cost. Costsarecalculatedonanequivalentnumberofusers.Inthecaseofcloudsolutions,theseare

operationalcostsandremainconstantforthelifeof thesubscriptionservice.Inthecaseof on-premisesolutions,theseareinitialdeploymentcapitalexpenses.Allapplicationcostsarecalculatedbasedonvendorlistprices.

Application maintenance. This includes operational costs for bug-xes and

upgradestonewversionsof thesoftware.Thesecostsareincludedinthesubscription costs for cloud solutions, and are factored as a xed percentage ofinitiallicensingcostsfortheon-premisesolutions(insomecases1-2yearsof

annualmaintenancecostsareincludedininitiallicensecosts).


1(AllinfrastructurecostsarecalculatedforDellserversandstoragesystemsandpricesfromDellswebsite.)2Annualsalaryestimatessourcedfromwww.salary.com.


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4. Application solution deployment costs:

Detailed design. Dene project objectives and scope; existing processes; identifyprocess gaps and data sources; document business requirements; develop nalprojectplan.

Conguration and deployment. Application conguration to specications;

integration between front and back ofce functions; custom integration ifrequired;datamigration;systemtesting;cutovertonewsolution.

5. Initial and ongoing training costs:

User training.Toincreaseandaccelerateadoptionbyusers,includingnewusers

overtime.

Administrative training.Totransitiondailysystemadministrationtothe

customersinternalstaff.

Section 5: Assumptions for Developing the TCO Model

Someof thekeyassumptionsusedindevelopingtheTCOmodelinclude:

Selection of 52, 100 and 200 user scenarios.Thesethreeusersizescenariosarebasedonthenumberof employeesthatusethesolution(s),notonthetotal

numberof companyemployees.Thesesizeswereselectedbasedonthemid-marketfocusof bothcompanies,andwerealsorepresentativeof thecompaniesinterviewedforthisstudy.

Application costs.Applicationcostswerebasedonstandardlistpriceperuseraspublishedbyeachvendor.

Ratio of ERP to CRM users.Ascompanysizeincreases,theratioof CRMtoERPusersincreases.ERPuseistypicallylimitedtocompanyexecutives,accounting and other back-ofce staff; while a broader range and typicallylargernumbersof employees,spanningcompanyexecutives,sales,servicesand

marketingdepartments,oftenuseCRM.SinceMicrosoftsellsandpricesitsDynamicsGPandCRMsolutionsseparately,weaccountedforthischangingratioasthenumberof usersgrows.NetSuiteissoldasanintegratedapplicationsuiteonaperuserbasis,withallfunctionalityavailabletoallusers,socostsare

calculateduniformlyregardlessof whichusersusewhatfunctionality.

Hardware infrastructure needs to be functionally equivalent for servingapplication, high-availability and data back-up requirements.Wehave

calculatedacquisitioncostsfornewhardwareandsoftwarecostsintothetraditionalon-premisemodeltomakeITinfrastructurefunctionalityandcostsequivalenttowhatisprovidedbycloudsolutionvendors.Basedonuser

discussion,wecalculatedanaverageof 3servers(ERP,CRM,andtestserver)with



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internal RAID for 52-user scenario. The conguration for 100 and 200 users

includesaclusterofserversforSQLdatabasethatcanbeaccessedbytheERPandCRMapplicationserverswithasharednetwork-basediSCSIstoragesystem.3

Application solution deployment, integration, and training costsweredeterminedbasedondiscussionswithusers,VARs,SIs,vendors,andsecondarymarketresearch.

Section 6: TCO Methodology

ThepurposeofthispaperistoexamineTCOforcloudandtraditionalon-premisebusinesssolutionsnottoevaluatecustomersatisfactionwiththesesolutions.BothNetSuiteandMicrosoftDynamicsGPandCRMaremarket-provensolutions,with

thousands of customers, and many very satised ones. However, their businessanddeliverymodels,andcostandpricingstructuresareverydifferent.Asaresult,companiesthatareconsideringpurchasingabusinesssolutionwanttobetter

understandhowchoosingonemodelortheothercanaffectTCO.

ThestudycomparesTCOforcloud-basedandon-premisebusinessapplicationsthatprovide similar capabilities for mid-market front and back ofce business functions

(Figure3onthefollowingpage).NetSuiteprovidesthisfunctionalityviaacloudcomputingmodel;Microsoftprovidessimilarfunctionalityinanon-premisemodelthroughacombinationof MicrosoftDynamicsGPandDynamicsCRM.4

Hurwitz&Associatesindependentlycontactedmid-marketusersof thesesolutionstodiscusstheirevaluationanddeployment(initialandongoing)experiencesonconditionsof anonymity.Thesecompaniesdiscussedtheirexperienceswithsolution

evaluation,selection,deployment,andon-goingoperationalprocesseswithus,andprovideddetailedcostinformationforeachof thesephases.Ascontext,theyprovidedqualitativeinformationaboutthecompanysorganizationstructure,objectives,challenges,experienceandsatisfactionwithsolutions,andwithVAR,SIorconsulting

servicesthattheyuse.

SMBsandmid-marketcompaniesvarywidelyintermsof numberof employeesand number of users of both front-ofce CRM applications and back-ofce ERP/

accountingapplications.Weinterviewedcompaniesrepresentativeof thethreeuser

sizetiers(52,100and200users)toprovideamorecompleteillustrationof howsomeof thecostsincludedintheTCOcomparisonchangeasthenumberof userschanges.

The mix included independent commercial entities, not-for-prot organizations, anddivisionsof largercorporations.

3Server,storageandinfrastructuresoftwarepricingwascalculatedusingpricesavailableonDellsWebsite.4Microsoftalsooffersacloud-basedversionof CRM,DynamicsCRMOnline,whichwasnotincludedinthisstudy.



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Section 7: TCO Comparison for Cloud vs. On-premise Business

Solutions

DetailedyearlycostcomparisonforthevariouscostcategoriesisshowninFigure4 (on the following page), for the 100 user scenario. The top section of the gurehighlights yearly costs for the 2 solutions, clearly showing the rst year costs for the

on-premisesolutionsaremuchhigherthanforthecloudcomputingsolutions,astheon-premise solution require signicant upfront capital expenditures for acquiringtheinfrastructurehardware,softwareandbusinessapplicationssoftware,aswellasadditional internal IT resources required to install and congure these components.

The bottom section of the gure shows four year total costs for the variouscomponents. The key component leading to a signicant difference in TCO is the

additionaltotalITInfrastructurecostsfortheon-premisesolution.


...the rst yearcosts for the on-premise solutionsare much higherthan for thecloud computingsolutions...

Figure 3.

Key Functions and Features for Mid-Market Companies

Source: Hurwitz & Associates


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Figure 4.

100-User TCO for NetSuite and Microsoft Dynamics GP/CRM


The key componeleading to asignicantdifference in TCOthe additional toIT Infrastructurecosts and relatedmanagement costfor the on-premissolution.

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

Year 1 Year 2 Year 3 Year 4 TotalCost 4Years

Year 1 Year 2 Year 3 Year 4 TotalCost 4Years

NetSuite Microsoft Dynamics GP AdvancedManagement

Cost

pe

r

year

(in

Thousands

of

Dollars)

Total Evaluation & Selection Total IT Infrastructure

Total Application Software Total Applications Implementation & support

Total User Training

10 -

499

215

37

761

12

637

382 389

73

1,492

$0

$400

$800

$1,200

$1,600

Total Evaluation &

Selection

Total IT Infrastructure Total Application

Software

Total Applications

Implementation &

support

Total User Training Total Costs

Cost

per

year

(in

Thousandsof

Dolla

rs)

NetSuite Microsoft Dynamics GP Advanced Management & CRM


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Additional key ndings from the TCO comparison are detailed in Figure 5 on the

followingpageandinclude:

OverallTCOforNetSuitewasconsiderablylessthanfortheMicrosoftDynamicsGPandCRMsolutions.TCOsavingsdotaperoff,however,asthe

numberof usersincreases.Inthe52-userscenario,NetSuiteTCOis55%less;for100usersthanMicrosoftDynamicsGPandCRM;50%less;and35%lessfor200users.

TheyearlysubscriptionfeeforNetSuite,whichincludesboththebusinessapplicationsandallof theunderlyinginfrastructureandsupportcostsnecessary

tosupportdeliveringtheapplicationasaservice,accountsfor2/3of totalcosts.

Totalcostsforon-premiseapplicationsoftwareandmaintenanceare25%lessthanthetotal4-yearcloudsolutionsapplicationsubscription(maintenanceisincluded in the subscription fee). This is because in the rst year of the on-premisemodel,customerspaythefullcostforaperpetuallicense,andthen

payapercentageof thelicensefeeformaintenancethereafter.Thisgapwidensinfavorof on-premisesolutionsasthenumberorusersincreasesbecausesubscriptioncostsperusersremainconstantthroughoutthe4-yearperiod.

ITInfrastructurehardware,software,andmaintenancecostsarezerofor

cloudbusinesssolutions(NetSuite),butaccountforalmost15percentoftherst year costs (12% over 4 years) in an on-premise implementation. Thesecapitalexpensesareof particularconcerntomid-marketend-usersgiventhe

tightbudgetsandevenof greaterconcerninthecurrenttougheconomicenvironmentwithverytightandexpensivecreditterms.

InternalITresourcesandVAR/Consultantresourcecostsaccountforapproximately30percentoftheTCOcostsinacloudsolutionscomparedto

around58-60percentinon-premisesolutions.

Intheon-premisescenario,alargeaportionof theinternalITcostsareincurredonanongoingbasisforinfrastructureanddatabaseinstallation,setupandongoingmanagement,supportandupdates;asthereisnoon-

premiseinfrastructureforcloud-solutionsthesecostsarepartof theannualsubscriptioncosts.

Majorityof theVAR/consultant(externalVARsorserviceorganizationsof vendors) costs for both solutions are incurred in the rst year for detailed

designandimplementationof thedetaileddesigns.



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Figure 5.

TCO Comparison for 52-users, 100-user, 200-user for NetSuite and Microsoft Dynamics GP/CRM

Source: Hurwitz & Associates


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Section 8: Recommendations for SMB and Mid-Market Enterprises

While cloud computing can provide clear TCO benets, customers considering a cloudcomputingmodelneedtoevaluateotherimportantaspectsbeforeselectingasolution,intermsof boththeirownrequirements,andvendorcapabilities.

Service Level Agreements (SLAs) and contract terms. Incloudcomputing,customersgiveupsomecontroltothevendor.Whenevaluatingon-demandversus on-premises options, review the ne print of the contract terms before

makingdecisions,andgetanswerstothefollowingquestions:

Doesthecontractrequireanupfrontlong-termcommitment?

Howeasyisittochangethenumberof users?Whatpenaltiesorper-user

pricechangesareassociatedwiththesechanges?

DoestheSLAsupportingtheuptimeguaranteeforthesebusiness-criticalapplicationsof atleast99.5%?

Whatsecurityfeaturesaresupported?

Investigatecloudvendorsdisasterrecoveryandbusinesscontinuityplans.

Whatoptionsandpenaltiesdoesthevendorprovideifyouterminatetheservice?Forinstance,ifyouterminatethecontract,howdoyougetyourdataback?

Address data security concerns upfront.Understandhowthecloudvendor

storesdata,whocanaccessit,andwhatsafeguardsthevendorhasestablishedtoensurethatdataisonlyaccessedbyauthorizedpersonnel.Thevendorshouldbeabletoprovideanaudittrailondataaccess.


We reduced jobprocessing andHR support headcount becausethe Web-basedsystem is easy-touse and reducesredundancy anderrors.Coloradonot-for-prot

Getting more done with fewer people

A private, not-for-profit Colorado organization of 750 employees deliverssupport services to people with disabilities in Colorado. The organization hadbeen using traditional software for accounting, HR and payroll for several years.In 2006, it decided that the HR component wasnt meeting its needs. Afterevaluating several options, senior IT stafand executives determined thatpackaged software oferings wouldnt provide the anytime, anywhere access andsupport for employees it needed, and put an unwieldy burden on internal IT staf.According to the groups IT Manager, Ongoing software and support costs in asubscription service may be a bit higher than in a packaged license model, but wesave money because we dont have to buy and maintain hardware and software.Hes found that NetSuite is configurable and easy to manage and change. to of an FTE manages the suite and does customizations. Harding also notes thatthe pre-integrated system helps them get more done with fewer people. Wereduced job processing and HR support head count because the Web-based

system is easy-to-use and reduces redundancy and errors.


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Huriz whi Papr 4

Application customization requirements.MostSaaSapplicationsare

customized via conguration, instead of source code customization. Foraffordablecustomizationof cloudcomputingsolutions,aimforthe80/20rule.

Canthesolutioncangetyouatleast80%ofwhatyouneed,andhowmuchneededcustomizationcost?

Customerswithveryheavycustomizationrequirementsmaywanttoconsidera

packagedsoftwaresolutiontoachievedeepercustomizationorSaaStechnologyimplementationandcustomizationviathird-party.

Invest more upfront in the evaluation and selection process. Mostcompaniesareunder-investingwhenitcomestothoroughlyevaluatingbusinesssolutionrequirementsandoptions.Seekthehelpof independentconsulting

organizationstobetterunderstandthetotalcostof on-demandando-premiseoptions as they relate specically to your companys unique needs and budgetaryconstraints.

Carefully consider the benets provided by a third-party VAR or SI.Many

cloudcomputingvendorsoffercustomerstheoptionof purchasingthesolutionandconsultingandsupportservicesdirectlyfromthevendor,orthroughaVARor SI. In some cases, VARs and SIs may be a better t for your company than

the vendor in terms of their ability to provide industry-specic customization,integrationwithexistingapplications,migrationof datafromexistingapplications,trainingandcoachingforrampingupusability.

Assess the trade-offs of deploying an integrated suite vs. integratingapplications from multiple vendors.Withanintegratedsuite,allcoremanagementapplicationsrunonacommoncodebase,andsharethesamedatabase,providingasingle,integratedsystemof record.Thismeansthatmany

front and back ofces workows are pre-integrated, enabling a higher degree ofintegrationout-of-the-box,additionalcustomcodingorintegrationconnectorsandframeworks.

However, organizations that are happy with an existing front or back ofcesolution may nd it less disruptive and costly to integrate new functionality fromanothervendor,ratherthantosimultaneouslydeployanentirelynewfrontand

back ofce suite.



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Section 9: Conclusions

Bypackagingallof theapplicationsoftware,ITinfrastructureandservicestogetherinaWeb-based,multi-tenantsubscriptionmodel,cloudcomputingvendorshavetheabilitytocontainvariablecostsmuchmoreeffectivelythanpackagedsoftwarevendors-andpassthesesavingsalongtocustomers.

SMBandmid-marketenterprisesneedsolutionsthatenablethemtomeettheirbusinessgoals,andalsohelpthemtoconservecapitalandreduceongoingcosts.

Although one size does not t all, for many customers, cloud computing businesssolutionscanhelporganizationstoachievetheserequirements,andprovideadded

exibility to scale as business demands require.



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Huriz whi Papr 6


Copyright 2009, Hurwitz & Associates

All rights reserved. No part of this publication may be reproduced or stored in aretrieval system or transmitted in any form or by any means, without the prior written

permission of the copyright holder. Hurwitz & Associates is the sole copyright ownerof this publication. All trademarks herein are the property of their respective owners.

233 Needham Street Newton, MA 02464 Tel: 617 454 1030w w w . h u r w i t z . c o m

About Hurwitz & Associates

Hurwitz & Associates is a consulting, market research and analyst rm that focuseson how technology solutions solve real world business problems. The rms researchconcentratesondisruptivetechnologies,suchasServiceOrientedArchitectureandWeb

2.0,CloudComputing,ServiceManagement,InformationManagement,andSocialandCollaborativeComputing.Wehelpourcustomersunderstandhowthesetechnologiesarereshapingthemarketandhowtheycanapplythemtomeetbusinessobjectives.Theteamprovidesdirectcustomerresearch,competitiveanalysis,actionablestrategicadvice,

andthoughtleadership.AdditionalinformationonHurwitz&Associatescanbefoundatwww.hurwitz.com.

Download - The Compelling TCO Case for Cloud Computing-Correct

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