the compelling tco case for cloud computing-correct

Download The Compelling TCO Case for Cloud Computing-Correct

Post on 10-Apr-2018

216 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

  • 8/8/2019 The Compelling TCO Case for Cloud Computing-Correct

    1/18

    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

  • 8/8/2019 The Compelling TCO Case for Cloud Computing-Correct

    2/18

    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

  • 8/8/2019 The Compelling TCO Case for Cloud Computing-Correct

    3/18

    Huriz whi Papr

    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.

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

  • 8/8/2019 The Compelling TCO Case for Cloud Computing-Correct

    4/18

    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.

    Huriz whi Papr 2

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

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

  • 8/8/2019 The Compelling TCO Case for Cloud Computing-Correct

    5/18

    Huriz whi Papr

    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.

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

    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.

  • 8/8/2019 The Compelling TCO Case for Cloud Computing-Correct

    6/18

    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