We all know that the cloud brings many benefits to organizations -- fewer IT resources needed, better enablement for mobile workers and remote offices, automatic updates, built-in redundancy, and more. But, is the cloud basically a big ruse for getting businesses to pay more to their vendors? And if so, does it matter?
In a recent article on Office 365, Microsoft's hosted offering that includes Skype for Business, IT reporter Gregg Keizer wrote that moving a corporate customer to Office 365 "rent-not-buy" subscriptions results in almost a doubling of revenue for Microsoft. While customers traditionally buy Office once every five to seven years, if they subscribe to Office 365 (specifically the E3 plan, which includes the core Office application suite, cloud-based Exchange, SharePoint, and Skype for Business), "Microsoft can realize an 80% increase in revenue over the years-long relationship," he said. "In other words," he added, "for every $100 Microsoft earned the old way, it reaps $180 under the newer subscription regime over the long haul."
While Keizer looked specifically at Office 365, you could make the same argument for most UCC solutions. Moving from the traditional capex model of premises-based deployments to the subscription model of hosted solutions provides increased revenue to the vendors, which benefit from a steady stream of recurring income. At Enterprise Connect 2015 and elsewhere, several of my colleagues have pointed out that hosted offerings cost organizations more than premises-based solutions after just a few years.
In addition, UCC vendors that have added hosted services to their traditional portfolios have been trying to entice channel partners to move to the cloud by demonstrating how much more profitable they can be by selling based on a recurring-revenue model. If the channel partners can earn more revenue from selling hosted services, we can assume that the customers end up paying significantly more.
So isn't this all a ruse and a way for the vendors to get more money from customers for essentially the same products?
The answer is clearly, "NO." Moving to the cloud isn't – or shouldn't be – about saving money. It's about increased flexibility, reduced IT requirements, and the ability to stay current.
In his article, Keizer noted that "while Microsoft is reaping the benefit of this kind of subscription model, the customer essentially owns nothing and must continually pay Microsoft." This is true, but it leaves out some important facts.
Think about leasing a car. By leasing a car and paying a monthly fee, many individuals are able to drive more luxurious and expensive models than they would be able to do if their payments accounted for the vehicle's full cost. The downside is that after paying the leasing company each month, the customer doesn't own a car. But is that really a bad thing? If newer models have more gadgets, safety features, and better performance, then the customer may be better off being able to dump the leased car and sign up for a newer model rather than needing to drive a purchased car for years on end.
The same is true in the UCC world. Why be saddled with older technology when things are changing so quickly? As ShoreTel CEO Don Joos pointed out at the company's recent partner event, CIOs used to look for payback on technology investments over three to five years, but they're now looking for it in 18 to 24 months. Why? They know the technology will change so much that they don't want to tie up capital for that longer period. Hosted UCC can provide the payback and reduced total cost of ownership that CIOs want, and overcome the challenge of having to deal with rapid technology change.
My UCStrategies colleague Dave Michels, an analyst at TalkingPointz, likes to point out that there's a big difference in the risk factor between premises- and cloud-based UCC solutions, and I totally agree.
With a premises-based solution, an organization takes on the risk of obsolescence, the risk of something not working right, the risk of the vendor going out of business and no longer supporting the product, and so on. The organization is basically stuck with a solution until it's depreciated or getting rid of it is financially feasible. With a hosted solution, the provider takes on the bulk of the risk -- running and managing a data center, staying current with features and functionality, etc. The customer makes little or no capital investment (unless its network isn't up to snuff and it needs more bandwidth), so making a switch from one vendor and service to another is easier than it would be in the premises model. Of course, most organizations will invest in integration, customization, and so on, making it undesirable to switch providers, but the risk or cost of doing so is much lower than for a premises-based solution than in the cloud.
In addition, the customer can get the "luxury model" that it wouldn't be able to afford on a capex basis. Hosted customers can get contact center capabilities, Web and video conferencing, and other capabilities much more easily and affordably than if they had purchased an on-prem solution.
And the ease of deployment can't be understated. As one commenter on the Reizer article noted, "I was able to use Office 365 to set up Exchange, SharePoint, Lync, Yammer in less than 20 minutes." If the company had opted for a premises-based solution, "It would take months of planning, negotiations, presentations, proposals to purchasing, then testing and finally deployment, not to mention hiring an outside VAR for additional help, plus the entire IT department of 10 to 20 other persons to help with system administration."
Do the vendors end up getting more revenue from subscription-based hosted services than on-prem solutions? Yes. But the customers end up with fully featured solutions that require less management and maintenance, that remain current, and provide scalability, redundancy, and flexibility. Looks like it's a win-win for everyone.
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