Cloud UCC Cost-Savings Fallacy: What You Need to Know

When it comes to cloud, you'd think you're either a fool or living under a rock if you're not embracing it. So whenever a new technology, service, or architecture is allegedly that great, it's always good to have some hard data to back up the claims.

When cloud first emerged (or re-emerged under different labels, if you have been in this industry long enough), the big selling point was that it would save you money -- lots of money.

For the most part, that is not true.

Overall, companies that move to the cloud for unified communications and collaboration (UCC) find their first-year costs increase by 47%. First-year costs include capital, implementation, and operational. Operationally, after the first year, costs are 87% higher overall, according the Nemertes 12th annual UCC Total Cost of Operations study involving interviews and surveys of 723 organizations.

A few nuances are worth noting, however:

  • Smaller companies moving to UCaaS see cost savings. For example, those with fewer than 50 employees see a 5% overall savings in first-year costs, and 6% savings afterward.
  • Larger companies moving to both UCaaS and hosted (single server) services see cost increases. For example, companies with 2,501 to 10,000 endpoints spend 24% more in first-year costs for UCaaS, and 28% with hosted services.

What's driving these operational cost increases? It's a combination of a few areas: staffing, subscriptions, network transport, and security audits.

Though conventional wisdom says a move to cloud means staff reduction, that is not the case. We rarely find that companies lay off employees and reduce overall staffing costs. IT staffs are spread too thin as it is. Rather, they reassign staff, typically to more strategic areas within UCC.

Figure 1, below, shows overall number of full-time equivalents for four core areas among companies with on-premises deployments and UCaaS deployments. This chart reflects all companies, all sizes.

Data varies based on the size of companies, but a few consistencies exist. In all sizes, break-fix (or the technical, day-to-day operational functions) decreases. Managing the partner relationship and interacting with the business units increase. Programs to improve user awareness and adoption increase for larger companies, and decreases for smaller companies.

Overall, staffing goes up by 4% (in 2016, that figure was 6%). Among larger companies with more than 2,500 employees, it increases by 45%; smaller companies with fewer than 500 employees see a 20% decrease.

Source: Nemertes Research

Of course, staffing is only part of the picture. In addition to people, companies now must pay a monthly subscription to the cloud service for which they weren't previously paying. What's more, 38.2% of companies say their network costs increased by 23.5% because more traffic is traveling over the WAN. At the same time, 27.5% say their costs decreased by 18.3%. Typically, the decreases resulted from negotiating better prices vs. reducing capacity.

As Nemertes formally releases the details of the research this month, we'll show provider-specific figures -- meaning, what companies actually pay, all-in, for various providers. The figures include PBXs, servers, licenses, handsets, implementation, staffing, managed services, equipment maintenance, subscriptions, and training. Providers that received enough response from the study to be counted individually include: Alcatel-Lucent Enterprise, AT&T, Avaya, Cisco, 8x8, Google, IBM, Microsoft, Mitel, NEC, RingCentral, ShoreTel, Verizon, and Vonage.

We also have found -- and will provide supporting data -- that operational costs drop fairly substantially when companies use performance management tools and operational management tools from companies such as Integrated Research, Riverbed, Unify Square, and Voss, among others.

Despite costs not being what many thought they would be by shifting UCC to the cloud, most companies are (and should be) evaluating the architecture and services. Cost shouldn't be the driver, though, for most organizations.

We're seeing a reflection of the cost increases not only in the actual numbers, but also in the drivers and inhibitors IT leaders cite. For example, in 2016 when we asked companies what was driving them to the cloud, 49% cited "perceived cost reduction." That's dropped to 33% this year. Also in 2016, only 21% cited cost uncertainty as an inhibitor to the cloud; that's nearly doubled in 2017 to 41%.

Cost very well may be one reason 15% are not considering cloud at all this year, up from 9% last year. But providing organizations go into cloud decision-making with realistic expectations, they should find success. Agility and the ability to refocus the IT staff on strategic initiatives, in my opinion, are the most compelling reasons to move to the cloud.