Evaluating Cloud UC Costs

One of the most frequent questions enterprise clients ask us when contemplating a move to the cloud is, "Will we save money?" And in typical consulting fashion, my answer is that it depends.

This question of cost savings isn't going away anytime soon. The majority of companies are moving unified communications and collaboration (UCC) into the cloud, planning to do so, or evaluating the option. In fact, only 16% of organizations are doing nothing with cloud UC.

This comes from Nemertes Research's most recent UC cost data research, which includes detailed cost figures for 264 organizations. We found that companies actually spend more on ongoing operational costs for cloud than those who run UC on premises.

Specifically, cloud UC will cost more in operational costs at least for the first two to three years for midsize to large enterprises, though an on-premises solution almost always costs more in total costs for the first year because of capital and implementation. (Small companies typically see a cost savings, particularly when comparing apples-to-apples in terms of 24 x 7 support.)

One of the drivers of cloud UC adoption is a perception of cost savings. I write "perception" because that's truly what it is for most organizations.

Among all companies of all sizes, total cost per license for on-premises UCC is $733, compared to only $535 for a cloud solution in the first year. So in year one, cloud is cheaper because the provider is absorbing the capital and implementation costs.

By years two and three, however, those costs shift to $224 per endpoint (phone, audio bridge, softphone, etc.) license for an on-prem solution, and $437 per license for the cloud solution. Factors making up these costs include (where relevant) equipment maintenance, internal staffing, third-party managed services, monthly license fees for cloud (annualized), and IT staff training. By years three to four, we anticipate IT staffs will be able to reduce the IT staff working on cloud, thus reducing costs further.

Breaking it down even more, companies spend more than double on internal staffing costs for a cloud solution ($252 per license per year) than an on-prem solution ($112 per license per year). At first glance, this seems counter-intuitive. But for wise IT leaders, it is perfectly on point.

"I'm putting my reputation at risk going to the cloud," says an IT director for a large, global manufacturing company. This was a common theme that emerged as I interviewed numerous IT leaders. They took a risk convincing upper management, legal, and the security team to move to the cloud. Consequently, the rollout needed to be flawless.

To make sure the cloud deployment is successful, IT leaders are devoting an abundance of resources to the rollouts to handle:

IT and business leaders are keeping a close eye on cloud UC deployments, evaluating everything from who is using the apps to how easy they are to use, to cost and the security.

From IT's perspective, nothing could be better. The rollout has the attention of people who matter (maybe because they're skeptical, maybe because they want to validate cloud's viability for other apps). With that level of scrutiny, it's no wonder the staffing costs are higher. IT leaders cannot afford to fail.

IT staffs that shift to cloud UC will grow in ways they likely didn't imagine.

First, they're going to learn how to actually market and train their employees to use the new apps they roll out. All too often, IT makes a new technology, product, or app available, and few -- if any -- employees actually use it. In the on-premises model, this is often a sunk cost that rarely gets a second glance. IT simply moves on to the next project. That won't happen with cloud. Each budget review cycle, the licensing and staffing costs will see scrutiny -- and if there is a technology that has gone dark, so will the funding and potentially the jobs of those managing it.

Second, IT staffs will learn to effectively manage their relationship with the third-party partner, the cloud provider. They must make sure they're on the same page with upgrades, new features, training, and troubleshooting. Otherwise, employees will grow frustrated with changes and lack of knowledge on how to use the technologies.

Finally, they need to coordinate between apps for integration. Some of those apps may be in different clouds, so cloud-to-cloud interoperability will become increasingly important. A third-party systems integrator may also be required to assist with the integration between apps that are on site, and in same or different clouds.

The increased initial operational costs for cloud UC is not surprising -- resources are required for success, and resources cost money. The new operational cost structure has several hidden benefits for IT: more user adoption, better relationships with vendor partners, and improved integration.