J.R. Simmons
J.R. Simmons has over 30 years' experience as a full-services independent consultant providing planning, design, analysis, implementation management, troubleshooting, and...
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J.R. Simmons | January 27, 2016 |


The Cloud Pricing and Licensing Conundrum

The Cloud Pricing and Licensing Conundrum It can be tricky to run financial comparisons when each vendor uses different definitions, different feature bundles, and different lists of extra charge items.

It can be tricky to run financial comparisons when each vendor uses different definitions, different feature bundles, and different lists of extra charge items.


For many years, there was a "rule of thumb" range that could be used to help estimate the capital cost of a new telephony system, usually expressed as a per-station cost. Depending upon a few complexities, the budgeting might run anywhere from $800 to $1,200 per station, but it always included hardware, software, and installation/professional services. Even as core hardware came down in price, software costs and professional services climbed. Software costs evolved from a long list of individually priced items to software suites covering a variety of entitlements, but general budget ranges still held true.

Enter the cloud and its monthly operating expense.

There are no industry-wide generic models to accurately estimate hosted / cloud UC solution pricing. Cloud costs do not directly correlate with the equivalent premises-based systems from the same manufacturer. In fact, some providers don't even use the same software packaging or licensing categories for the cloud versions. It can be tricky to run financial comparisons when each vendor uses different definitions, different feature bundles, and different lists of extra charge items.

There are many other variables that impact cloud-based proposal evaluations, including trunk costs, the network connection, usage charges, and a number of potential up-front costs. It is critical that the buyer review each requirement and the effect on the proposed solution -- cloud vendors seem more than willing to "add on" extras that are not in the base monthly fees.

When looking at the advertised monthly per user rates, it may appear that a cloud solution could be a good deal. But the manufacturers are touting to their financial backers much higher ARPU numbers (Average Revenue Per User) that suggest those baseline rates are just the beginning. Part of that is the way the software entitlements are packaged, which often drive the buyer to the higher-priced licenses. Another key is the a-la-carte extras that are layered on to meet the full requirements of the organization's most important users, such as contact center agents, mobile workers, etc.

Other complexities may surface when an organization is trying to migrate to a cloud or hosted model from a compatible premises solution obtained with capital funds. Not every manufacturer has a way to fairly credit for the value of the "perpetual" licenses originally purchased, and in some cases, the software license does not have a direct equivalent in the cloud version.

This hazy situation benefits the providers. Most manufacturers that make both premises and hosted versions of solutions are excited about the general trend to cloud. They are happy to swap the up-front, but flat growth, income from premises sales for the rapidly growing, recurring revenue stream. Over the long term, it is more profitable for them.

Buyers have many potential offsets to make up for the increased life-cycle costs, but the first concern is to make the right configuration decisions. It may be easy to select the more expensive software license package to ensure users have everything they might need, but it can easily lead to over provisioning (and higher costs).

The fierce competitive environment in premises-based sales often leads to large discounts, but the cloud/hosted proposals tend to reflect smaller and less frequent price concessions. Thus, it is even more important that the buyer understand what it is they are paying for. It is not as simple to compare, and it is definitely not as easy to budget as in the good ole days of station count ratios.

So how can your business navigate the complex pricing and licensing paths that come along with increasingly popular cloud solutions? You can try to develop a comparison matrix for potential vendors, or better yet, you can join me at Enterprise Connect in the session, "The Cloud Licensing & Pricing Conundrum." We will review marketplace data to draw comparisons between several major providers and provide you with a roadmap. You will discover what to expect for licensing definitions, baseline prices, and actual costs -- and walk away with a checklist that will help you make accurate comparisons.

Learn more about cloud communications trends and technologies at Enterprise Connect 2016, March 7 to 10, in Orlando, Fla. View the Cloud Communications track sessions; register now using the code NJPOST to receive $200 off the current conference price.

"SCTC Perspectives" is written by members of the Society of Communications Technology Consultants, an international organization of independent information and communications technology professionals serving clients in all business sectors and government worldwide.


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