Marty Parker
Marty Parker brings over three decades of experience in both computing solutions and communications technology. Marty has been a...
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Marty Parker | February 09, 2016 |


It's 2016 -- Do You Know Where Your TCO Is?

It's 2016 -- Do You Know Where Your TCO Is? Considering total cost of ownership, cloud communications options are increasingly the smart enterprise choice.

Considering total cost of ownership, cloud communications options are increasingly the smart enterprise choice.

Our consulting practice is finding, more and more frequently, that the total cost of ownership (TCO) for on-premises IP PBX systems is far more expensive than options available in the cloud. It seems to us that the market has reached a tipping point and we are about to see major migrations to cloud providers.

Here are some of the reasons for that:

  1. Software maintenance prices - As the PBX industry continues to shrink, the incumbent vendors work ever more diligently to sustain the maintenance revenue streams from their customers. This is reflected in many ways, such as decreasing discounts on contract renewals or professional services contracts to manage the vendor's software on the customer's virtual machine (VM) infrastructure.

  2. Software upgrade or conversions - While new software suites such as Avaya Core Suite or Cisco Unified Workplace Licensing (CUWL) are competitively priced, upgrading to the best or latest version requires an upgrade fee. While the support cost of a suite can be less than the sum of the various software when purchased and supported separately, many customers don't need everything in the bundle.

  3. Long-term lock-ins - Of course, most vendors will offer larger support discounts for longer-term contracts. In addition, many vendors push the client to buy an enterprise license agreement," or ELA. Again, the ELA will usually offer many options to use more of the vendor's products, but that assumes the enterprise requires those additional products. Also, ELAs can be difficult to terminate.

  4. Telecom and cellular carrier contracts - This is often a big percent of the TCO. The more decentralized your organization, the larger this is likely to be. Sure, the telecom carriers have all promised major savings through SIP trunks, but those are often only modest reductions (say 30% or less) and a large monthly recurring cost still remains.

  5. In-house staffing - This can be a large TCO element. Yet, often the costs are difficult to identify since they are spread across many departments -- enterprise architecture and planning; telecom; networks; telco and cellular contract administrators; help desks operations; and user support. Often, these labor costs will be more than half of the TCO -- i.e., equally as much as the sum of all of the categories listed above.

When you review these five categories, you can easily see how the cloud UC-as-a-service (UCaaS) providers will have significant advantages, especially as UCaaS adoption grows rapidly.

The software maintenance and upgrades or conversions are usually included in the UCaaS monthly price. A provider may require contract period similar to the IP PBX lock-ins, but assessing your enterprise's choices when that term is up for renewal is far more practical.

Telecom carrier contracts are essentially a thing of the past for enterprises that use UCaaS. All calls within the enterprise are essentially free -- i.e., no tariffs -- and most UCaaS offers include a sizable block of public switched telephone network (PSTN) minutes, at least in North America. In most cases those minutes are pooled across the enterprise, so you can balance high-usage lines against low-usage lines; in some cases, the PSTN minutes can even be unlimited.

Staffing levels can decline dramatically with UCaaS. All UCaaS providers will manage and maintain the equipment such as VM servers, gateways, session border controllers, and edge routers. Some will even include the help desk services.

The bottom line is that it is an ideal time to review your TCO and your options. Even if you just renewed the maintenance contract for your on-premises IP PBX for another three years, it's not too soon to begin planning for what you may wish to do before the end of that contract term. It will take some planning to decide how much of your communications services to move to the cloud. We recommend a methodology that analyzes your various usage profiles to determine which solutions will be best for each usage profile. You can read more about this in a series of articles I wrote for InformationWeek, a No Jitter sister site.

Good luck with this. Based on our consulting experience, you can usually save money while getting a much better set of unified communications and collaboration (UC&C) tools for your enterprise. You'll see more about this, of course, at Enterprise Connect 2016, just four weeks away, in Orlando, Floa.

For more on cloud sessions at Enterprise Connect, view the Cloud Communications track then register by this Friday, Feb. 12, using the code NJPOST to save an additional $200 off the early bird rate. Note, this discount code, which is valid for Entire Event and Tue-Thu Conference passes, represents a total savings of $700 off the onsite price. As an added bonus, you can get even bigger savings when you register three or more attendees from your company.


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