The Compelling TCO Case for Cloud Computing in SMB Compelling TCO Case for Cloud Computing in SMB and ... Hurwitz Associates ... the Compelling tCO Case for Cloud Computing in SMB and Mid-Market enterprises

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  • The Compelling TCO Case for Cloud Computing in SMB and Mid-Market Enterprises

    A 4-year total cost of ownership (TCO) perspective comparing cloud and on-premise business application deployment

    A Hurwitz wHite PAPer

    SanjeevAggarwal,PartnerLaurieMcCabe,Partner

    StudysponsoredbyNetSuite

  • Hurwitz white Paper

    Contents

    ExecutiveSummary...............................................................................................................1

    Introduction...........................................................................................................................2

    Figure1.Four-YearTotalOwnershipCostDistribution-NetSuiteandMicrosoftDynamicsGPandCRM.....................................................................................................2

    Section 1: SMB & Mid-Market Enterprises Face Difficult Business and Economic Challenges.............................................................................................................................3

    Section2:CloudComputingShiftstheTCODiscussion.............................................4

    Figure 2. Key Benefits of Cloud-based Business Application Solutions................... 4

    Section3:WhydoesTCOmatter?....................................................................................5

    Section4:WhatdoesthisTCOmodelinclude?..............................................................6

    Section5:AssumptionsforDevelopingtheTCOModel.............................................7

    Section6:TCOMethodology............................................................................................8

    Figure3.KeyFunctionsandFeaturesforMid-MarketCompanies............................9

    Section7:TCOComparisonforCloudvs.On-premiseBusinessSolutions.............9

    Figure4.100-UserTCOforNetSuiteandMicrosoftDynamicsGP/CRM..............10

    Figure5.TCOComparisonfor52-users,100-user,200-userforNetSuiteandMicrosoftDynamicsGP/CRM.........................................................................................12

    Section8:RecommendationsforSMBandMid-MarketEnterprises........................13

    Section9:Conclusions.......................................................................................................15

    the Compelling tCO Case for Cloud Computing in SMB and Mid-Market enterprises

  • Hurwitz white Paper

    Executive Summary

    Cloudcomputingessentiallyeliminatestheneedforcustomerstobuy,deployandmaintainITinfrastructureorapplicationsoftwareindividually.Regardlessof theapplication,thecloudcomputingvendortakesresponsibilityforallof theinfrastructurerequiredtorunthesolution--servers,backup,software,operatingsystems,databases,updates,migration,powerandcooling,facilityspace,etc.,andassociated internal and third-party staffing costs. Because cloud computing vendors manageallof theircustomersonasingleinstanceof thesoftware,theycanamortizecostsoverthousandsof customers.Thisyieldssubstantialeconomiesof scaleandskill,andlowerstotalcostof ownership(TCO).

    Key findings from our analysis include:

    Overall TCO for NetSuites cloud-based integrated solution suite is significantly lowerthanacomparableon-premisesolutionconsistingof MicrosoftDynamicsGP and CRM. This holds true for both SMB and mid-market firms. The TCO forcloud-basedvs.on-premisebusinessapplicationsolutionswas:

    55%lowerfor52users 50%lowerfor100users 35%lowerfor200users

    ITInfrastructurecosts(hardware,softwareandon-goingmaintenancerequiredtoruntheon-premisebusinessapplications)accountforabout11%of thetotalcostof deployingon-premisebusinessapplicationsalmost$172,500inthe100userscenario(Figure1).Comparably,therearenoITInfrastructurerelatedcostsforcloud-basedbusinesssolutions.

    TotalCostforcloudcomputingisafull$730,745lessthanon-premiseforthe100userscenario.Withcloudcomputing,theoverallcostof runningthesolutionismorepredictablethanon-premise.Figure1showsthatapplicationsubscriptioncostsaccountedfor65%of thetotalsolutioncost,whereastheon-premiselicensecostonlyaccountedfor26%of totalcost.

    Spendingforapplicationimplementationandsupport(includinginternalITstaff and/or VAR, consultant or SI resources) is significantly higher for on-premisesolutionsthanforcloud-basedsolutions,asmuchas3.5timesmoreforthe100userscenario.

    Pre-integrated front and back office functionality in the NetSuite offering incrementallycontributestoreducingintegrationcomplexityandlowersapplicationimplementationcosts.

    the Compelling tCO Case for Cloud Computing in SMB and Mid-Market enterprises

  • Figure 1. Four-Year Total Ownership Cost Distribution - NetSuite and Microsoft Dynamics GP and CRM

    Source: Hurwitz & Associates

    Introduction

    Smallandmediumbusinesses(SMBs)faceatrickydilemmaintodayschallengingeconomic climate. Its no longer business as usual; companies need to figure out howtooptimizefortoday,andgetontracktocapitalizeonnewopportunitiesthatwillemergeastheeconomystartstogrowagain.Theyneedbusinesssolutionstohelp them to manage more efficiently day-to-day, and also provide them with the intelligencetheyneedtomovethebusinessforward.

    AsSMBsevaluatedifferentbusinessapplicationoptions,totalcostof ownership(TCO)isoftentopof mind.Manycustomershavebecomeinterestedinhowcloudcomputingorsoftware-as-a-service(SaaS)canhelplowertheircostsbyeliminatingupfrontcapitalinvestmentsandongoingmaintenancecostsassociatedwithon-premisesolutions.

    Inthisstudy,webeginwithabrief overviewof SMBrequirementsandchallenges,andprovidecontextonhowcloudcomputingisreshapingtheeconomicsandTCOof thebusinessapplicationslandscape.Then,weexamineandcomparethetotalcostof ownershipforplanninganddesign,infrastructurehardware,softwareandsupport,applicationsoftware,deploymentandtrainingcostsof MicrosoftsDynamicsGPandCRMtraditionalon-premisesolutions,withthoseof NetSuite,whichprovides an integrated front and back office SaaS solution. We conclude with our recommendationsforSMBcustomersevaluatingthesealternativecomputingmodels.

    Hurwitz white Paper 2

    the Compelling tCO Case for Cloud Computing in SMB and Mid-Market enterprises

    Overall TCO for NetSuites cloud-based integrated solution suite is significantly lower than a comparable on-premise solution consisting of Microsoft Dynamics GP and CRM.

  • Hurwitz white Paper

    Section 1: SMB & Mid-Market Enterprises Face Difficult Business and Economic Challenges

    Justlikelargerenterprises,SMBsandmid-marketenterprisesneedbusinesssolutionsthat help them to manage day-to-day operations and processes more efficiently. At the same time, they want insight and intelligence to successfully adapt to fluid business environment,andensurecompliancewithregulatoryrequirements.

    However,SMBshavesmallerbudgetsandfewerITstaff thanlargercompanies.Smallbusinessesof 50to100employeesmayhaveonlyonefull-timepersontypicallyanITgeneralisttosupportacomplexarrayof ITresourcesandusers.Inmediumbusinesses (100 to 999 employees), IT staffing grows, averaging about one full-time ITpersonforevery100employees.But,businessandITcomplexityoftenoutstripthe growth of IT resources, especially in mid-market firms, who face the complexities of managingseverallocations,multipleservers,anexpandingarrayof desktopsanddevices,andamoremobileworkforce.

    Asaresult,reactingtodailyapplicationavailability,maintenanceandsupportissuescanmaxouttheITstaff,leavinglittletimetodeploynewsolutionsoreventoupdateexisting ones. The difficult economic climate only heightens SMB requirements for easiertouse,fastertodeployandmorefunctionalsolutionstohelpthebusinesseffectivelynavigatethroughuncertaintyandimprovethebottomline.

    the Compelling tCO Case for Cloud Computing in SMB and Mid-Market enterprises

    Business and IT complexity often outstrip the growth of IT resources,especially in mid-market firms...

    Easing the upgrade process and improving operations

    When a new CEO came on board at this 50-person insurance rating, quoting and policy solutions in 2000, he was frustrated with the lack of communication and coordination within the firm. Everything was in silos, and it was difficult to communicate, according to the IT Director. We had internal people managing it, but they didnt understand all the different applications, and upgrades were difficult. In 2005, the firm implemented NetSuite, attracted by the cloud delivery model, and built-in integration capabilities. This provides us with the latest version, all the time, without downtime, she notes. Having one system and a unified dashboard has also helped us to improve service levels and increase customer satisfaction.

  • Section 2: Cloud Computing Shifts the TCO Discussion

    Cloudcomputinghassteadilygainedmarketacceptanceasanalternativetotraditionalon-premise solution deployment and maintenance because it offers several benefits tocustomers(seeFigure2).Thecloudcomputingmodelcanhelpcompaniesconservecashandfocuslimitedresourcesonthebusiness,insteadof reactingtoITinfrastructure-related fire drills. In the cloud computing model, vendors provide Web-basedaccesstoapplicationsasaservice,throughasubscriptionpricingmodel.Thiseliminatestheneedforcustomerstobuy,deployandmanageITinfrastructureandsolutions.Vendorstakeresponsibilityforeverything:theservers,storage,operatingsystem,database,businesssoftware,updates,migration,powerandcooling,datacenterspace,andsupportservices.Asaresult,cloudcomputingshiftstheITburdenfromthecustomertothecloudcomputingapplicationvendor.

    Figure 2.Key B