Can TCO be Justified for Hosted UC?

Recent findings by many experts in our industry, including a recent study presented at Enterprise Connect Orlando 2013 indicate that  Cloud-based communications not only have a higher 5-year TCO than the other two options studied (UC including a new IP-PBX, and UC overlay to an existing IP-PBX)—but in fact, even first-year TCO for Cloud is no lower than that of on-premises options. That’s a blow to the case for Cloud, which has been widely promoted as an easier decision financially, at least on the front end.

This study  by Brent Kelly of KelCor Inc., Marty Parker of UniComm Consulting, and Dave Stein of Stein Technology Consulting Group cite three reasons why Cloud may have the higher TCO:

  • “The value of the trade-off for the enterprise customer–between the capital investment and the costs and risks of owning and operating the platform, versus the predictable, lower-risk operating costs of a Cloud-based offer. This is similar to the trade-offs of buying vs. leasing a car.”
  • The fact that Cloud providers face significant start-up costs to get their offers up and running.
  • A quest for first-mover advantage—”early entrants in an emerging market always seek a high return for their early initiative and risk.”Those sound like reasonable explanations for the findings, but I have to say that other than the first point, I don’t see why any of that should matter to the enterprise. It may well be that outsourcing your infrastructure to the Cloud makes sense for your enterprise—but if it does, you should go into the process knowing that you’ll pay a premium for that service. The other two points are business-case challenges for service providers, but don’t really play into an enterprise’s decision-making.

    Another interesting point in the Kelly/Parker/Stein article is that, out of six vendors (Alcatel/Lucent, Avaya, Cisco, NEC, ShoreTel, and Siemens), the lowest TCO for all options belonged to Avaya.

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