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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.

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    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.

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    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 Benefits of Cloud-based Business Application Solutions

    Source: Hurwitz & Associates

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    Cloud computing shifts the IT burden from the customer to the cloudcomputing application vendor.

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

    Feature Customer BenefitEliminate capitalcosts

    Vendor pays for shared multi-tenant infrastructure SMBs access solutions through a web-interface over theinternet Pay for usage on a per month/user basis

    Fasterdeployment andproductivity

    SMBs are up and running in 3-4 weeks vs. 3-4 months asthere is no need to acquire, install and test infrastructure Applications can be accessed from anywhere, anytimeand through any device Everyone in company has access to real-time information

    Streamlines useand management

    Web-based, self-service access to business solutions Vendor manages and updates infrastructure No software to maintain and upgrade Automated upgrades to new versions of applications andfunctionality IT focuses on higher value, more strategic initiatives

    Increase flexibility SMB can expand or contract services as their needschange Support a increasingly mobile workforce Easier to investigate solutions prior to acquisition

    Improve customerservice

    Direct customer connection to resolve problems Incentive to achieve high customer retention and upselladditional solutions

    Better reliabilityand performance

    Enterprise class IT infrastructure that is affordable Vendor provides high-availability for business continuityand disaster recovery Vendor provides required data backup services Reduces power consumption and data center space Proactive support and management

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    Cloud computing vendors can provide these benefits because theyve built their solutionsasWeb-basedservicesfromthegroundup.Insteadof buildingtheirsolutionstorunin-house,asaseparate,individualinstancesforeachcustomer,theyarchitecttheirsolutionsforaone-to-many,ormulti-tenantmodel.Thismeansthattheycanrunthousandsof customersonasingleinstanceof thedatabaseandapplicationsoftware.Byoptimizingtheirsolutionsforthissharedenvironment,theycan achieve efficiencies throughout the solution lifecycle that would be difficult for on-premisevendorstoachieve.

    Section 3: Why does TCO matter?

    IntheITindustry,TotalCostof Ownership(TCO)isusedtocalculatethetotalcostof purchasing(orinthecaseof cloudcomputing,subscribingto),andof operatingatechnologysolutionoveritsusefullife.TCOprovidesarealisticandholisticmeasureof thelong-termcostsrequiredtoacquireandoperatetechnologysolutions.

    Returnoninvestment(ROI)isanothermethodtoevaluateandprioritizetechnologyinvestmentsinacompany.Thismeasureistypicallyusedtocompareinvestmentsthatuncovernewtoplinerevenueandgrowthopportunities.However,ROItendstobemore subjective in nature than TCO, because ROI looks at business benefits, which oftencannotbemeasuredasobjectivelyascosts.

    Hurwitz&AssociatesviewsTCOasapreferredmethodtocomparetechnologyinvestments when two solutions provide roughly equivalent benefits over the solution lifecycle,buthavedifferenttypesof costsassociatedwithacquisition,maintenanceandoperation.Forthesereasons,aTCOcomparisonoffersamoretangibleassessmentof thetotalcostsinvolvedindeployingcloud-basedSaaSandon-premisebusinesssolutions.

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

    The fact that there was little or no infrastructure or internal supportrequired drove us to a software-as-service solution.Security softwarefirm

    Lean and mean IT

    Headquartered in Slovakia, the U.S. division of this security software firm has grown from 1 to 135 employees over the past 10 years. The division had began by using multiple brands of packaged software for accounting, contact management and reporting functions. But as it grew, the organization wanted tighter integration across functions, better reporting, and an easier way to provide access to an increasing number of remote employees. It also wanted to keep upfront capital and ongoing support costs low. The fact that there was little or no infrastructure or internal support required drove us to a software-as-service solution, according the firms Business Systems Director. Since deploying NetSuite in 2006, the company has kept IT lean and mean, and the single system, real-time view of customers helps our sales and support teams to offer better service to customers.

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    Section 4: What does this TCO model include?

    TheTCOmodelthatHurwitz&Associatesusesinthisstudycomparesfunctionallysimilarcloudandon-premisebusinessapplicationsolutionsoveraperiodof 4years(theusefullifeof asolutionforbothhardwareandsoftwarewithouttheneedforamajorreplacementof solutioncomponents).TheTCOcalculationmodelincludesthefollowingcategoriesandcomponents:

    1. Evaluation and Selection:Solution evaluation & analysis:Evaluatefeaturesandfunctionalityof

    competitiveproducts.

    Vendor review and SLA analysis (as applicable).Reviewandauditvendorlicenseagreements,service-levelsandsecurityrequirements.

    2. IT Infrastructure hardware, software and support (primarilyrequiredforon-premisesolution;theseareincludedinthesubscription

    costsforcloudsolutions):

    Server and storage hardware and maintenance.Capitalexpenditurerequiredtoacquireserversandstoragetorunapplications,databases,andtestenvironment.Operatingexpensesformaintenance,space,powerandcooling.1

    Operating system, database, security, backup software and maintenance.Capitalexpendituretoacquireoperatingsystem,database,security,anddatabackupsoftware;operationalexpensesforsoftwaresupport,upgrades,patchesandbug-fixes for this infrastructure.1

    Administrative IT costs for systems and database.Percentageof full-timeequivalent(FTE)ITadministratorssalaryforhardwaresystems,softwareanddatabases.2

    3. Application subscription costs OR application license costs:

    ERP and CRM application subscription or license cost. Costsarecalculatedonanequivalentnumberof users.Inthecaseof cloudsolutions,theseareoperationalcostsandremainconstantforthelifeof thesubscriptionservice.Inthecaseof on-premisesolutions,theseareinitialdeploymentcapitalexpenses.Allapplicationcostsarecalculatedbasedonvendorlistprices.

    Application maintenance. This includes operational costs for bug-fixes and upgradestonewversionsof thesoftware.Thesecostsareincludedinthesubscription costs for cloud solutions, and are factored as a fixed percentage of initiallicensingcostsfortheon-premisesolutions(insomecases1-2yearsof annualmaintenancecostsareincludedininitiallicensecosts).

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

    1(AllinfrastructurecostsarecalculatedforDellserversandstoragesystemsandpricesfromDellswebsite.)2Annualsalaryestimatessourcedfromwww.salary.com.

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    4. Application solution deployment costs: Detailed design. Define project objectives and scope; existing processes; identify

    process gaps and data sources; document business requirements; develop final projectplan.

    Configuration and deployment. Application configuration to specifications; integration between front and back office functions; custom integration if required;datamigration;systemtesting;cutovertonewsolution.

    5. Initial and ongoing training costs:

    User training.Toincreaseandaccelerateadoptionbyusers,includingnewusersovertime.

    Administrative training.Totransitiondailysystemadministrationtothecustomersinternalstaff.

    Section 5: Assumptions for Developing the TCO Model

    Someof thekeyassumptionsusedindevelopingtheTCOmodelinclude:

    Selection of 52, 100 and 200 user scenarios. Thesethreeusersizescenariosarebasedonthenumberof employeesthatusethesolution(s),notonthetotalnumberof companyemployees.Thesesizeswereselectedbasedonthemid-marketfocusof bothcompanies,andwerealsorepresentativeof thecompaniesinterviewedforthisstudy.

    Application costs.Applicationcostswerebasedonstandardlistpriceperuseraspublishedbyeachvendor.

    Ratio of ERP to CRM users.Ascompanysizeincreases,theratioof CRMtoERPusersincreases.ERPuseistypicallylimitedtocompanyexecutives,accounting and other back-office staff; while a broader range and typically largernumbersof employees,spanningcompanyexecutives,sales,servicesandmarketingdepartments,oftenuseCRM.SinceMicrosoftsellsandpricesitsDynamicsGPandCRMsolutionsseparately,weaccountedforthischangingratioasthenumberof usersgrows.NetSuiteissoldasanintegratedapplicationsuiteonaperuserbasis,withallfunctionalityavailabletoallusers,socostsarecalculateduniformlyregardlessof whichusersusewhatfunctionality.

    Hardware infrastructure needs to be functionally equivalent for serving application, high-availability and data back-up requirements.Wehavecalculatedacquisitioncostsfornewhardwareandsoftwarecostsintothetraditionalon-premisemodeltomakeITinfrastructurefunctionalityandcostsequivalenttowhatisprovidedbycloudsolutionvendors.Basedonuserdiscussion,wecalculatedanaverageof 3servers(ERP,CRM,andtestserver)with

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

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    internal RAID for 52-user scenario. The configuration for 100 and 200 users includesaclusterof serversforSQLdatabasethatcanbeaccessedbytheERPandCRMapplicationserverswithasharednetwork-basediSCSIstoragesystem.3

    Application solution deployment, integration, and training costsweredeterminedbasedondiscussionswithusers,VARs,SIs,vendors,andsecondarymarketresearch.

    Section 6: TCO Methodology

    Thepurposeof thispaperistoexamineTCOforcloudandtraditionalon-premisebusinesssolutionsnottoevaluatecustomersatisfactionwiththesesolutions.BothNetSuiteandMicrosoftDynamicsGPandCRMaremarket-provensolutions,withthousands of customers, and many very satisfied ones. However, their business anddeliverymodels,andcostandpricingstructuresareverydifferent.Asaresult,companiesthatareconsideringpurchasingabusinesssolutionwanttobetterunderstandhowchoosingonemodelortheothercanaffectTCO.

    ThestudycomparesTCOforcloud-basedandon-premisebusinessapplicationsthatprovide similar capabilities for mid-market front and back office business functions (Figure3onthefollowingpage).NetSuiteprovidesthisfunctionalityviaacloudcomputingmodel;Microsoftprovidessimilarfunctionalityinanon-premisemodelthroughacombinationof MicrosoftDynamicsGPandDynamicsCRM.4

    Hurwitz&Associatesindependentlycontactedmid-marketusersof thesesolutionstodiscusstheirevaluationanddeployment(initialandongoing)experiencesonconditionsof anonymity.Thesecompaniesdiscussedtheirexperienceswithsolutionevaluation,selection,deployment,andon-goingoperationalprocesseswithus,andprovideddetailedcostinformationforeachof thesephases.Ascontext,theyprovidedqualitativeinformationaboutthecompanysorganizationstructure,objectives,challenges,experienceandsatisfactionwithsolutions,andwithVAR,SIorconsultingservicesthattheyuse.

    SMBsandmid-marketcompaniesvarywidelyintermsof numberof employeesand number of users of both front-office CRM applications and back-office ERP/accountingapplications.Weinterviewedcompaniesrepresentativeof thethreeusersizetiers(52,100and200users)toprovideamorecompleteillustrationof howsomeof thecostsincludedintheTCOcomparisonchangeasthenumberof userschanges.The mix included independent commercial entities, not-for-profit organizations, and divisionsof largercorporations.

    3Server,storageandinfrastructuresoftwarepricingwascalculatedusingpricesavailableonDellsWebsite.4Microsoftalsooffersacloud-basedversionof CRM,DynamicsCRMOnline,whichwasnotincludedinthisstudy.

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

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    Section 7: TCO Comparison for Cloud vs. On-premise Business Solutions

    DetailedyearlycostcomparisonforthevariouscostcategoriesisshowninFigure4 (on the following page), for the 100 user scenario. The top section of the figure highlights yearly costs for the 2 solutions, clearly showing the first year costs for the on-premisesolutionsaremuchhigherthanforthecloudcomputingsolutions,astheon-premise solution require significant upfront capital expenditures for acquiring theinfrastructurehardware,softwareandbusinessapplicationssoftware,aswellasadditional internal IT resources required to install and configure these components.

    The bottom section of the figure shows four year total costs for the various components. The key component leading to a significant difference in TCO is the additionaltotalITInfrastructurecostsfortheon-premisesolution.

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

    ...the first year costs for the on-premise solutions are much higher than for the cloud computing solutions...

    Figure 3.

    Key Functions and Features for Mid-Market Companies

    Source: Hurwitz & Associates

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    Figure 4. 100-User TCO for NetSuite and Microsoft Dynamics GP/CRM

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

    The key component leading to a significant difference in TCO is the additional total IT Infrastructure costs and related management costs for the on-premise solution.

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    NetSuite Microsoft Dynamics GP AdvancedManagement

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    NetSuite Microsoft Dynamics GP Advanced Management & CRM

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    Additional key findings from the TCO comparison are detailed in Figure 5 on the followingpageandinclude:

    OverallTCOforNetSuitewasconsiderablylessthanfortheMicrosoftDynamicsGPandCRMsolutions.TCOsavingsdotaperoff,however,asthenumberof usersincreases.Inthe52-userscenario,NetSuiteTCOis55%less;for100usersthanMicrosoftDynamicsGPandCRM;50%less;and35%lessfor200users.

    TheyearlysubscriptionfeeforNetSuite,whichincludesboththebusinessapplicationsandallof theunderlyinginfrastructureandsupportcostsnecessarytosupportdeliveringtheapplicationasaservice,accountsfor2/3of totalcosts.

    Totalcostsforon-premiseapplicationsoftwareandmaintenanceare25%lessthanthetotal4-yearcloudsolutionsapplicationsubscription(maintenanceisincluded in the subscription fee). This is because in the first year of the on-premisemodel,customerspaythefullcostforaperpetuallicense,andthenpayapercentageof thelicensefeeformaintenancethereafter.Thisgapwidensinfavorof on-premisesolutionsasthenumberorusersincreasesbecausesubscriptioncostsperusersremainconstantthroughoutthe4-yearperiod.

    ITInfrastructurehardware,software,andmaintenancecostsarezeroforcloudbusinesssolutions(NetSuite),butaccountforalmost15percentof thefirst year costs (12% over 4 years) in an on-premise implementation. These capitalexpensesareof particularconcerntomid-marketend-usersgiventhetightbudgetsandevenof greaterconcerninthecurrenttougheconomicenvironmentwithverytightandexpensivecreditterms.

    InternalITresourcesandVAR/Consultantresourcecostsaccountforapproximately30percentof theTCOcostsinacloudsolutionscomparedtoaround58-60percentinon-premisesolutions.

    Intheon-premisescenario,alargeaportionof theinternalITcostsareincurredonanongoingbasisforinfrastructureanddatabaseinstallation,setupandongoingmanagement,supportandupdates;asthereisnoon-premiseinfrastructureforcloud-solutionsthesecostsarepartof theannualsubscriptioncosts.

    Majorityof theVAR/consultant(externalVARsorserviceorganizationsof vendors) costs for both solutions are incurred in the first year for detailed designandimplementationof thedetaileddesigns.

    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

    Figure 5.

    TCO Comparison for 52-users, 100-user, 200-user for NetSuite and Microsoft Dynamics GP/CRM

    Source: Hurwitz & Associates

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    Section 8: Recommendations for SMB and Mid-Market Enterprises

    While cloud computing can provide clear TCO benefits, customers considering a cloud computingmodelneedtoevaluateotherimportantaspectsbeforeselectingasolution,intermsof boththeirownrequirements,andvendorcapabilities.

    Service Level Agreements (SLAs) and contract terms. Incloudcomputing,customersgiveupsomecontroltothevendor.Whenevaluatingon-demandversus on-premises options, review the fine print of the contract terms before makingdecisions,andgetanswerstothefollowingquestions:

    Doesthecontractrequireanupfrontlong-termcommitment?

    Howeasyisittochangethenumberof users?Whatpenaltiesorper-userpricechangesareassociatedwiththesechanges?

    DoestheSLAsupportingtheuptimeguaranteeforthesebusiness-criticalapplicationsof atleast99.5%?

    Whatsecurityfeaturesaresupported?

    Investigatecloudvendorsdisasterrecoveryandbusinesscontinuityplans.

    Whatoptionsandpenaltiesdoesthevendorprovideif youterminatetheservice?Forinstance,if youterminatethecontract,howdoyougetyourdataback?

    Address data security concerns upfront.Understandhowthecloudvendorstoresdata,whocanaccessit,andwhatsafeguardsthevendorhasestablishedtoensurethatdataisonlyaccessedbyauthorizedpersonnel.Thevendorshouldbeabletoprovideanaudittrailondataaccess.

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

    We reduced job processing and HR support head count because the Web-based system is easy-to-use and reduces redundancy and errors. Coloradonot-for-profit

    Getting more done with fewer people

    A private, not-for-profit Colorado organization of 750 employees delivers support services to people with disabilities in Colorado. The organization had been using traditional software for accounting, HR and payroll for several years. In 2006, it decided that the HR component wasnt meeting its needs. After evaluating several options, senior IT staff and executives determined that packaged software offerings wouldnt provide the anytime, anywhere access and support for employees it needed, and put an unwieldy burden on internal IT staff. According to the groups IT Manager, Ongoing software and support costs in a subscription service may be a bit higher than in a packaged license model, but we save money because we dont have to buy and maintain hardware and software. Hes found that NetSuite is configurable and easy to manage and change. to of an FTE manages the suite and does customizations. Harding also notes that the pre-integrated system helps them get more done with fewer people. We reduced job processing and HR support head count because the Web-based system is easy-to-use and reduces redundancy and errors.

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    Application customization requirements.MostSaaSapplicationsarecustomized via configuration, instead of source code customization. For affordablecustomizationof cloudcomputingsolutions,aimforthe80/20rule.Canthesolutioncangetyouatleast80%of whatyouneed,andhowmuchneededcustomizationcost?

    CustomerswithveryheavycustomizationrequirementsmaywanttoconsiderapackagedsoftwaresolutiontoachievedeepercustomizationorSaaStechnologyimplementationandcustomizationviathird-party.

    Invest more upfront in the evaluation and selection process. Mostcompaniesareunder-investingwhenitcomestothoroughlyevaluatingbusinesssolutionrequirementsandoptions.Seekthehelpof independentconsultingorganizationstobetterunderstandthetotalcostof on-demandando-premiseoptions as they relate specifically to your companys unique needs and budgetary constraints.

    Carefully consider the benefits provided by a third-party VAR or SI.Manycloudcomputingvendorsoffercustomerstheoptionof purchasingthesolutionandconsultingandsupportservicesdirectlyfromthevendor,orthroughaVARor SI. In some cases, VARs and SIs may be a better fit for your company than the vendor in terms of their ability to provide industry-specific customization, integrationwithexistingapplications,migrationof datafromexistingapplications,trainingandcoachingforrampingupusability.

    Assess the trade-offs of deploying an integrated suite vs. integrating applications from multiple vendors.Withanintegratedsuite,allcoremanagementapplicationsrunonacommoncodebase,andsharethesamedatabase,providingasingle,integratedsystemof record.Thismeansthatmanyfront and back offices workflows are pre-integrated, enabling a higher degree of integrationout-of-the-box,additionalcustomcodingorintegrationconnectorsandframeworks.

    However, organizations that are happy with an existing front or back office solution may find it less disruptive and costly to integrate new functionality from anothervendor,ratherthantosimultaneouslydeployanentirelynewfrontandback office suite.

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

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    Section 9: Conclusions

    Bypackagingallof theapplicationsoftware,ITinfrastructureandservicestogetherinaWeb-based,multi-tenantsubscriptionmodel,cloudcomputingvendorshavetheabilitytocontainvariablecostsmuchmoreeffectivelythanpackagedsoftwarevendors-andpassthesesavingsalongtocustomers.

    SMBandmid-marketenterprisesneedsolutionsthatenablethemtomeettheirbusinessgoals,andalsohelpthemtoconservecapitalandreduceongoingcosts.Although one size does not fit all, for many customers, cloud computing business solutionscanhelporganizationstoachievetheserequirements,andprovideaddedflexibility to scale as business demands require.

    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

    Copyright 2009, Hurwitz & Associates

    All rights reserved. No part of this publication may be reproduced or stored in a retrieval system or transmitted in any form or by any means, without the prior written permission of the copyright holder. Hurwitz & Associates is the sole copyright owner of this publication. All trademarks herein are the property of their respective owners.

    233 Needham Street Newton, MA 02464 Tel: 617 454 1030 w w w . h u r w i t z . c o m

    About Hurwitz & AssociatesHurwitz & Associates is a consulting, market research and analyst firm that focuses on how technology solutions solve real world business problems. The firms research concentratesondisruptivetechnologies,suchasServiceOrientedArchitectureandWeb2.0,CloudComputing,ServiceManagement,InformationManagement,andSocialandCollaborativeComputing.Wehelpourcustomersunderstandhowthesetechnologiesarereshapingthemarketandhowtheycanapplythemtomeetbusinessobjectives.Theteamprovidesdirectcustomerresearch,competitiveanalysis,actionablestrategicadvice,andthoughtleadership.AdditionalinformationonHurwitz&Associatescanbefoundatwww.hurwitz.com.