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Enterprises given clarity on cost of cloud services

Enterprises are gaining greater clarity about the cost of cloud services for UCC, as many IT departments are discovering that cloud deployments don't usually save them money.

Jonathan Dame
By
Published: 15 Feb 2018

Moving unified communication and collaboration platforms to the cloud usually fails to reduce -- and, in many cases, increases -- operating costs for enterprise IT departments, particularly during the first year of a transition, an annual analyst survey found.

During year one of a cloud transition, 35.6% of enterprises reported that operating costs increased, while 37.2% said expenditures remained the same; operating costs decreased for only 17.9% of companies. After the first year, 27.9% enjoyed costs savings, but a majority still said operating expenses were increasing (24.1%) or stable (35.4%). The remaining survey respondents were unsure.

In addition to a monthly subscription fee, which was the most commonly cited cost of cloud in year one, enterprises reported spending more on network management and staff for training and integration, according to the survey of roughly 650 companies worldwide by Nemertes Research, based in Mokena, Ill.

Companies that were able to find savings in year one decreased spending on equipment maintenance and, less frequently, on PSTNs, WANs, and managed and professional services; some were able to reduce staff costs.

Enterprises used to believe that cloud-based unified communication and collaboration (UCC) would allow for smaller IT departments, said Robin Gareiss, president and founder of Nemertes Research. "And then, it didn't come true because everyone underestimated that you still need people ... you just need them for different purposes."

With cloud deployments, IT departments need workers to manage relationships with cloud vendors, to integrate cloud platforms with business applications and on-premises stacks, and to run training and awareness campaigns to ensure the company's workforce is taking full advantage of the cloud UCC platforms, Gareiss said.

In fact, the Nemertes survey found a link between increasing operating costs in the first year of a cloud transition and the success of UCC deployments. Companies with the highest rates of worker adoption of UCC apps -- and the most significant increases in productivity tied to those tools -- typically spent more in that first year.

"They are going into it wanting to do everything right," Gareiss said of the success group -- the companies that scored among the top one-third in Nemertes' grading metric. "And if that means putting more resources toward the cloud, particularly in staffing, they are going to do that."

Cost of cloud services becoming less relevant to IT decision-makers

Improved IT agility was the leading motivation for shifting UCC platforms to the cloud, with 44.1% of companies citing it -- up from 29% in last year's survey. IT departments value the relative ease with which cloud platforms can be rolled out, scaled up or pared back, as well as the staffing flexibility the cloud model provides, Gareiss said.

Perceived savings related to the cost of cloud services, which had been the top driver for the past two years, fell to third on the list, at 33.1%, behind a desire to reduce capital expenditures, at 37.2%. Two years ago, nearly half of companies cited cost savings as a reason for moving to the cloud.

On the flip side, enterprises were less likely to cite the cost uncertainty of moving to the cloud as a reason for sticking with on-premises UCC systems. Just 29.3% of enterprises said cost uncertainty was an inhibitor to cloud adoption, down from 41% in last year's survey; security concerns, at 42.8%, were the top inhibitor this year.

The research suggests enterprises have gained a greater understanding of the cost of cloud service deployments. "I like to encourage people to think about the broader benefits of moving to the cloud, as opposed to focusing real heavily on costs," Gareiss said.

Successful UCC strategies involve spending more

Overall spending on UCC is on the rise at nearly half (46.2%) of the companies surveyed by Nemertes and unchanged at another 36.8%. Just 6% of respondents said they were spending less on those platforms and services.

Nemertes found a correlation between increased IT budgets and the success of UCC deployments. Successful companies increased their IT budgets by 26% on average and spent $2,000 per employee on UCC, compared to an average IT budget increase of 18% and per-employee UCC expenditures of $840, among less successful enterprises.

Enterprises in the success group invest more in headsets, handsets and mobile devices. They also pay higher salaries to IT staff, but typically require fewer of those workers to achieve the same goals.

"We were definitely able to see that spending does correlate to success," Gareiss said. "When we see companies investing in team collaboration, new video conferencing technologies, etc., they are in a higher success group. Investment does pay off."

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