RETHINKING UNIFIED COMMUNICATIONS

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1 RETHINKING UNIFIED COMMUNICATIONS A Total Cost of Ownership Comparison of Top Vendors Prepared for Nortel - by: Info-Tech Research Group

2 SUMMARY Total Cost of Ownership (TCO) is an effective financial measure of all direct and indirect costs associated with a new IT infrastructure purchase, and must be a primary consideration when selecting a telephony solution. Enterprises of all sizes should evaluate TCO with their own controllable costs, and perform a UC needs assessment before making a purchasing decision. This note compares the TCO of Unified Communications (UC) solutions for Cisco (Unified Workplace Licensing Professional Edition), ShoreTel (ShoreWare Professional Call Manager), and Nortel (Software Communications System) under the following scenarios: 50 users: typical size of a small enterprise, with one main site. 300 users: a mid-sized enterprise with one HQ (200) and two branches (50 each) users: a large-enterprise with one HQ (1000) and two branches (300 and 200). Info-Tech Research Group found that in each case, the three-year TCO of Nortel s UC solution is lower than ShoreTel and Cisco. For the same high level of UC functionality, ShoreTel charges a price premium of 18% to 50% over Nortel, which fluctuates depending on the number of users. Meanwhile, Cisco s product is 33% to 52% more expensive than Nortel s.

3 SELECTION POINT Info-Tech Research Group compared Total Cost of Ownership (TCO) of Unified Communications (UC) Solutions from three top vendors; Cisco Systems, ShoreTel and Nortel. The comparison specifically examines the following components of TCO: Hardware components to provide full redundancy and high reliability Software Licenses for equivalent levels of comprehensive UC functions Installation/Implementation costs Support & Maintenance pricing, which includes: - For software o 24x7 technical support o Software upgrades o Minor maintenance releases - For hardware o Next business day service for replacement parts o On-site delivery by trained technician o 24x7 tech support The TCO for each UC solution was calculated over a three-year period. To provide a detailed look at TCO, across a cross-section of enterprise sizes, the following scenarios were compared for each solution: Small company with 50 licenses Medium company with 300 licenses Large company with 1500 licenses ANALYSIS AND INSIGHTS Following is a table of telephony vendors studied in this evaluation. In each case, Info-Tech evaluates UC solutions with feature sets that are reasonably comparable to each other. Table 1. Product list Source: Info-Tech User Group Unified Communications Solution Nortel Software Communications System (SCS) ShoreTel ShoreWare Professional Call Manager Cisco Cisco Unified Workspace Licensing Professional Edition

4 Methodology 1. User breakdown across scenarios is 50, 300, and correlating to the typical sizes of a small, medium, and large business. 2. For the purpose of this analysis, the edition or packaged solution chosen from Nortel, ShoreTel, and Cisco provide the most comprehensive level of UC features available. Features include: unified messaging, auto attendant, instant messaging, presence, find me/follow me, and soft clients for all users. A configuration with fewer features would be less expensive. IT leaders should perform an enterprise needs assessment and choose a package accordingly. 3. Hardware prices can fluctuate depending on the level of service required by the customer. For the purpose of this analysis, we ensured that the hardware selected from each vendor provided comparable quality. 4. IP Phone hardware is assumed to cost $300 per phone for Nortel, as a multitude of third-party phone choices are available. This price can fluctuate, depending on brand, quality and desired features. Note that ShoreTel and Cisco offerings work best with proprietary phones manufactured by the vendors. 5. No requirements to support analog services. The placement of a emergency analog connection will be an added cost regardless of the chosen vendor, and thus does not affect the TCO. 6. High availability configuration and hardware redundancy is chosen for all scenarios. Note that hardware is configured in a method that is fair to each vendor and minimizes cost. 7. Each scenario is assumed to have its own breakdown of main and branch locations. 50 user scenario: one main site only. 300 user scenario: one HQ, two branch locations user scenario: one HQ, two branch locations users were assumed to be supported by a single T1 gateway/switch. 9. Support services have been standardized making sure each vendor gives customers equivalent levels of support. These include implementation services, minor maintenance patches, free software upgrades, next business day service for replacement parts, on-site delivery by trained technician, and 24x7 hardware and software technical support. 10. There are four packages with Cisco s Unified Workspace Licensing (CUWL). The Professional Edition pricing ($425/user/year) was chosen for this evaluation because it offers the most comprehensive set of UC features, including audio/video/web conferencing, mobile phone support, and contact center. Customers seeking lesser levels of UC functions can choose the entry ($245/user/year), business ($315/user/year), or standard ($325/user/year) editions at significantly lower prices points per user.

5 Scenario Comparisons Scenario 1: Small Company requiring 50 licences Figure 1. Small Company TCO Comparison Source: Info-Tech Research Group Table 2. Highlighted TCO results for small companies Source: Info-Tech Research Group TCO (50 licences) Nortel ShoreTel Cisco Total Capital Expenditure $ 41,750 $ 60,345 $ 67,374 Services (Implementation, Maintenance, Support) $ 8,370 $ 14,665 $ 8775 Three-Year TCO $ 50,120 $ 75,010 $ 76,149 Premium 50% 52% In this scenario, ShoreTel represents a 50% three-year TCO premium over Nortel, and Cisco represents a 52% three-year TCO premium over Nortel.

6 Scenario 2: Medium Company requiring 300 licences Figure 2. Medium Company Comparison Source: Info-Tech Research Group Table 3. Highlighted TCO results for medium companies Source: Info-Tech Research Group TCO (300 licences) Nortel ShoreTel Cisco Total Capital Expenditure $ 208,500 $ 236,680 $ 305,262 Services (Implementation, Maintenance, Support) $ 32,678 $ 66,520 $ 49,125 Three-Year TCO $ 241,178 $ 303,200 $ 354,387 Premium 26% 47% In this scenario, ShoreTel represents a 26% three-year TCO premium over Nortel, and Cisco represents a 47% three-year TCO premium over Nortel.

7 Scenario 3: Large Company requiring 1500 licences Figure 3. Large Company Comparison Source: Info-Tech Research Group Table 4. Highlighted TCO results for large companies Source: Info-Tech Research Group TCO (1500 licences) Nortel ShoreTel Cisco Total Capital Expenditure $ 975,500 $ 1,038,930 $ 1,287,885 Services (Implementation, Maintenance, Support) $ 157,992 $ 301,793 $ 224,674 Three-Year TCO $ 1,133,492 $ 1,340,723 $ 1,512,559 Premium 18% 33% In this scenario, ShoreTel represents an 18% three-year TCO premium over Nortel, and Cisco represents a 33% three-year TCO premium over Nortel.

8 Performance and Feature Considerations ShoreTel, Nortel, and Cisco all offer best-of-breed UC products. However, the following discussion highlights some notable differences between each solution. ShoreTel ShoreTel is a robust UC solution sold at a premium price. It focuses on high reliability through the use of voice switches that handle a multitude of tasks. Its weakness, however, is branch offices as its branch licensing strategy causes the TCO to shoot up as more branches are added. The ShoreTel solution supports SIP phones, but at a significant added expense. ShoreTel s strategy is to charge for value-added features. It has historically served the mid-market, but has trouble penetrating other categories due to weak brand recognition. Cisco Cisco s Unified Workspace Licensing (CUWL) initiative is a new direction in product licensing for Cisco. Contrary to its prior strategy of forcing end-users to choose UC features a la carte (and charging a separate license fee for almost every UC feature), CUWL bundles software to provide greater value at a lower cost to Cisco s customers. Note that support for CUWL requires end-user to buy both a 3- year Cisco UC Software Subscription (for free upgrades) and the Cisco UC Essential Operate Service (for 24/7 tech support). These Cisco support services typically start at 100 seats, therefore growing small businesses are usually better off investing in CUWL today. Otherwise, when these businesses grow past 100 users, they will be required to reinvest in a complete overhaul to their telephone system Nortel One of North America s largest telecommunication companies, Nortel has long established itself as an innovator in providing IP PBX and UC solutions. As a software-based platform, the SCS allows customers to choose from a variety of server platforms available from Nortel or those available direct from one of several leading server vendors including Dell, IBM and HP. The SCS provides a further competitive advantage as it supports SIP phones (with plug and play auto-device discovery) across Nortel, Polycom and LG clients.

9 Info-Tech Insights Nortel is the clear leader in the three-year TCO analysis of UC solutions against ShoreTel and Cisco. Its TCO is consistently lower than the competition owing to the open architecture nature of the SCS system. Nortel s strategy of bundling all UC features into a single license also saves customers a significant expense over the competition. While Cisco s solution comes with a hefty aggregate price tag, this vendor offers holistic UC features and support services that are on par or even cheaper than competing offerings. This lower cost of support is more relevant when looking at the TCO over the lifetime of a UC solution. Cisco performs best in the 1500 user scenario, where all of the evaluated solutions become more closely aligned in their pricing models. Cisco is an established vendor in this large enterprise space, though in terms of a 3-year TCO Nortel s SCS is still the leader in cost-savings. ShoreTel maintains a price premium over Nortel across all categories. Though its initial hardware and software licensing expenses are less expensive than Cisco, ShoreTel s costs of support services are higher. While this is a detriment to the vendor when looking at a longer term TCO, over a 3-year span, ShoreTel holds steady in second place throughout the analysis. Every aspect of Nortel s open architecture is designed to bring down costs for the end-user. Nortel s SCS has no proprietary hardware involved. With a little extra legwork, customers can enjoy significant cost savings by going to HP, Dell, IBM, or using their own previously-installed server. And unlike Cisco and ShoreTel s solutions, the SCS integrated SIP-trunking support saves customers from having to buy any additional hardware/licensing, further lowering TCO. Nortel s support, though more expensive than the competition (especially when added over many years), banks on the vendor s decades of experience to provide comprehensive service. The final purchase decision should also consider the assessed needs of an enterprise. IT leaders may be better aligned with ShoreTel s strategy of using highly reliable voice switches, or Cisco s strategy of packaging different UC services at tiered price levels that cater to different user groups, or Nortel s strategy offering all-in-one features and an open architecture. But when it comes down to purely TCO, Nortel is ahead of the competition with its SCS solution for unified communications.

10 RECOMMENDATIONS Info-Tech recommends that enterprises carefully consider lifetime TCO prior to making purchasing decisions. When choosing an UC solution, consider the following: 1. Pay special attention to support and maintenance prices when comparing between vendors. While hardware/software are the largest initial expense, recurring support costs become much more significant over a longer term especially since a telephony solutions may have an extended lifespan of up to ten years. 2. Perform a needs assessment prior to making a purchase decision, in order to ensure an apples-to-apples comparison between products. Does the organization require high redundancy? Does it value interoperability, and an open-standards design? % reliability? Is integration within a service-oriented architecture (SOA) a need? Hardware costs are a large component of the TCO, and will fluctuate depending on the list of requirements dictated by the business. 3. Be wary of waste. Nortel s all-in-one UC solution has several pros: it has the lowest TCO, simplifies ordering, and can play a role in facilitating UC adoption throughout the enterprise. However, its all-or-nothing licensing may provide an organization with features that employees will not use. IT leaders in this unique position may be better served by a vendor that offers different packages of UC features. 4. Consider tomorrow s trends when buying today s solution. A great example is the advent of SOA and the proliferation of web-services within enterprises. Tomorrow s phone systems will likely have to give customers the ability to integrate custom-built applications. SCS is based on SOA, but the solutions from Cisco and ShoreTel currently do not have this flexibility within their systems. BOTTOM LINE Info-Tech compared the three year TCO of equivalent UC solutions from ShoreTel, Cisco, and Nortel. The Nortel s SCS product consistently scored the lowest TCO, while offering a comparable feature sets and competitive levels of support services as the other solutions. While concerns about Nortel s ability to meet long-term support commitments and overall stability are valid (due to the company s fall into bankruptcy protection), enterprises should consider Nortel as a strong contender against ShoreTel and Cisco. The cost savings can be drastic, especially for small-to-mid-sized businesses.

11 About Indaba Info-Tech gives you, as a leading technology provider, access to the most accurate and helpful information and advice available today. We provide a current view of the marketplace needs, as defined by the corporate IT community. Our products are based on direct input from thousands of IT buyers and end-users, providing the data and analysis you need to make better decisions and get your products to the market more efficiently and cost-effectively. Visit us online at: Info-Tech Research Group Indaba Division 43 Front Street East, Toronto ON Canada M5E 1B ext

12 WHERE TO START } }

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