The Total Economic Impact Of Microsoft Windows Azure

Transcription

1 A Forrester Total Economic Impact Study Commissioned By Microsoft Project Director: Sean Owens October 2013 The Total Economic Impact Of Microsoft Windows Azure Infrastructure, Data, And App Services Can Help Save IT Costs And Enable New Revenue Opportunities

2 Table Of Contents Executive Summary... 3 Disclosures... 4 TEI Framework And Methodology... 5 Analysis... 7 Financial Summary Microsoft Windows Azure: Overview Appendix A: Composite Organization Description Appendix B: Total Economic Impact Overview Appendix C: Glossary Appendix D: Endnotes ABOUT FORRESTER CONSULTING Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting. 2013, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to

3 3 Executive Summary In August 2013, Microsoft commissioned Forrester Consulting to conduct a Total Economic Impact (TEI) study and examine the potential return on investment (ROI) enterprises may realize by deploying Windows Azure. The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of Windows Azure on their organizations. To better know the benefits, costs, and risks associated with a Windows Azure implementation, Forrester interviewed current customers, each with at least a year of experience. Interviewed organizations have taken advantage of Windows Azure s infrastructure, data, and application offerings, leveraging services such as: Virtual Machines, Storage, SQL Database, StorSimple, and Service Bus. Prior to Windows Azure, customers had a variety of onpremises solutions, perhaps located in a hosted data center but still fully managed and administered by the organization. This led to a variety of issues, such as: the existing data center running out of room, opportunities or sales having been missed because of slow application development or delivery, and IT budgets rising at the same time the company was calling for savings. With Windows Azure, customers were able to: Increase revenue through greater sales and faster timeto-market, leveraging Windows Azure Infrastructure Services like Virtual Machines, for fast initiation and removal of development and test environments, and a more mature and easier-to-use application delivery channel. Save costs in IT administration and backup processes with the Virtual Machines, Storage and Backup Services, Windows Azure enabled several key benefits for many interviewed organizations, such as: Infrastructure services help increase revenue with an easier-to-use and more streamlined application delivery platform. Infrastructure and data services help increase revenue with a scalable pay-whatyou-use development and test environment leading to faster time-to-market. App Services help connect data and applications for faster setup and reduced errors related to business marketing activities, like a coupon campaign. with many now being completely handled by Microsoft and other processes being greatly reduced by the simplicity of Windows Azure. Improve marketing effectiveness and reporting by leveraging Windows Azure App Services like Service Bus to communicate with internal systems and retail partners. WINDOWS AZURE LEADS TO FINANCIAL BENEFITS Interviews with six existing customers and subsequent financial analysis found that a composite organization based on these companies estimated startup costs of about $70,000, followed by annual service and management costs of almost $100,000, versus benefits of around $330,000 per year, plus a one-time first-year benefit of nearly $700,000 in avoided hardware costs. These add up to the risk-adjusted results shown in Figure 1 and Figure 2. See Appendix A for a description of the composite organization. FIGURE 1 Composite Organization Overview Of Risk-Adjusted ROI And NPV With Key Benefits 97.5% 33% ROI: 349% NPV: $1,105,902 Improvement in development/test environment setup and configuration Increase in customers in the first year with a cloud-based software distribution system

4 4 Benefits. Some of the most impactful benefits experienced by the composite organization are listed here, as identified by interviewed companies: Increased service subscription sales of about $60,000 to $120,000 per year with a more advanced client application connected with Windows Azure. The composite organization previously distributed its application via CD-ROM, which led to delivery and update difficulties. But now with a hybrid application model that includes Windows Azure, it is easier to distribute, share, and manage the application. This has enabled easier trial and update processes that have helped lead to more sales an increase of 33% in the first year, with growth at a lower rate in following years. By migrating to Windows Azure, one-time costs estimated at nearly $700,000 for planned new and upgraded servers, hosting, and other hardware purchases were avoided. Keeping the previous solution made up of resources housed onpremises and at a colocation site would have required continued investment including new hardware to meet scale, upgrades to existing hardware, and continued hosting costs. Windows Azure s App Services help marketing connect data and applications for faster setup and reduced errors, leading to $50,000 in savings per year. Windows Azure Service Bus helped to more easily and quickly initiate a coupon marketing campaign, track sales, set coupon valid dates, and reduce duplicate coupon use. Costs. The composite organization experienced the following risk-adjusted costs: Estimated Windows Azure subscription fees starting of about $80,000 per year over three years. Fees for Windows Azure, including Windows Server Virtual Machines, SQL Server, BizTalk Server-based Service Bus, Storage, Backup, and Support services, are paid based on usage. Costs are estimates: Because pay-per-use service charges are applied only to what is used, light periods may be less expensive, and heavy periods may be more expensive. Additionally, the composite organization signed a 12-month commitment, which includes a significant discount. Annual costs for managing Windows Azure of about $20,000. This is an annual estimate of resource costs to administer and manage Windows Azure. However, as shown in the Benefits column, it is much less than managing an on-premises solution, since many management tasks (like patches, updates, server health monitoring, etc.) are handled by the Azure platform when used as a platform-as-a-service (PaaS) offering, and an infrastructure-as-a-service (IaaS) offering (but to a lesser extent with the latter). Implementation costs of about $70,000. This is based on time required for planning, migration (or new development), and implementation of an existing or new application or service to Windows Azure. See Figure 2 for more details on these and other benefits and costs reviewed in this study. Disclosures The reader should be aware of the following: The study is commissioned by Microsoft and delivered by Forrester Consulting. Forrester makes no assumptions as to the potential ROI that other organizations will receive. Forrester strongly advises that readers use their own estimates within the framework provided in the report to determine the appropriateness of an investment in Microsoft Windows Azure. Microsoft reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester's findings or obscure the meaning of the study. The customer names for the interviews were provided by Microsoft. Microsoft did not participate in customer interviews.

5 5 FIGURE 2 Summary Of Risk-Adjusted, One-Time, And Annual Costs And Benefits Present Value Costs ($317 thousand) Benefits ($1.42 million) Improved revenue from increased customers and faster time-to-market Reduced marketing costs from better business responsiveness Initial planning and implementation (one-time) Reduced IT management and software development costs Annual resource consumption and management costs Avoided hardware costs (one-time) ($500,000) ($250,000) $250,000 $500,000 $750,000 $1 million $1.25 million $1.5 million Note: This is based on three-year risk-adjusted figures. Values of costs and benefits are representative of a composite organization constructed from aggregated feedback based on interviews with Microsoft Windows Azure customers. TEI Framework And Methodology INTRODUCTION From the information provided in the interviews, Forrester has constructed a Total Economic Impact (TEI) framework for those organizations considering implementing Microsoft Windows Azure. The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision. APPROACH AND METHODOLOGY Forrester took a multistep approach to evaluate the impact that Microsoft Windows Azure can have on an organization (see Figure 3). Specifically, we: Interviewed Microsoft marketing, sales, and/or consulting personnel, along with Forrester analysts, to gather data relative to Windows Azure and the marketplace for Windows Azure.

6 6 FIGURE 3 TEI Approach Interviewed six organizations currently using Microsoft Windows Azure to obtain data with respect to costs, benefits, and risks. Designed a composite organization based on characteristics of the interviewed organizations (see Appendix A). Constructed a financial model representative of the interviews using the TEI methodology. The financial model is populated with the cost and benefit data obtained from the interviews as applied to the composite organization. Forrester employed four fundamental elements of TEI in modeling Microsoft s Windows Azure service: Costs. Benefits to the entire organization. Flexibility. Risk. Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester s TEI methodology serves the purpose of providing a complete picture of the total economic impact of purchase decisions. Please see Appendix B for additional information on the TEI methodology.

7 7 Analysis COMPOSITE ORGANIZATION For this study, we conducted a total of six interviews with representatives from the following companies, which are Microsoft customers based in the US and Europe: A multinational consumer- and business-products manufacturing company headquartered the US. A midsized sporting-goods manufacturing company based in the US. A large retail firm headquartered and primarily located in the US. A global furniture manufacturing company headquartered in the US. A global construction company headquartered in the US. A local government school system in Europe. Based on the interviews, Forrester constructed a TEI framework, a composite company, and an associated ROI analysis that illustrates the areas financially affected. The composite organization that Forrester synthesized from these results represents an organization with the following characteristics: A US-based firm that develops and sells products sold in retail stores as well as some software. About 50,000 employees. About 1,500 customers of the primary software product. Twenty to 30 servers supporting development, testing, and operations for that group. On-site storage and tape backup solutions, along with offsite services such as tape storage. After an extensive request-for-proposal (RFP) and business case process evaluating multiple vendors, the composite organization chose Microsoft Windows Azure and began deployment: Implementation started in early This first phase included subscriptions for IaaS virtual machine services as well as backup and storage services. Further investigation and potential implementation of additional Windows Azure services are planned. We had been spending a lot of time on server updates, security patches, and other management tasks, which are now part of the Windows Azure services. ~ Project manager at a European school system INTERVIEW HIGHLIGHTS Information was collected from the six interviewed organizations and summarized as a composite organization. The following situation, solution, and results are based on this analysis. Situation The composite organization was faced with several key business issues that it wanted to resolve quickly: The organization developed and sold a well-regarded niche software solution but saw flat (and even decreasing) subscription sales in what should have been a growing market. The application was built on old development technologies that occasionally connected to a simple database, which led to distribution problems, update delays, and version issues. The organization was projecting significant investment requirements for a number of in-house server resources, including dedicated development and test environments. The organization had a nightly tape backup system that was reaching its limits as backup times approached 24 hours an upgraded or replacement system was needed soon. The organization saw rising costs in areas such as marketing, IT management, development, and testing, as resources had to spend more time using older systems for more and more complex problems. Solution The composite organization had used a few cloud-based point solutions but selected Windows Azure for its full

8 8 solution set, high-quality services based on worldwide infrastructure, and the confidence that Microsoft s name provides. While Windows Azure provides a broad variety of services, the organization started with compute services for virtualized Windows Server environments, data services for SQL Server and backup, and application services for Service Bus. Results The interviews revealed that for the composite organization: Windows Azure enables a more streamlined and better-managed application development, distribution, and licensing platform. Coupled with an application migration to.net development, moving the back-end of the application to a shared application database to Azure meant that it could ensure a reliable data store that could scale to larger markets, check and automatically update client software as needed, and implement a user account system as a required step to use the client software. This allowed the organization to eliminate draconian distribution policies and simply post the client software on the site which resulted in nearinstant positive feedback as well as a greater number of organizations downloading, testing, and purchasing the software. Windows Azure s geo-redundant offering is a much better setup than a company of my size would ever be able to afford. ~ Vice president of information technology at a construction management firm Costs associated with the purchase of servers and other hardware, hosting services, and ongoing management are avoided by migrating to Windows Azure services. The composite organization was able to reduce or avoid a number of IT costs: Avoid purchasing a number of new servers and upgrading existing servers. Eliminate costs to colocation hosts for resources moved to Windows Azure. Avoid the purchase of at least one new tape backup system. Greatly reduce the amount of time spent on management tasks dealing with the above equipment and services, such as managing a development/test server farm, backup tasks, and services costs for off-site storage and retrieval of tape backups. Time-to-market is improved with faster time-toimplement, more scalable, and more reliable development and test Windows Azure Compute services. A new development and test environment can be set up quickly and not six or eight weeks after you request the server from procurement and have it set up by IT. That means development and testing can start immediately and those eight weeks could mean significant additional revenue for certain applications (such as a new sales tool that helps reps close more deals). Anytime you have to requisition hardware, it will take weeks to coordinate efforts between procurement, data center management, IT operations, and other groups. ~ Development manager at a sporting goods manufacturer Easy setup of environments and the ability to only pay for what s used with Windows Azure mean development and test cost savings. In addition to increased revenue, faster development or test environment setup means much less management time setup takes just a few clicks. Also, production, development and test environments are all exactly the same Windows Azure environment unforeseen issues that might arise because the development and test environments were domain-attached servers (for example) are eliminated. Finally, the organization only pays for what it needs instead of having to buy a new server to support new development and test environments needed for a busy period, it simply expands and then turns down its Windows Azure service needs.

9 With Windows Azure Service Bus, data transfer between internal and partner systems leads to immediate marketing campaign improvements. The composite organization, with Windows Azure Service Bus, can more easily share information between internal systems, partners, and customers; a service bus is a mechanism for centralizing and optimizing communications between multiple disparate systems. Based on the responses from interviewed organizations, the specific process of distributing and redeeming coupons was included in the composite organization model, measuring benefits in areas such as more easily and quickly initiating a coupon marketing campaign and more accurately tracking and reporting campaign effectiveness. With Windows Azure, the composite organization was able to distribute coupons via , track incoming redeemed codes more effectively, and save significant costs in coupon marketing campaign upfront initiation and campaign-end reporting. 9

10 10 BENEFITS The composite organization based on the interviewed with six Windows Azure customers experienced several quantified benefits enabled by Windows Azure integrated with other cloud and on-premises business applications, data, and processes: Increased revenue from better software scalability and distribution. Increased revenue from faster time-to-market. Improved marketing management and reporting. Hardware and hosting costs avoidance. Reduced ongoing management costs. Higher developer productivity through faster test environment procurement. Increased Revenue With Better Software Scalability And Distribution Enabled By Windows Azure With Windows Azure, the organization improved its application platform delivery, support, and distribution platform, leading to a reported 33% more new customers for its most popular software offering in the first year, plus an estimated continued growth in subsequent years. Previously, the application was distributed like a shrinkwrapped product. Even though it was for a very specific market and connected to a central database for data storage and business logic, it did not include authentication. So the organization couldn t just post the application online and allow subscribers to download it that would make it available to virtually anyone and provide access to the full product. This resulted in a number of organizational and customer difficulties as illustrated in Figure 4, including: The organization spent significant time and money printing and shipping the client application via CD-ROM. It also spent significant time handling customer requests for new and updated software each request had to be verified manually before shipping a CD-ROM. The organization would ship updates to all subscribers, but there was no validation or reminders to ensure that updates were installed. Since it was harder to get updates, remember to install them, and/or request a replacement CD-ROM, new customers were starting to choose alternative solutions, and even existing customers were starting to move. This, coupled with the fact that the application developed on an older application platform, meant a flat, and even shrinking, subscriber base. Windows Azure and a client application re-development to.net enabled subscriber authentication and validation checks for the latest version. The central application database was deployed on Windows TABLE 1 Non-Risk-Adjusted Incremental Revenue From Increased Number Of Customers Ref. Metric Calculation Year 1 Year 2 Year 3 A1 Customers today 1,700 A2 Revenue per customer/subscriber (per year) $775 A3 Expected growth with Windows Azure 33% 10% 10% A4 Expected customer growth with Windows Azure A1*A3 2,261 2,487 2,487 A5 Total revenue with Windows Azure (A5-A1)*A2 $434,775 $610,003 $610,003 A6 At Profit margin (for revenue from software apps on Windows Azure) Increased revenue from more customers, enabled by the Azure platform scalability 16% A6*A7 $69,564 $97,600 $128,440

11 11 FIGURE 4 Application Deployment Is Streamlined And Reduces Potential Customer Barriers To Entry Azure for a full hybrid solution built on Windows Azure, the client application, and back-end systems. With the updated solution, the organization saw a return to strong subscription sales (primarily from the reduced customer barriers to test and subscribe), adding up to nearly $70,000 in the first year, and expects nearly $100,000 in the second year and $130,000 in the third year since moving to Windows Azure. Prior to going to Azure, we had to physically distribute our software, including printing CDs, stuffing envelopes, sending them out, and such. With Windows Azure, we re able to put our software on the website available for download. ~ Project manager at a European school system Customers are much more satisfied with the improved reliability and ease of support (for example, simply downloading the application to install it on a new or upgraded PC), and the organization not only has seen increased revenue but also is able to spend less time and money on old-fashioned distribution processes, like burning and shipping CDs. Increased Revenue From Faster Time-To-Market In addition to an increase in customers for the primary consumer product, the composite organization is able to generate additional revenue from faster development of it and other consumer and internal applications. With Windows Azure, the organization found it much quicker and easier to set up development and test environments, particularly: It avoided the process and logistics of ordering, waiting, and setting up new hardware to support development and test environments which can take as much as eight weeks or more. Additionally, this delay may also be an issue for new applications sent to production even when planning ahead, there may be no avoiding a release delay if data center expansions are required, such as waiting for servers to be shipped, setting up and integrating with the current infrastructure, and testing the hardware to make sure it s ready and correctly configured. Development and test environments may not quite match production servers (e.g., a development environment may be a virtual or physical server attached to a corporate domain), which may require extra time or special handling. So developers can be more efficient by focusing on core application needs and not infrastructure changes. The development and test virtual server farm is used for a number of application projects, and each project requires some special setup or configuration. Instead of constantly making configuration changes, uninstalling past work, and reinstalling required resources like SQL Server, with Windows Azure, setting up a new environment is very

12 12 quick, and recreating past environments is complete in just a few clicks of the mouse. Also, virtual development and test environments can be shut down quickly with Windows Azure, so the organization is not charged for it when not in use (and the environment profile can be saved for quick recreation). Profits from improved and faster application sales improve local services and benefit taxpayers a great example of good government! ~ Project manager at a European school system The cost savings from quick setup, easier management, and reduced infrastructure costs are all covered in the license and management costs savings sections. However, applications that provide consumers or internal users with new capabilities can also help generate new direct or indirect sales for example, an update to the main application should lead to more new sales than without the update, or a new or updated internal sales tool can help close more deals. In both cases, making those applications available two months early can mean new revenue for a significant number of new and updated products and internal applications. The composite organization develops an average of one new or upgraded application per year, which both: Can generate new otherwise-unrealized revenue. Would have required new hardware for development/test or production environments or was faster than past development cycles due to the quick setup of saved development/test environments with Windows Azure. On average, the application development time is 7.5 weeks faster with Windows Azure, leading to the generation of about $20,000 to $35,000 in additional revenue per year, as shown in Table 2. A lot of companies fail to realize: We get our pick of the best developers because they want to work in the cloud, and turnover is less since moving to Azure. ~ Development manager at a sporting goods manufacturer TABLE 2 Non-Risk-Adjusted Increased Revenue From Faster Time-To-Market Ref. Metric Calculation Year 1 Year 2 Year 3 B1 Average on-premises server procurement cycle time (weeks) 8.0 B2 Percent improvement in resource allocation time with Azure 93.75% B3 Resource allocation time with Azure (weeks) 0.5 B4 Value of one week faster time-to-market $8,360 $11,730 $15,440 B5 B6 Bt Applications developed per year that could generate increased revenue Profit margin (for revenue from software apps on Windows Azure) Increased revenue, due to faster application time-to-market (B1-B3)*B4* B5*B % 16% 16% $20,064 $28,152 $37,056

13 13 Avoided Costs From Better Marketing And Business Responsiveness In addition to software- and IT-related benefits, the organization, as a global conglomerate with many different business units, also included Windows Azure Service Bus in its subscription, specifically for its product marketing teams to implement a hybrid environment where data and information among organization, partners, and customers can be shared across a variety of systems Windows Azure, other cloud solutions, or on-premises. Based on the interviews with users of Windows Azure and discussions of their experiences, the specific process modeled for the composite organization is the distribution and redemption of coupons distributed directly to consumers or through retail channels. With a variety of channels and distribution modes, the organization had problems syncing information and sharing accurate information with partners. For example, a one-use coupon available for store or online purchase was not properly validated, so coupons could be used multiple times. Also, quick validation of coupons was not possible, so coupons were distributed live, meaning that even with specific start and end dates, coupons could be used any time after distribution, and coupons were very timeconsuming to set up within the disconnected systems. Furthermore, accurate coupon redemption data was hard to come by, or come by within a reasonable time. These and other issues meant that the organization was not able to accurately measure the results of a coupon-based marketing campaign. Coupons were redeemed and sales were made, but it was very hard to tell whether the coupon helped drive more sales; what days, weeks, or seasons might be the most effective times for a campaign; and what markets or consumer types would be the best targets. All our coupons had to be individually activated; even with some automation, it would take more than a day, as many groups were involved. With Service Bus, information-sharing across groups is automated, and activating a million coupons takes less than an hour. ~ Director of information technology at a large retailer The organization identified benefits in areas such as: more easily and quickly initiating a coupon marketing campaign, more accurately tracking sales during coupon marketing TABLE 3 Non-Risk-Adjusted Better Marketing And Business Responsiveness Cost Savings Ref. Metric Calculation Year 1 Year 2 Year 3 C1 Coupon campaigns per year 15 C2 C3 C4 C5 Ct Average number of hours required to set up and initialize a coupon campaign for distribution before Windows Azure Average number of hours required to prepare a marketing campaign report, collecting data from multiple sources Percent improvement with Windows Azure Service Bus Average marketing full-time equivalent salary (FTE) per hour Avoided costs from better marketing and business responsiveness C1*(C2+C3) *C4*C % $50 $54,000 $54,000 $54,000

14 14 campaigns, more accurately setting coupon valid dates, and reducing duplicate coupon use. In particular, the first two areas were seen as the most measurably affected by Windows Azure. The organization implemented Windows Azure Service Bus, which provides a messaging channel for connecting cloud applications to on-premises applications as well as services and systems both inside and outside of the organization. With Service Bus, the organization was able to create a central data source where it could share and receive coupon validation and usage information, with retail partners able to leverage that information, validate online coupon use, and more easily integrate coupon data with other line-of-business systems to assess campaign performance and drive improvement for future campaigns. Table 3 shows that the organization estimates that it took 80 hours to set up and initialize the electronic coupon records for a marketing campaign and 16 hours to pull together the information and data afterwards for an average of 15 campaigns per year. Since subscribing to and implementing Service Bus, it estimates saving 75% of the time it takes to do these tasks, adding up to a savings of nearly $55,000 per year. The organization also expects to see significant benefits in its return on marketing investment, and increased revenue from marketing process and targeting improvements enabled by Service Bus. However, it has not been in use long enough to track that level of benefit. We started Windows Azure with four instances. If we built our data center on-premises, I would have requested 10 or 20 servers. ~ Marketing manager at a multinational consumer- and business-products manufacturer Avoided Hardware And Other Costs The composite organization realized a key benefit from Windows Azure by avoiding a much greater hardware investment for a similar on-premises solution. To meet the scale and reliability needs with an on-premises implementation, the organization would have had to: Purchase 20 additional servers. Upgrade 50 others. This adds up to a total server count of more than the equivalent size of the Windows Azure subscription, because the on-premises solution needs to be ready for peak traffic times. And Windows Azure provides the same or better security of the organization s data, which meets industry standards for security and reliability, provides data TABLE 4 Non-Risk-Adjusted Avoided Server And Implementation Costs Ref. Metric Calculation Year 1 Year 2 Year 3 D1 Non-Azure estimated servers to purchase, to meet estimated peak need 20 D2 Estimated average per-server purchase cost $25,000 D3 Non-Azure estimated servers to upgrade, to meet estimated peak need D4 Estimated average per-server upgrade cost $3,000 D5 Estimated average new server setup and configuration time (hours) D6 IT FTE hourly salary $35 D7 Dt Other scheduled or expected hardware, hosting, or other costs Avoided server and implementation costs (D1*D2)+ (D3*D4)+(D1 *D5*D6) +D $25,000 $686,200 $0 $0

15 15 encryption, and is continually tested and improved. The organization was also able to avoid the purchase of a new tape backup system estimated to cost about $25,000. Total avoided costs added up to a one-time savings of nearly $690,000 during the initial migration to Windows Azure, as shown in Table 4. Reduced Ongoing Management Costs In addition to hardware and other avoided costs, the composite organization saw a significant reduction in ongoing server management costs following the Windows Azure implementation. With Windows Azure Compute and virtual machine subscriptions: Many server management tasks are included with Windows Azure subscriptions (especially for PaaS Compute services), such as operating system updates, patches, security updates, etc. The organization was able to refocus its resources to managing applications and data. Supporting a larger customer base was possible with Windows Azure (because the application is easier to distribute now that it is connected to resources installed on Windows Azure and the SQL Server database on Windows Azure along with the updated client application is more reliable). With the retirement or repurposing of nearly all of the 70 servers, the organization estimates that it will save nearly all of the 80 hours per week previously spent on system management and backup processes, adding up to more than $130,000 per year in costs as shown in Table 5. The organization also implemented Windows Azure Storage Services and StorSimple, which meant it could retire its difficult, error-prone, and time-intensive tape backup system for the data stored in its on-premises SharePoint Server; the estimates include savings from tape backup process and management costs (including recovery fees from the thirdparty tape storage provider) as well as overall easier processes with StorSimple and SharePoint integration. We selected and implemented StorSimple because it is integrated with SharePoint. Everything has worked great! ~ Manager of core infrastructure services at a global furniture manufacturer Development And Test Environment Setup, Procurement, And Management Cost Savings Along with reduced hardware purchases that would have been necessary, in part, for ongoing development and test environment needs, the organization is able to save process time and costs associated with setting up, configuring, and retiring development/test physical or virtual servers. Also, any delays in waiting for procurement, shipping, and configuration are eliminated. The composite organization, with multiple development efforts happening throughout the year, was able to almost completely eliminate the tasks associated with the setup and management of development and test environments TABLE 5 Non-Risk-Adjusted Avoided Management And Support Effort Ref. Metric Calculation Year 1 Year 2 Year 3 E1 Average number of hours per week required to support the solution before Azure 80 E2 Percent reduction of hours per week required to support Windows Azure 90% E3 IT FTE hourly salary $35 Et Avoided management and support effort E1*E2*E3*52 $131,040 $131,040 $131,040

16 16 with Windows Azure. Before, a new development and testing process might require new hardware (which added significant time while waiting for the procurement and data center teams to complete their tasks) and nearly always required some setup or configuration from the previous setup often back to the same or similar setup from a previous version of the same application. Additionally, any networking or configuration issues would have needed to be handled with the appropriate IT teams. With Windows Azure, nearly all of those steps are eliminated, as virtual machine setup requires a few clicks of the mouse fewer when using saved configurations. As few or as many virtual machines can be set up as needed to meet the number of environment configurations and/or scale necessary. Also, these development and test TABLE 6 Non-Risk-Adjusted Reduced Costs From Improved And Faster Development And Test Processes Ref. Metric Calculation Year 1 Year 2 Year 3 F1 Time to set up/configure/take down a development/testing environment before 20.0 Windows Azure (hours) F2 Percent improvement in development/testing environment setup (etc.) time, with Windows 97.50% Azure F3 Time to set up (etc.) development/testing environment with Windows Azure (hours) F1*F2 0.5 F4 Development/test environments set up per month 2.0 F5 Development/test FTE salary $60 Ft Cost savings from improved dev/test processes (F1- F2)*F4*F5*12 $28,080 $28,080 $28,080 TABLE 7 Total Benefits (Non-Risk-Adjusted) Benefit Initial Year 1 Year 2 Year 3 Total Present value Increased revenue from more customers, enabled by the Azure platform scalability $0 $69,564 $97,600 $128,440 $295,605 $240,401 Increased revenue, due to faster application time-to-market $0 $20,064 $28,152 $37,056 $85,272 $69,347 Avoided costs from better marketing and business responsiveness $0 $54,000 $54,000 $54,000 $162,000 $134,290 Avoided server and implementation costs $0 $686,200 $0 $0 $686,200 $623,818 Avoided management and support effort $0 $131,040 $131,040 $131,040 $393,120 $325,877 Cost savings from improved dev/test processes $0 $28,080 $28,080 $28,080 $84,240 $69,831 Total benefits $0 $988,948 $338,872 $378,616 $1,706,437 $1,463,564

17 17 environments are the same as the Windows Azure production environment; an application can be changed or moved from test to production with a few clicks of the mouse, and any past issues (though few) that arose from slightly different development, test, and production environments are eliminated. With every new operating system, we have to add that environment to our development and test farm. ~ Development manager at a sporting goods manufacturer The organization spent an average of 20 total hours setting up, configuring, and managing each development/test virtual server farm. With Windows Azure, that is reduced to almost nothing just an hour or so. The organization develops and tests two new or upgraded applications per month, on average, which adds up to a total savings of nearly $30,000 per year as shown in Table 6. Total Benefits Table 7 shows the total of all benefits across the areas listed previously as well as present values discounted at 10%. Over three years, the composite organization expects total benefits to represent a present value of more than $1.46 million.

18 18 COSTS The composite organization experienced the following costs associated with the Windows Azure solution: Annual Windows Azure subscription fees. Annual management costs. One-time implementation and migration costs. These represent the mix of internal and external costs experienced by the composite organization for initial and ongoing resources associated with the solution. Once we explained Windows Azure s comprehensive security, our executives were onboard. ~ Manager of core infrastructure services at a global furniture manufacturer Windows Azure Implementation Costs The organization s implementation of Windows Azure, shown in Table 8, included setting up the necessary databases, server resources, and Service Bus; configuring StorSimple and Windows Azure Storage Services and migrating data, application pointers, and other necessary changes. Application updates were not included, as they were already deemed necessary and planned before the move to Windows Azure. Training was also not included. As for the most part, it was not necessary, except to review the Windows Azure management interfaces for the couple of people who would manage and monitor it on a regular basis. Windows Azure Resource Consumption Fees Windows Azure fees are billed monthly based on actual consumption of resources, measured to the nearest minute; these are estimated as an average monthly cost and then added up annually for this discussion. Microsoft provides an online pricing tool that prospective customers can use to estimate the cost of consuming Azure subscription-based resources (or the cost of consuming other subscription options), and that tool was used to calculate costs for the composite organization. 1 For the composite organization, resource consumption options include: Compute: Four Windows Server medium virtual machines. Two SQL Enterprise Server medium instances. One Standard BizTalk Server medium instance. Bandwidth of 1,000 GB. Standard support. Storage/Data Management: Geo-redundant storage of 25,000 GB. Backup space of 2,000 GB. Included support. Additionally, the composite organization expects a 10% TABLE 8 Non-Risk-Adjusted Planning And Implementation Costs Ref. Metric Calculation Initial Year 1 Year 2 Year 3 H1 Planning and implementation time (weeks) 12.0 H2 Planning and implementation FTE 4.0 H3 Estimated FTE hourly salary $35 H4 Other initial costs (e.g., training) $0 Ht Initial planning and implementation costs H1*40*H2* H3+H4 $67,200 $0 $0 $0

19 19 annual growth in Windows Azure resource needs. These add up to around $7,500 to $9,000 per month. Because the composite organization signed a 12-month commitment, a 22.5% discount can be applied, and the updated total is about $6,000 to $7,000 per month. (Discounts are available to organizations to subscription commitments, pre-pay estimated subscription costs, and/or include Windows Azure in their volume licensing agreement such as an Enterprise Agreement.) 2 Over a full three-year analysis, including discounts and estimated growth, this adds up to about $70,000 to $85,000 per year, as shown in Table 9. Annual Maintenance Cost Windows Azure management is expected to be minimal, given that Microsoft Windows Azure resources handled the day-to-day management of Azure servers, which is included in the subscription fees. Any remaining tasks that the organization will need to continue are mainly related to reviewing and adjusting scale options, setting up and shutting off test and development servers, dealing with backup retrieval support issues, and managing any changes or updates to the Service Bus. The organization estimates this to be one-fourth of an FTE s time (one or more IT resources with other responsibilities related to other server and line-of-business systems that have remained on- TABLE 9 Non-Risk-Adjusted Windows Azure Estimated Annual Consumption Fees Ref. Metric Calculation Year 1 Year 2 Year 3 I1 Estimated Annual Growth Rate of Windows Azure implementation 10% I2 Estimated Azure VM Costs per month (charged per minute; billed monthly) $5,000 $5,500 $6,050 I3 Other Azure Service Costs per month (charged per minute; billed monthly) $2,500 $2,750 $3,025 I4 12-Month-Commitment Discount (based on Azure resource consumption costs) 22.5% 22.5% 22.5% I5 Other Annual Costs, including system management $0 $0 $0 It Annual Azure Resource Consumption Costs (I2 + I3 + I5) * 12 $69,750 $76,725 $84,398 TABLE 10 Non-Risk-Adjusted Annual Organization Resource Maintenance Costs For Windows Azure Ref. Metric Calculation Year 1 Year 2 Year 3 J1 Average management time per week (hours) J2 Jt Estimated Windows Azure Management FTE hourly salary Annual organization resource costs for Windows Azure management $35 $35 $35 J1*52*J2 $18,200 $18,200 $18,200

20 20 premises). As shown in Table 10, resource time is estimated to cost about $20,000 per year. Long-term, because we ve been very happy with Azure, we want to move all our stuff over. ~ Vice president of information technology at a construction management firm Total Costs Table 11 shows the total of all costs as well as associated present values, discounted at 10%. Over three years, the composite organization expects costs to total a net present value of a little more than $315,000. TABLE 11 Total Costs (Non-Risk-Adjusted) Benefit Initial Year 1 Year 2 Year 3 Total Present value Initial planning and implementation costs ($67,200) $0 $0 $0 ($67,200) ($67,200) Annual Azure resource consumption costs Annual organization resource costs for Windows Azure management $0 ($69,750) ($76,725) ($84,398) ($230,873) ($190,227) $0 ($18,200) ($18,200) ($18,200) ($54,600) ($45,261) Total costs ($67,200) ($87,950) ($94,925) ($102,598) ($352,673) ($302,688)

21 21 FLEXIBILITY Flexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned into business benefit for some future additional investment. This provides an organization with the right or the ability to engage in future initiatives but not the obligation to do so. There are multiple scenarios in which a customer might choose to implement Windows Azure and later realize additional uses and business opportunities. Flexibility would also be quantified when evaluated as part of a specific project (described in more detail in Appendix B). Windows Azure provides a variety of options for future expansion of cloud strategies and delivery of new cloudbased services to employees, partners, and/or customers. Two areas identified during customer interviews are highlighted here: First, the two revenue-generating benefits, increased software sales and improved time-to-market, are examples of specific benefits that, with broader adoption, could become new revenue and profit opportunities. If all costs were doubled to meet new resource consumption and management task needs, it would add up to about $300,000 (three-year cumulative costs, undiscounted and not risk-adjusted). Migrating one or more applications could generate new revenue plus additional management cost savings. Doubling all associated benefits (as costs were doubled) could add up to nearly $1 million in added benefits over three years (again undiscounted and cumulative over three years). Second, Windows Azure provides a platform that could completely or nearly completely replace an organization s internal data center requirements. Daily management, support, patching, security, and other primary tasks would all be handled by Microsoft, and the organization could reduce more costs related to hardware, support, help desk, data center hosting, on-premises office rental, HVAC and power, resources, and a variety of other costs. Firms that use technology to enable their business can focus on their core business. RISK Forrester defines two types of risk associated with this analysis: implementation risk and impact risk. Implementation risk is the risk that a proposed investment in Windows Azure may deviate from the original or expected requirements, resulting in higher costs than anticipated. Impact risk refers to the risk that the business or technology needs of the organization may not be met by the investment in Windows Azure, resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefit estimates. The TEI includes a focus on risk to quantitatively capture potential investment and impact uncertainties by directly adjusting the financial estimates to provide a more accurate projection of the ROI analysis. In general, risks affect costs by raising the original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should be taken as realistic expectations since they represent the expected values considering risk. The following implementation risks that affect costs are identified as part of this analysis: Windows Azure resource consumption costs. Since these estimates are based on charges calculated to the minute of future, actual consumption of services, any TABLE 12 Cost And Benefit Risk Adjustments Costs Windows Azure resource consumption costs Windows Azure organization management resource costs Benefits Increased revenue with better software scalability and distribution Increased revenue from faster time-to-market Avoided costs from better marketing and business responsiveness Risk adjustment 5% 10% Risk adjustment 10% 5% 10%

22 22 increase or decrease in actual use could mean changes to these estimates. To be conservative, a low risk adjustment of 5% was added to these costs Composite organization resource costs in the event of Windows Azure outages. While Windows Azure provides a service-level agreement (SLA) that includes reimbursement of the subscription costs for unplanned outage time, that does not include resource costs of scrambling to implement a mitigation plan. Outages are rare there have been three significant outages of 8 or more hours over the past three years (as of August 2013) but possible and would require significant organization resource time in remediating issues, setting up alternative processes, etc. While the likelihood of a major outage is low, the IT and resource costs could be quite high. To provide a conservative estimate, 10% was added to Windows Azure management costs to cover the business and resource costs of possible Windows Azure outages. The following impact risks that affect benefits are identified as part of the analysis: Increased revenue with better software scalability and distribution enabled by Windows Azure. As highlighted previously, Windows Azure provides an SLA, but any compensation in the event of a longer outage won t cover lost revenue. While an outage of that length is unlikely, the impact is high, so this benefit has been adjusted (reduced) by 10%. Increased revenue from faster time-to-market. An Azure outage could affect revenue if it happens during a period of extra application revenue. Since that is not all of the time, the risk adjustment (reduction) is just 5%. Avoided costs from better marketing and business responsiveness. Marketing and coupon campaigns rely on a lot of people, partners, consumers, systems, etc. A breakdown in any area, even one completely unrelated to Windows Azure, would likely mean extra time dealing with coupon administration and data management. A 10% risk reduction has been applied to this benefit. Table 12 shows the values used to adjust for risk and uncertainty in the cost and benefit estimate, but readers are urged to apply their own risk estimates based the degree of confidence in their own cost and benefit estimates.