RESEARCH NOTE. Workplace Service. Web and Video Conferencing: The Hidden TCO Gold Mine

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1 Author: David Mario Smith, Jim Lundy Web and Video Conferencing: The Hidden TCO Gold Mine Summary: Web and video conferencing are on a collision course. Mobility and ease of use are front and center, but the hidden gold mine for enterprises is the TCO savings they can realize by rightsizing their Web and video conferencing platforms. Organizations are realizing significant savings by moving to cloudbased web and video conferencing options. In comparing the TCO of traditional video conferencing systems vs. software-based web and video conferencing solutions, organizations stand to save between 15% and 50% over 1-3 years. In this research note we discuss how to calculate and understand the TCO of web and video conferencing for optimal savings. In web and video conferencing, the cloud has democratized access to real-time collaboration, and has encouraged business buyers to procure those solutions. Web conferencing in particular is predominantly procured in the cloud, and by business units rather than by IT. Video is being consumed and created more and more on mobile devices and being stored in the cloud for ondemand reuse. Topic: Collaboration Issue: What are the best practices for managing collaboration inside and outside the enterprise? Note 1: Video Enabled Business Applications (VEBAs) VEBAs are purpose-built implementations of video that can be used repeatedly in specific business scenarios. They can capture information (communication, marketing, sports, security) or enable real-time collaboration to speed decisionmaking. Key VEBAs include: B2B and B2C meetings Corporate communications Webinars Learning Recruiting Security So along with cost savings, enterprises are also getting greater access to web and video conferencing technology across the business. Aragon refers to these use cases as video enabled business applications (see Note 1). When available to business users, VEBAs expand the overall use of video and thus provide more value to the business. The combination of lower TCO and greater business value creates an extremely compelling ROI story. Web and Video Conferencing Intersect Web and video conferencing have been traditionally covered as separate markets. However, although they have been procured separately, when enterprise buyers are looking at solutions, they often check off both requirements in RFPs and RFIs. This growing trend leads to the current overlap between web and video conferencing products. Copyright 2014 Aragon Research Inc. and/or its affiliates. All rights reserved. Aragon Research and the Aragon Research Globe are trademarks of Aragon Research Inc. All other trademarks are the property of their respective owners. This publication may not be distributed in any form without Aragon Research s prior written permission. The information contained in this publication has been obtained from sources believed to be reliable. Nevertheless, Aragon Research provides this publication and the information contained in it "AS IS," without warranty of any kind. To the maximum extent allowed by law, Aragon Research expressly disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Aragon Research and Advisory Services organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Aragon Research may include a discussion of related legal issues, Aragon Research does not provide legal advice or services and its research should not be construed or used as such. Aragon Research is a private company and its clients may include firms or financial institutions that have financial interests in entities covered by Aragon Research. Further information about the objectivity of Aragon Research can be found at aragonresearch.com

2 Video conferencing traditionally required hardware investments, while web conferencing has increasingly become a SaaS option. However, enterprises now take more of a software and services approach to a converged web and video solution. Even when they have already invested in hardware and room systems, enterprise buyers are looking to extend them via cloud options. Most unified communication and collaboration (UCC) providers now include converged web and video conferencing in their portfolios. Some, who also offer room-based video conferencing, provide integration with their room systems. Vendors such as Cisco, Huawei and Polycom that offer both high-end telepresence and traditional room-based systems also integrate their UCC clients with room systems. Disruption in this market is coming because video is better from desktops and mobile devices. We believe the biggest opportunity for video is now on desktops and mobile devices. This trend has significantly affected the high-end room-based video conferencing market. Many of these vendors, such as Cisco and Polycom, have made specific investments in software as a way to be more competitive. For example, Cisco is changing course to be more of a software and services provider. The Impact of Cloud and Real-Time Collaboration Major disruption is coming from a combination of cloud and realtime collaboration on mobile devices. This disruption is giving way to smaller, more flexible providers, such as Fuze, that can deliver web and video conferencing capabilities from the cloud to any device or conference room set-up at a fraction of the cost of a traditional room-based system. This changing dynamic competes with traditional on-premises and hardware-based delivery models. While business users have always procured web conferencing in the cloud via credit card, the addition of video to many of these solutions has disrupted the video conferencing market. These converged solutions have lowered the barrier to entry and, following consumer trends, bring web and video conferencing down-market to individual and business buyers who can procure solutions with their credit cards. TCO Is Misunderstood Calculating the total cost (TCO) of web and video conferencing can be a complex exercise, since there are often many elements involved, and providers often oversimplify the cost story. TCO is a 2014 Aragon Research Inc. and or its affiliates. All rights reserved. Page 2

3 highly misunderstood way to understand the real cost of a technology purchase. There are capital, staffing, licensing and operating costs to factor in (see Note 2). In web and video conferencing, traditional ROI measurements point to lower travel costs due to substituting virtual meetings for physical ones. However, a strategic TCO evaluation will show organizations not only cost savings against investments, but also potential softer benefits from increased productivity and operational efficiencies. Enterprise planners responsible for web and video conferencing purchases have to be very clear on the SLAs and what the maintenance costs will be. On-premises services for video may incur onsite and remote costs for maintenance. Onsite costs may be billed per hour. Traditional video conferencing vendors have complex pricing and licensing with very confusing terms that enterprise buyers find hard to understand. Always ask vendors to provide various price configurations based on company size, from small to large enterprise, including implementation and deployment strategies. Having specific price configurations gives buyers a better understanding of their options. It also provides a benchmark of what the level of investment will entail. Enterprise planners should focus on evaluating the main elements of TCO (see Table 1). Note 2: TCO Components When figuring out the TCO for web and video conferencing, you have to factor in several items. There are capital and operating costs to consider. Depending on your implementation strategy, the total cost will be different. Configurations: All desktop Mix of desktop and room systems Immersive room systems/telepresence Cloud services On-premises Hybrid on-premises and cloud Capital Costs: Hardware Gateways Peripherals Software Network infrastructure QoS Operational Costs: Bandwidth Maintenance Support Item Cost Range Comments Room Systems US $6, ,000 Video Media Server Recording Server MPLS IT Staff US $5,000-20,000 US $7, ,000 / month (Depends on rooms and screens) US $72,000 / year Cloud-based systems include this Newer cloud-based systems don t require as much MPLS Average US IT staff salary Software US $ / user / month Prices for services vary Voice teleconferencing Included in overall billing VOIP services can reduce this significantly Table 1: Range of Costs for Traditional Video Conferencing Systems 2014 Aragon Research Inc. and or its affiliates. All rights reserved. Page 3

4 Room Systems For room systems, which can also include high-end telepresence rooms, the costs can be high. Most video conferencing vendors will have tiers, starting with a base or low-level room cost all the way to high-end telepresence rooms. The room cost component is where cloud-based or software-based services can show tremendous savings on upfront capital costs, save the cost of peripherals. Another aspect of room systems is the political prioritization that happens in enterprises around which meetings need a video conferencing room. This limits their usefulness across the enterprise and ultimately the value they can provide. Adoption across users is negatively impacted. Having the conferencing technology more accessible and easy to use will drive far more value and support more use cases. Note 3: The impact of H.264 SVC and H.265 The potential cost savings related to these codecs should be looked at closely, since they cut bandwidth requirements by compressing video better. H.264 SVC is available widely now and we expect H.265 to be widely available in However, these codecs need to be licensed via the MPEG-LA consortium. Enterprises should verify that their conferencing providers have the necessary commercial licenses. While these codecs can help to partially reduce WAN /MPLS costs, enterprises should have providers carefully explain and document the QoS requirements for standard video delivery (including burst requirements). Video Media and Recording Servers The video server, which can also be the recording server and encoder, ranges in cost from low to high depending on capacity needed. List prices vary by vendor but average between $5,000 and $20,000. Again, this is where cloud offerings can show upfront savings by including this cost within the overall service, and not requiring dedicated hardware on-premises. MPLS and Network costs Network infrastructure costs, which include WAN bandwidth and QoS, can be expensive for large room systems. Video is very bandwidth-intensive and has a large network footprint. Typical network costs can range from US $7,800 to US $500,000 per month, depending on rooms and screens. Currently, enterprises that do not have optimized WANs need to have MPLS installed to ensure that telepresence and even low-end room systems do not experience jitter and call failure. As H.265 HD codecs come online, we expect MPLS costs to decline slightly due to reduced bandwidth demand (see Note 3). Even for low-end room systems, wide area networks need to be optimized to support video, or additional WAN connectivity (MPLS) needs to be procured. Documentation from video conferencing providers is clear about this, but often this cost is initially overlooked. Newer cloud-based solutions have MPLS built in, which removes most of that cost element from the buyer Aragon Research Inc. and or its affiliates. All rights reserved. Page 4

5 IT Staff and Resources Videoconference staffing has to factor in the full-time equivalents (FTEs) needed to run the system. Aragon estimates the average cost of a US-based FTE is around $72,000 per year. For video conferencing and for systems such as Microsoft Lync On- Premises, dedicated IT staff is needed to install and maintain these systems. Enterprises may need from 1 to as many as 20 FTEs just to manage and keep these systems running. In addition, professional services may be needed to plan and deploy. Depending on the deployment model, third-party professional services are usually required. Software and Licensing There are some very complex software licensing programs in traditional room-based video conferencing. The details of client and server licenses aren t always transparent to enterprise buyers. The current trend in licensing is toward per-user, per-month costs. These range from a low of US $8-10 per user/month up to over US $200 per user/month. It is vital to understand what the enterprise is getting: we have seen enterprises save up to 50% just for software by replacing an incumbent provider. Audio Teleconference Costs In many video conferencing deals, the vendor may include the audio costs in the billing. However, it s important to know exactly what that cost entails. Because travelling professionals and outside participants need to dial in from mobile or landline phones, it is common for web conferencing providers to sell audio packages. With average prices ranging from 7 to 10 cents per minute, the standard approach is to offer bundles. These plans can range from $45 for 500 minutes to $225 for 3000 minutes per month. Since spending on audio bridges can be very high, transitioning a majority of that traffic over to VoIP can lead to significant cost savings. There are emerging platforms offering free and unlimited VoIP capability with good enough quality for everyday use. Hardware-based Models Under Siege Enterprises often think they have to deploy a lot of hardware to make video conferencing work. With the rise of mobile devices and cloud services, hardware expenditures aside from peripherals like headsets, microphones, cameras and the devices themselves are greatly reduced Aragon Research Inc. and or its affiliates. All rights reserved. Page 5

6 TCO Example: Enterprise It is not uncommon for an enterprise to have several roombased video systems that may be integrated with either a cloud web conference provider and/or Microsoft Lync. If we examine the cost of deploying 4 room systems with 500 users vs. a web conferencing solution with 50 host licenses, the upfront cost difference can be substantial. What is significant is that web conference tools now support video good enough for many purposes that don t always need high-end room systems (see Table 2). Annual Cost Component On-Premises Telepresence Solution Web Conference Solution 4 Telepresence Units $72, Meeting Hosts (49.00 / month) - $29,600 MCU Hardware or Ports $23,000 - Recording Server $30,000 - Software User Licenses $300/user, one time) MPLS Data Charge (12 $300/MB / mo) $150,000 - $43,200 - IT Staff Salaries (4 vs. 1) $288,000 $72,000 Year 1 Total $606,200 $101,600 Table 2: Room-Based System vs. Web Conference Solution Costs While every organization is different, the above configurations are benchmarks for comparing the TCO of a hardware-based video solution vs. a web conferencing or software-based solution Aragon Research Inc. and or its affiliates. All rights reserved. Page 6

7 Aragon Advisory To measure total cost, detail both the operational and capital costs. Develop pricing configuration scenarios to determine the differences in costs based on users and overall company size. Request vendors provide benchmark price configurations of organizations of similar size to yours. Group web and video as one converged solution when evaluating offerings. Bottom Line The total cost for traditional video conferencing can be quite large due to the hardware expenditure, licensing and the full time equivalents or people resources it will take to manage it. Enterprise planners are increasingly looking at converged web and video conferencing in the cloud as a measure to reduce cost and complexity. In addition to significant cost savings, the benefit to the enterprise will be the greater accessibility to the technology that will increase adoption and bring more business value Aragon Research Inc. and or its affiliates. All rights reserved. Page 7