The Total Economic Impact Of Microsoft Office 365

Transcription

1 A Frrester Ttal Ecnmic Impact Study Prepared Fr Micrsft The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Prject Directr: Jnathan Lipsitz June 2011

2 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers TABLE OF CONTENTS Executive Summary... 2 Factrs Affecting Benefits And Csts... 6 Disclsures... 7 TEI Framewrk And Methdlgy... 8 Analysis... 9 Interview Highlights... 9 Csts Benefits Flexibility Risk Financial Summary Micrsft Office 365: Overview Appendix A: Cmpsite Organizatin Descriptin Appendix B: Ttal Ecnmic Impact Overview Appendix C: Glssary Appendix D: Cnsidering This Study in Cntext with Other Recently Published TEI Studies Appendix E: Endntes , Frrester Research, Inc. All rights reserved. Unauthrized reprductin is strictly prhibited. Infrmatin is based n best available resurces. Opinins reflect judgment at the time and are subject t change. Frrester, Techngraphics, Frrester Wave, RleView, TechRadar, and Ttal Ecnmic Impact are trademarks f Frrester Research, Inc. All ther trademarks are the prperty f their respective cmpanies. Fr additinal infrmatin, g t Abut Frrester Cnsulting Frrester Cnsulting prvides independent and bjective research-based cnsulting t help leaders succeed in their rganizatins. Ranging in scpe frm a shrt strategy sessin t custm prjects, Frrester s Cnsulting services cnnect yu directly with research analysts wh apply expert insight t yur specific business challenges. Fr mre infrmatin, visit Page 1

3 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Executive Summary Increasing numbers f small and medium-size businesses (SMBs) are lking t clud cmputing fr IT cst reductin, flexibility in delivering the latest tls t infrmatin wrkers, greater wrkfrce prductivity and cllabratin, reduced infrastructure cmplexity, and imprved IT security. A smaller business can nw affrd the benefits f enterprise-class IT infrastructure and the latest versins f sftware applicatins withut the traditinal financial hurdles (r radblcks). Remving the large upfrnt capital expenditures in favr f the predictability f paying n a metered r per-user basis changes an SMB s financial statement in gd ways. Nt having t tie up IT staff with mundane n premises hardware and sftware maintenance and upgrade chres freeing that talent fr higher-value-adding wrk while leveraging the IT IQ f a clud cmputing prvider is a cmpelling new ptin fr many business executives with IT challenges. Fr ne thing, if a clud service prvider can deliver a business-ready alternative mre securely, mre efficiently, and at a cmparable r lwer ttal cst f wnership, business wners and their IT staff shuld be investigating thse alternatives and redeplying IT resurces staff and funds t mre business-critical prjects. Furthermre, as the wrkfrce cntinues t becme mre remte, mre mbile, and mre reliant n multiple devices, the clud is the right architecture t reduce cmplexity and t deliver services t emplyees anywhere, anytime, and n any device. Tday s clud services have the pints f presence, the scale, and the fcus n mbile devices needed in tday s lcatin-flexible wrld; mst n-premises slutins d nt. Fr bth reasns, SMB rganizatins fcused n business grwth shuld ask the questin, Can we run this in the clud? first, and then lk fr reasns why a wrklad shuld remain n-premises. In December 2010, Micrsft cmmissined Frrester Cnsulting t examine the ttal ecnmic impact and ptential return n investment (ROI) that SMBs may realize by deplying Office 365, cnsisting f Office Prfessinal Plus (as a subscriptin), Exchange Online (with Frefrnt Online Prtectin fr Exchange), SharePint Online, and Lync Online. The purpse f this study is t prvide readers at these midsized cmpanies, defined fr this study as having fewer than 250 users, with a framewrk t evaluate the ptential financial impact f Office 365 n their cmpanies. This study des nt include all f the ptential benefits assciated with each individual prduct but describes the general benefits f the entire suite and the benefits f mving t Micrsft s clud slutin. Readers shuld refer t the individual, detailed Ttal Ecnmic Impact (TEI) studies fr Office 2010, SharePint 2010, Exchange 2010 and Lync 2010 which can be searched fr at Appendix D cntains a summary f these TEI studies. Office 365 delivered an ROI f 321% with a payback perid f 2 mnths fr the cmpsite # midsize rganizatin. Office 365 imprves prductivity, prvides IT peace f mind, and reduces TCO cmpared t a similar n premises implementatin. This study is based n the experience f seven SMBs that have mved all r part f their cmmunicatins and cllabratin cmputing int the clud. The interviews shwed that these cmpanies are enjying knwledge # Frrester created a cmpsite rganizatin that reflects the characteristics f the seven interviewed custmers. The financial results are fr the midsize cmpsite rganizatin. Page 2

4 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers wrker and mbile wrker prductivity gains as well as cst savings in specific categries that are described in detail in this study: redeplying time and talent frmerly tied up in implementatins; eliminating hardware and the need t maintain, upgrade r replace it; eliminating sftware license csts; cst savings n web cnferencing; and a hst f prductivity savings fr a range f rles thrughut the cmpany. Frrester fund that a cmpsite rganizatin, based n the seven cmpanies we interviewed, culd achieve benefits ver and abve the value accruing frm its existing n premises sftware capabilities. A cmpany that frmerly wrried abut its wn data security and large data strage cncerns can becme a cnsumer f services frm a specialist prvider such as Micrsft with the expertise and assurance t remve mst f thse wrries. One f the IT leaders interviewed fr this study summed it up when he tld us, Peace f mind is the biggest benefit fr me. Knwing that smene else is taking care f everything is great. Its knwledge wrkers will enjy new sftware features and upgrades as sn as they are available frm the vendr instead f mnths r years later. Csts fr the mve t Office 365 are predictable and spread ver time as perating expenses (pex) instead f capital expenditures, (capex) putting a rare smile n the face f the finance guy. Cmpany executives interviewed fr this study shared their mtivatins fr investing in Office 365 and their findings based n early results. Cst savings and financial cmpetitiveness tp the list; as we heard frequently. The cst savings that we see frm a clud-based slutin are reasn enugh t chse Office 365. It saves the cmpany mney and allws ur IT staff t wrk n business prblems and add mre value t the cmpany. Fr thers, the ratinale is multifaceted - a blend f financial and gd business sense leading t strnger cmpanies. One wner/funder tld us: I am a c-wner and als respnsible fr the verall management f ur servers. This is a cnstant cncern fr me since we dn t have a lt f IT staff. I am tied t my servers, and fr me t g n vacatin is rugh. When I put SharePint in the clud, it became easy fr me t g n vacatin. I culd have hired a lt f staff, but that wuld have been a mre expensive slutin. It is a big win t mve everything t the clud. Frrester s ne-n-ne interviews with seven Office 365 beta custmers and subsequent financial analysis fund that a cmpsite rganizatin based n these custmer cmpanies we interviewed can expect t experience the risk-adjusted ROI, internal rate f return (IRR), csts, and benefits shwn in Table 1. See Appendix A fr a descriptin f the cmpsite rganizatin. Table 1 Cmpsite Organizatin Three Year Risk-Adjusted ROI i ROI Payback perid Internal rate f return (IRR) Ttal benefits (PV) Ttal csts (PV) Net present value (NPV) NPV per user 321% 2 mnths 920% $1,167,564 ($277,084) $890,480 $5,936 Surce: Frrester Research, Inc. The time t deply the slutin and the payback perid, measured frm the g-live date, were bth substantially shrter than if a cmparable slutin had been built n premises. Benefits. The cmpsite rganizatin culd expect t see the fllwing benefits that represent value experienced by the interviewed cmpanies: Page 3

5 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Knwledge wrker prductivity gain. The features included in the 2010 slutins greatly imprve the prductivity f knwledge wrkers. All benefits seen in the n premises slutins are als realized in Office 365. $657,000 in increased prductivity was realized acrss all 150 emplyees. Mbile wrker incremental prductivity gain. In additin t the general prductivity gain, mbile wrkers see an incremental imprvement by being able t mre easily access IT resurces and cntent frm the rad. There are 50 rad warrir cnsultants wh achieved a prductivity gain f $168,750 ver three years. Eliminated hardware. As a clud slutin, Office 365 largely eliminates the need fr n premises hardware. Fr the cmpsite rganizatin, five physical servers and 1.5 terabytes f strage are eliminated. This, alng with maintenance and hsting csts, results in a savings f nearly $64,000 ver three years. Eliminated third party sftware. Office 365 includes sftware cmpnents fr which an rganizatin wuld typically pay extra. Fr the ROI analysis, third-party antivirus/anti-spam (FOPE]) and backup slutins were included. This ttaled apprximately $10,000 ver three years. Web cnferencing savings. Lync Online includes a web cnferencing slutin that can replace third-party slutins. $25,000 was saved ver the life f the study. Substituted Micrsft licenses. The Office 365 subscriptin mdel substitutes the need fr n premises Micrsft licenses. These include Office Prfessinal Plus licenses, server licenses, and Client Access Licenses (CALS). The substituted license csts are included s that nly the net increase in csts is included in the ROI analysis. This des nt represent any type f discunt r a reductin in the ttal csts paid t Micrsft. The substituted licenses ttal $125,000 in the initial perid f the study. Avided n premises planning and implementatin labr. The cst and effrt t implement a cmparable n premises slutin wuld be higher than fr Office 365. Fr the initial implementatin, mre than $35,000 in internal labr and prfessinal services csts were avided. Reduced IT supprt effrt. By utsurcing the administratin f infrastructure, the IT administratin effrt fr these slutins is largely eliminated. Additinally, the skills required by the remaining supprt staff are reduced, allwing fr less expensive resurces t be hired. This amunted t a savings f $206,350 ver three years. Reduced travel csts and crrespnding CO2 emissins. The rad warrirs described abve have been able t significantly reduce the number f trips t client sites. Additinally, anther seventy emplyees were able t eliminate sme travel. The ttal travel savings was $260,625 ver the life f the study. This resulted in a reductin f 47,000 kg f CO 2 emissins frm air travel. Imprved/latest functinality and easy upgrade. Office 365 prvides a clear and easy path t upgrade t the latest versins f the Micrsft slutins. Several f the cmpanies interviewed felt that always being n the latest versin gave them a cmpetitive advantage. Better custmer service and pprtunities t grw business. Many f the benefits abve translated int better custmer service. Additinally, freeing up business and IT users time allwed Page 4

6 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers them t fcus n grwing the business and decreased time-t-market with new prducts and services. Better cst predictability. The cmpanies interviewed fund it very valuable t have an accurate predictin f what IT expenditure wuld be fr the next year. This als greatly simplified the budgeting prcess. Reducing capex. Apprximately half f the cmpanies interviewed said it was imprtant t mve expenditures frm capex t pex, bth in terms f predictability and the ability t get the funding apprved by the CFO. Imprved IT security. The Office 365 slutin ensures that the latest security patches and updates are in place. Imprved IT security is als realized thrugh the use f wrld-class IT security slutins such as FOPE and a highly secure infrastructure prvided by Micrsft. Imprved archiving and cmpliance. Office 365 has imprved archiving thrugh the use f SharePint shared dcument stres and native archiving in Exchange Online that eliminates the need fr lcal Outlk.pst files. This has als reduced the time t address regulatry cmpliance inquiries. Imprved availability and disaster recvery. Micrsft prvides full gegraphic redundancy, smething that nne f the cmpanies interviewed culd cme clse t meeting n their wn. It als allws users t cme back t wrk much mre quickly if an ffice needs t be shut dwn. Csts. The cmpsite rganizatin experienced the fllwing csts: Initial planning and implementatin/migratin labr. The amunt f effrt t plan and implement Office 365 is lw cmpared with an n premises slutin. Sme f the cmpanies interviewed cmpleted all activities with in-huse labr, while sme used a cmbinatin f in huse resurces and prfessinal services. The cmpsite rganizatin used prfessinal services t help design the slutin and create the migratin prcess, with mst f the wrk being cmpleted by inhuse resurces. The initial perid implementatin csts were nearly $17,000. Hardware. Fr single sign-n (SSO) and identity federatin, an Active Directry Federatin Services (ADFS) server is required. The server, alng with three years f maintenance and in-huse hsting, csts apprximately $10,000. Micrsft subscriptin and licenses. The Office 365 E3 slutin is ffered at $24 per mnth per user. If SharePint will be used t cllabrate and share dcuments with custmers and ther external users, a separate subscriptin is required. Fr the three years f the study, the ttal csts paid t Micrsft were arund $133,000. This was $8,000 mre than fr a similar n premises slutin. Training. Training end users n Office 365 is very much the same as the training needed fr a cmparable, new n premises slutins. There are different appraches t training ranging frm prviding basic dcumentatin t users all the way up t face-t-face training sessins. The interviewed rganizatins typically arranged training fr IT resurces that will be supprting Office 365. Ttal training csts fr end users and IT was less than $13,000 in the initial perid. Page 5

7 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Onging administratin. Administering Office 365 requires less effrt than a cmparable n premises slutin. Fr the cmpsite rganizatin 0.75 full-time equivalent (FTE) resurces were required t supprt wrkers in the US and Eurpe. This amunts t $146,250 ver the life f the study. Additinal bandwidth. Office 365 may require additinal bandwidth t be added. Fr the cmpsite rganizatin, an additinal T1 line was added at the headquarters. This cst $15,000 ver three years. Figure 1 Cmpsite Organizatin Three Year Risk-Adjusted Cumulative Cash Flw $1,000,000 $800,000 $600,000 $590,808 $890,480 $400,000 $200,000 $0 ($200,000) ($37,870) $267,902 Initial Year 1 Year 2 Year 3 Csts (PV) Benefits (PV) Cumulative cash flw (PV) Surce: Frrester Research, Inc. Factrs Affecting Benefits And Csts Table 1 illustrates the risk-adjusted financial results the cmpsite rganizatin can expect t achieve. The risk-adjusted values take int accunt any ptential uncertainty r variance that exists in estimating the csts and benefits, which prduces mre cnservative estimates. The fllwing factrs may affect the financial results that an rganizatin may experience: Number f users. Office 365 subscriptin csts are calculated n a per-user basis. Additinally, a greater number f users may require mre data t be migrated, which wuld lengthen the implementatin perid and cst. Cnversely, the larger the user base, the larger the benefits that shuld be realized. Fr prductivity-related benefits, larger rganizatins shuld see significantly larger gains that wuld increase the ROI and NPV. Office 365 slutin cmpnents used. An rganizatin may decide nt t implement all f the Office 365 slutin cmpnents Office Prfessinal Plus, Exchange Online, SharePint Online, and Lync Online. This will reduce the mnthly subscriptin cst but can als result in sme f the benefit Page 6

8 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers categries discussed in the study nt being realized. The reader shuld take int cnsideratin which, if any, benefits wuld nt be realized if the entire suite is nt being implemented. Disclsures The reader shuld be aware f the fllwing: The study is cmmissined by Micrsft and delivered by the Frrester Cnsulting grup. Frrester makes n assumptins as t the ptential ROI that ther rganizatins will receive. Frrester strngly advises that readers shuld use their wn estimates within the framewrk prvided in the reprt t determine the apprpriateness f an investment in Micrsft Office 365. Micrsft reviewed and prvided feedback t Frrester, but Frrester maintains editrial cntrl ver the study and its findings. The custmer names fr the interviews were prvided by Micrsft. Page 7

9 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers TEI Framewrk And Methdlgy Intrductin Frm the infrmatin prvided in the interviews, Frrester has cnstructed a Ttal Ecnmic Impact (TEI) framewrk fr thse rganizatins cnsidering implementing Micrsft Office 365. The bjective f the framewrk is t identify the cst, benefit, flexibility, and risk factrs that affect the investment decisin. Apprach And Methdlgy Frrester tk a multistep apprach t evaluate the impact that Micrsft Office 365 can have n an rganizatin (see Figure 2). Specifically, we: Interviewed Micrsft marketing and sales persnnel and Frrester analysts t gather data relative t Office 365 and the marketplace fr clud-based cllabratin and prductivity slutins. Interviewed seven midsize rganizatins currently in beta with Micrsft Office 365 t btain data with respect t csts, benefits, and risks. Designed a cmpsite rganizatin based n characteristics f the interviewed rganizatins (see Appendix A). Cnstructed a financial mdel representative f the interviews using the TEI methdlgy. The financial mdel is ppulated with the cst and benefit data btained frm the interviews as applied t the cmpsite rganizatin. Figure 2 TEI Apprach Perfrm due diligence Cnduct custmer interviews Design cmpsite rganizatin Cnstruct financial mdel using TEI framewrk Write case study Surce: Frrester Research, Inc. Frrester emplyed fur fundamental elements f TEI in mdeling Micrsft Office 365: 1. Csts. 2. Benefits t the entire rganizatin. 3. Flexibility. 4. Risk. Given the increasing sphisticatin that enterprises have regarding ROI analyses related t IT investments, Frrester s TEI methdlgy serves the purpse f prviding a cmplete picture f the ttal ecnmic impact f purchase decisins. Please see Appendix B fr additinal infrmatin n the TEI methdlgy. Page 8

10 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Analysis Interview Highlights A ttal f seven interviews were cnducted fr this study, invlving representatives frm the fllwing cmpanies (Micrsft custmers based in the US and Eurpe): 1. A rapidly grwing graphic design shp with 65 emplyees, mst f wh wrk frm hme. One f the c-funders serves as the IT directr. The cmpany was using Exchange Online as part f Micrsft s Business Prductivity Online Services (BPOS) ffering and is migrating frm SharePint 2010 n premises and LiveMeeting. 2. A mrtgage riginatin cmpany with 200 emplyees. The cmpany was in the middle f a BPOS migratin when it decided t adpt Office 365 instead. It was using the 2007 versins f Office Prfessinal (n premises), Exchange Online, and a limited deplyment f SharePint hsted by a third party vendr. 3. A Eurpean safety engineering cnsulting firm with 100 emplyees and mre than 700 cnsulting prjects running simultaneusly arund the wrld. The cmpany is mving frm n premises versins f Exchange 2010, Office Prfessinal 2010, SharePint 2010, and Office Cmmunicatins Server 2007 R2 (OCS 2007 R2) t Office A neurlgy medical practice with six dctrs and 38 emplyees. The practice has five satellite ffices and als serves internatinal patients frm the Middle East. The main impetus fr mving t Office 365 was t use Lync Online as a telemedicine slutin. It is als cnsidering mving frm n premises Exchange and Office Prfessinal 2003 t Office A small manufacturing cmpany with 50 emplyees spread amng ffices in fur Eurpean cuntries. The cmpany uses Exchange Online as part f BPOS and Office Prfessinal 2010 deplyed n lcal machines. It des nt use Lync r SharePint but is cnsidering adding thse in the future. 6. A sftware-as-a-service (SaaS) cmpany that prvides bradcast text and vice messaging services fr large cmpanies. It has three ffices and tw data centers. The cmpany will be using Office 365 fr Exchange, mving frm Exchange Online as part f BPOS. It als uses the n premises versins f Office Enterprise, SharePint, and Lync These may be migrated t Office 365 in the future. 7. A 25-persn, UK-based hsting and digital design agency. The cmpany is replacing a nn- Micrsft slutin with Office 365 and migrating frm BPOS fr OCS t Lync Online. It will als be adding the Office 365 versin f SharePint. The seven interviews uncvered the fllwing salient pints: Reducing the ttal cst f wnership (TCO) fr prductivity and cllabratin tls was the primary reasn the interviewed cmpanies chse t implement Office 365. Page 9

11 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers The cst savings that we see frm a clud-based slutin are reasn enugh t chse Office 365. It saves the cmpany mney and allws ur IT staff t wrk n business prblems and add mre value t the cmpany. We started investigating ur ptins and fund that Micrsft s nline slutin can reduce ur csts. I lked at running a basic set f servers, and at first thught, this wuld be the right way t g. When I tk int cnsideratin all f the hardware and licensing csts, as well as the cmplexity, I realized I didn t want t manage it all myself and that Office 365 was the right slutin. Office 365 s ability t simplify the administratin f IT was very appealing t managers at smaller cmpanies and prvides greater assurance f cntinuity and security cmpared with a cmpany s wn in-huse capabilities. Peace f mind is the biggest benefit fr me. Knwing that smene else is taking care f everything is great. I want t reduce cmplexity and mve cmmdity services t the clud. Since 100% f ur Internet technlgy is based n Micrsft, it made sense t lk at Office 365. We d nt have enugh technical expertise in-huse t adequately supprt ur infrastructure. We had a single Exchange 2003 server that had been deplyed a very lng time and was nt well maintained. I needed t find a way t migrate t the latest slutin but manage it with limited staff. I am a c-wner and als respnsible fr the verall management f ur servers. This is a cnstant cncern fr me since we dn t have a lt f IT staff. I am tied t my servers, and fr me t g n vacatin is rugh. When I put SharePint in the clud, it became easy fr me t g n vacatin. I culd have hired a lt f staff, but that wuld have been a mre expensive slutin. It is a big win t mve everything t the clud. Cmpanies that are cmmitted t the clud as part f their future fund that Office 365 was an imprtant part f the verall slutin. Micrsft s lng-term visin is t have 100% parity between their n premises and clud slutins. When this is achieved, wh in their right mind wuld want t keep things n premises? We believe mst small business will be mving t the clud ver the next 10 years, and that they will g with ne f the main sftware vendrs. It is nt nly imprtant t be n the right technlgy path, but t lk fr pprtunities the clud prvides. We are currently figuring ut hw t take advantage f that. Imprved perability between the varius Micrsft slutins as well as ther systems in the clud was als very imprtant. Page 10

12 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Office 365 met my wish fr perfect harmnizatin f all services. The infrastructure results in the perfect rchestratin f Lync, Office, Exchange, and SharePint all wrking tgether. The main reasn we are cmmitted t clud services is the ability f everything t wrk tgether. Office 365 plays nicely with ur hsted ERP slutin. Existing familiarity with Micrsft slutins made Office 365 a cmpelling chice. We dve int ur ptins and after a half day f research realized that ur familiarity with Exchange made Office 365 the right chice. Because ur users and IT staff already knw hw t use the Micrsft slutins, adptin f Office 365 will be very easy. Office 365 makes it easier t serve custmers and emplyees at remte lcatins. Rural patients, particularly thse with chrnic cnditins, n lnger need t rutinely drive lng distance fr fllw-up visits. Lync shuld create a sense f cmmunity between emplyees wrking at multiple lcatins. We dn t have a primary lcatin where everyne cmes in t wrk. Mst peple wrk frm hme r client lcatins. That is why have a clud slutin is s appealing. It reaches ut t everyne and remves barriers. We tried telemedicine with OCS and realized it wuld nt wrk. Lync has the high reslutin we need t wrk with dctrs and patients in far away lcatins, including Saudi Arabia and Peru. Office 365 strengthens businesses peratins and prcesses. We fund Office 365 t be a very pwerful way t get a business started very fast. We have the same enterprise-level services that a large crpratin wuld have. It makes it easier fr us t cmpete. Technlgy is ne f ur differentiatrs. We invest mre in technlgy than facilities. Our engineers run meetings n custmers cnstructin sites, s Office 365 supprts ur daily business prcesses. Cmpsite Organizatin Based n the interviews with the seven existing midsize custmers prvided by Micrsft, Frrester cnstructed a TEI framewrk, a cmpsite cmpany, and an assciated ROI analysis that illustrates the areas financially affected. The cmpsite rganizatin that Frrester synthesized frm these results represents a USbased IT cnsulting rganizatin with small but grwing peratins in Eurpe. There are a ttal f 150 emplyees, all f whm are knwledge wrkers using Office 365. Fifty emplyees wrk in the headquarters, 70 wrk between fur ther US ffices r frm hme, and 30 wrkers are based in Eurpe. Of the cnsultants, 50 are classified as rad warrirs and spend mst f their time traveling t custmer sites. Page 11

13 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Prir t implementing Office 365, the rganizatin was n Exchange 2003 and Office Prfessinal There was n prir use f SharePint r Lync/OCS. The implementatin f the previus slutin tk place in A mre detailed descriptin f the cmpsite rganizatin can be fund in Appendix A. Framewrk Assumptins Table 2 prvides the mdel assumptins that Frrester used in this analysis. Table 2 Mdel Assumptins Ref. Metric Value A1 Annual fully burdened cst* per IT FTE resurce $65,000 A2 Annual fully burdened cst* per mbile wrker $93,750 A3 Annual fully burdened cst* per knwledge wrker (acrss all rles in the rganizatin) $60,000 A4 Number f users n Office *Fully burdened cst includes insurance, paid vacatin, and any ther cst brne by the rganizatin. Surce: Frrester Research, Inc. The discunt rate used in the PV and NPV calculatins is 12%, and time hrizn used fr the financial mdeling is three years. Organizatins typically use discunt rates between 8% and 16% based n their current envirnment. Readers are urged t cnsult with their respective cmpany s finance department t determine the mst apprpriate discunt rate t use within their wn rganizatins. All calculatins in this study are dne in US dllars even thugh sme f the custmers interviewed use the eur as their primary currency. Sme dllar values presented in this study have been runded t the nearest whle cent r dllar. Therefre, sme f the calculatin results in the subsequent tables may nt exactly match the results if the reader fllws the frmulas and values presented. Csts Office 365 largely fllws a SaaS cst mdel, with many cst categries being replaced by a service subscriptin. Fr sme f the cst categries, there is a crrespnding benefit. These are referenced in the individual cst areas and fully explred in the Benefits sectin. Many f the csts can vary widely depending n the size f the reader s rganizatin. Therefre, the reader is strngly encuraged t use this mdel as a basis fr determining the TEI t their wn rganizatin. Initial Planning And Implementatin / Migratin Labr The custmers were all participating in an Office 365 beta pilt at the time f being interviewed. Based n this experience, they were able t estimate the level f effrt fr planning, pilting, and implementing Office 365. The typical planning and pilting effrt invlved fur t eight hurs per week, lasting frm tw t six weeks. Page 12

14 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Once the necessary Office 365 cnfiguratins were cmpleted, users were migrated in blcks ver a series f nights r weekends. The duratin f the migratin depends n the number f users and the amunt f data t be migrated, bth mailbxes and SharePint files. Sme f the cmpanies used prfessinal services, and thers cmpleted the effrt slely with in-huse resurces. The deciding factr was hw much time the staff had available t wrk n the migratin. Fr a midsize cmpany, prfessinal services are typically used t define the slutin and a migratin prcess. Inhuse resurces then manage the migratin. Many Micrsft partners are develping fixed-price migratin fferings, similar t the BPOS migratin services they ffered. Fr the cmpsite rganizatin, the effrt was split between multiple resurces. These amunted t ne FTE resurce ver tw mnths. In additin, prfessinal services were used fr design and cnfiguratin, as well as defining the migratin prcess. One FTE x 2 mnths x $5,417 per mnth is equal t $10,833 f internal effrt. This plus $6,000 fr prfessinal services ttals $16,833 in planning and implementatin labr csts. There is a crrespnding benefit fr the avided incremental effrt t implement a cmparable n premises slutin. This is discussed in the Benefits sectin f this study. Table 3 Initial Planning And Implementatin/Migratin Labr Ref. Metric Calculatin Initial B1 Number f internal IT FTEs 1 B2 Number f mnths 2 B3 Mnthly fully burdened cst A1/12 mnths $5,417 B4 Prfessinal services $6,000 Bt Initial planning and implementatin/migratin labr (B1*B2*B3)+B4 $16,833 Surce: Frrester Research, Inc. Hardware While Office 365 allws an rganizatin t eliminate hardware, there is still a need fr an ADFS server if a cmpany wishes t implement identity federatin and SSO. Fr a smaller rganizatin, this typically requires ne server. The technical requirements are nt great, s a middle-f-the-rad server cnfiguratin will suffice. The server can be hsted n premises r at a clcatin-type facility. Mst f the cmpanies interviewed are hsting n-site. The cmpsite rganizatin hsts the server n-site and allcates verheads fr pwer, space, cling, etc. These servers wuld be replaced every three t fur years, fllwing the rganizatin s regular refresh cycle. The crrespnding benefit fr the avidance f Exchange, Lync, and SharePint server installatin is cvered in the Benefits sectin f this study. Page 13

15 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Table 4 Hardware Ref. Metric Calculatin Initial Year 1 Year 2 Year 3 Ttal C1 Number f ADFS servers 1 C2 Cst per server $7,000 C3 Maintenance (C1 * C2) [initial perid]*10% $700 $700 $700 C4 In-huse hsting csts C1[initial perid]*$200 $200 $200 $200 Ct Hardware (C1*C2)+C3+C4 $7,000 $900 $900 $900 $9,700 Surce: Frrester Research, Inc. Micrsft Subscriptin And Licenses Office 365 fr midsize custmers has a very straight frward pricing mdel. Depending n the services included Office Prfessinal Plus, Exchange Online, SharePint Online, and Lync Online a mnthly per user subscriptin cst is incurred. Fr the cmpsite rganizatin, the Office 365 E3 ffering was chsen, which includes all f these cmpnents. The crrespnding mnthly cst was $24 per user. If a cmpany wishes t make SharePint available t external users, i.e., custmer extranets, there is a small charge fr this. The first 50 external users are free, and the price then increases in 50 user blcks. The cmpsite rganizatin is creating custmer extranets early n in rder t facilitate greater cllabratin and t reduce the travel required. Table 5 Micrsft Subscriptin And Licenses Ref. Metric Calculatin Initial Year 1 Year 2 Year 3 Ttal D1 Office 365 subscriptin csts $24*150 users[a4]*12 mnths $43,200 $43,200 $43,200 D2 SharePint external user subscriptin $1,200 $1,200 $1,200 Dt Micrsft subscriptin and licenses D1+D2 $44,400 $44,400 $44,400 $133,200 Surce: Frrester Research, Inc. Page 14

16 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Training User training requirements fr Office 365 wuld be the same fr the n premises slutin, and the level required depends n what versin the users are migrating frm, i.e., Office Prfessinal Nnetheless, user training csts are included s the reader has a cmplete TCO picture. The apprach cmpanies tk t prvide training varied greatly. Sme used external trainers fr live sessins, sme used internal trainers, and thers made all training available thrugh nline tutrials. The cmpsite rganizatin was very practive in prviding training s that user prductivity benefits culd be realized early n. This training was primarily inpersn training sessins alng with nline training tls There is sme specialized training n Office 365 administratin needed by the IT rganizatin. The number f individuals wh can benefit frm this training can vary based n the size f the cmpany, but the cnsensus number fr a cmpany the size f the cmpsite rganizatin was ne IT resurce wh culd then train clleagues. Table 6 Training Ref. Metric Calculatin Initial Year 1 Year 2 Year 3 Ttal E1* IT training $5,000 $0 $0 $0 E2* End user training $7,500 $0 $0 $0 Et* Training E1+E2 $12,500 $0 $0 $0 $12,500 *These reference numbers are rw designates and shuld nt be cnfused with Office 365 slutin sets. Surce: Frrester Research, Inc. Onging Administratin The nging administratin f Office 365 is significantly less than fr a cmparable n premises slutin. The level f effrt varies by the number f users and which slutins are being used. Fr the cmpanies interviewed, the expected level f effrt was between 0.5 and ne FTE. Fr the cmpsite rganizatin, 0.75 f an FTE was included, with the majrity f the wrk cmpleted by IT staff in the US and very limited effrt in Eurpe. The majrity f the effrt is spent in user accunt management, cnfiguratin f Office 365, and upkeep f the ADFS servers. The administratin effrt savings is cvered in the Benefits sectin f this study. Page 15

17 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Table 7 Onging Administratin Ref. Metric Calculatin Initial Year 1 Year 2 Year 3 Ttal F1 Number f IT FTEs F2 Annual IT fully burdened cst A1 $65,000 $65,000 $65,000 Ft Onging administratin F1*F2 $48,750 $48,750 $48,750 $146,250 Surce: Frrester Research, Inc. Additinal Bandwidth Nne f the cmpanies interviewed had yet determined if any additinal bandwidth wuld be required. Micrsft prvides many tls and whitepapers fr calculating bandwidth needs. The additinal bandwidth required depends n bth the size f the pipe already in place and the expected future usage. One f the cmpanies interviewed, which is als a Micrsft cnsulting cmpany, said that: I haven t had a client yet that has needed t increase bandwidth fr BPOS [the predecessr t Office 365]. If there is a situatin where an upgrade is needed, it is usually a cmpany that has a T1 and needs t add anther ne (prbably $500 t $700 a mnth). If it is a larger cmpany, perhaps it needs t mve frm a few T1s t a fiber cnnectin (100 MB). A 100 MB cnnectin can be had in my city fr $700 t $1,000 a mnth. Fr the cmpsite rganizatin, the cnservative assumptin was made that an additinal T1 line wuld be required fr the headquarters. A placehlder value f $5,000 per year fr a T1 line was included. The reader shuld cnsider any additinal bandwidth requirements fr each f their ffices. Table 8 Additinal Bandwidth Ref. Metric Calculatin Initial Year 1 Year 2 Year 3 Ttal G1 Additinal bandwidth $0 $5,000 $5,000 $5,000 Gt Additinal bandwidth G1 $0 $5,000 $5,000 $5,000 $15,000 Surce: Frrester Research, Inc. Ttal Csts Ttal csts incurred by the cmpsite rganizatin t implement and manage the Office 365 slutin are shwn in Table 9 belw. Page 16

18 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Table 9 Ttal Csts (Nn-Risk-Adjusted) Ref. Csts Initial Year 1 Year 2 Year 3 Ttal Bt Initial planning and implementatin/migratin labr ($16,833) ($16,833) Ct Hardware ($7,000) ($900) ($900) ($900) ($9,700) Dt Micrsft subscriptin and licenses ($44,400) ($44,400) ($44,400) ($133,200) Et Training ($12,500) ($12,500) Ft Onging administratin ($48,750) ($48,750) ($48,750) ($146,250) Gt Additinal bandwidth ($5,000) ($5,000) ($5,000) ($15,000) Ttal ($36,333) ($99,050) ($99,050) ($99,050) ($333,483) Surce: Frrester Research, Inc. Benefits The first half f the Benefits sectin details the quantitative benefits f the cmpsite rganizatin included in the ROI analysis. The secnd half describes the qualitative benefits that the interviewed custmers experienced but cannt be fully described in the financial mdel. The qualitative benefits are ptentially as valuable as the quantitative nes and shuld be taken int cnsideratin when analyzing the ttal ROI realized by implementing Office 365. Knwledge Wrker Prductivity Gain Office 365, like the n premises slutin, prvides many tls fr increased prductivity in SharePint, Lync, and Office Prfessinal. Features in Lync Online that cntribute t prductivity gains that were cited by the cmpanies interviewed include Presence, IM, and unified cmmunicatins. Fr SharePint Online, interviewees talked abut easier cllabratin and dcument search/retrieval. Outlk was especially imprtant fr prductivity gains in Office Prfessinal. Increasing t a 25 GB mailbx will save users time frm having t regularly delete items t free up space. In additin t cnsuming time, this activity is als a surce f annyance fr users. Users als see prductivity gains frm features such as scheduling assistant and cnversatin view. Belw is a sampling f qutes frm the interviewed custmers describing the imprtance f increased prductivity and ways in which it will imprve. Frm a user perspective, the prductivity and cllabratin imprvements frm the integratin f Lync with SharePint will be huge. I can t even put a value n that. It s priceless in my pinin. All f ur users will see prductivity gains. The prductivity gain frm SharePint is insane. Page 17

19 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Everyne being able t wrk in a cllabrative envirnment is essential. We can wrk smarter and fewer hurs. We are a knwledge cmpany. IT has t make us mre prductive, smarter. Withut Lync we have n mechanism fr cmmunicating acrss the cmpany except phnes and shuting. Lync will be a huge imprvement in terms f time savings. Lync will be a great successr t Live Meeting. Prject managers use Live Meeting 3 t 4 hurs a day nw, and Lync will take that even further. Seeing wh is available t speak instead f sending is invaluable. A smaller benefit is realized in Year 1 f the study as users becme mre familiar with the Office 365 slutins. Table 10 Knwledge Wrker Prductivity Gain Ref. Metric Calculatin Year 1 Year 2 Year 3 Ttal H1 H2 H3 H4 Exchange (inbx management, cnversatin view, etc.) - minutes saved per week Lync Online (IM, Presence, unified cmmunicatin) - minutes saved per week SharePint Online (dcument search and cllabratin) - minutes saved per week Office Prfessinal Plus (cauthring, OneNte, and enhanced features) minutes saved per week H5 Hurly time savings per week (H1+H2+H3+H4)/60 minutes H6 Wrk weeks per year H7 Number f users A H8 Average hurly fully burdened cst per knwledge wrker A3/2,000 hurs $30.00 $30.00 $30.00 H9 Ttal ptential prductivity gain H5*H6*H7*H8 $198,000 $558,000 $558,000 H10 Percent captured 50% 50% 50% Ht Knwledge wrker prductivity gain H9*H10 $99,000 $279,000 $279,000 $657,000 Surce: Frrester Research, Inc. Page 18

20 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Nte n percent captured: Frrester assumes that fr knwledge wrkers, nly a prtin f the time gained frm imprved prductivity ranging frm 50% t 75% - will actually be realized by the rganizatin; nt all f the time saved will be cnverted int prductive utput. This percentage is higher fr wrkers engaged in mre task- and prcess-related activities, and lwer fr wrkers in knwledge-intensive rles. Mbile Wrker Incremental Prductivity Gain Mst f the interviewed cmpanies discussed the ways in which Office 365 will imprve the prductivity f wrkers n the rad. This wuld mainly be achieved by allwing them t access crprate IT resurces mre easily, cllabrating with SharePint, and utilizing Lync Online. This is incremental t the general prductivity gains discussed abve. Sme cmments heard include: Office 365 will prvide tls t engineers s they can wrk well and be mre prductive while traveling. They can als interact better with custmers, getting things dne mre quickly. Fr mbile wrkers, if they have the Internet, they have and everything else readily available t them. This is much mre efficient than using a VPN. Fr the cmpsite rganizatin, 50 rad warrir senir cnsultants are cnstantly visiting clients. It was cnservatively assumed that 1 hur per week is regained fr ther uses and that nly half f this is realized in Year 1 as users becme mre familiar with the Office 365 slutin. Readers are encuraged t think abut hw many mbile users face difficulties that can be slved by Office 365 and what type f prductivity gain can be expected. Table 11 Mbile Wrker Incremental Prductivity Gain Ref. Metric Calculatin Year 1 Year 2 Year 3 Ttal I1 Number f rad warrir cnsultants I2 Additinal prductivity gain minutes per week I3 Wrk weeks per year I4 Average hurly fully burdened cst (mbile wrker) A2/2,000 $46.88 $46.88 $46.88 I5 Ttal ptential prductivity gain (I1*I2*I3*I4)/60 minutes $56,250 $140,625 $140,625 I6 Percent realized 50% 50% 50% It Mbile wrker incremental prductivity gain I5*I6 $28,125 $70,313 $70,313 $168,750 Surce: Frrester Research, Inc. Page 19

21 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Eliminated Hardware Office 365 remves the need fr Exchange, SharePint, and Lync servers. It als remves the need fr a large strage implementatin SAN and/r direct attach. The size f the n premises infrastructure estate depends n the number f users, lcatins, mailbx size, etc. Additinally, Micrsft ffers 25 GB mailbxes, which wuld be very difficult fr a cmpany t match. Creating an infrastructure with full gegraphic redundancy like the ne Micrsft ffers wuld als add significant cst. The amunt f hardware that did nt have t be implemented varied acrss the interviewees. In terms f servers, the range was frm tw t eight servers, the frmer being fr Exchange nly and the latter fr an installatin f Exchange, OCS 2007 R2 and SharePint. One interviewee said: My servers are maxed ut. If I had t expand my infrastructure t supprt Lync and SharePint, it wuld require building ut a full data center. This wuld be a very large investment. The cmpsite rganizatin wuld have deplyed a ne-tier slutin fr Lync and SharePint, cnsisting f ne server fr each. Virtualizatin may be used t create a multitier installatin and redundancy acrss the servers. This was nt dne by the cmpsite rganizatin. Three exchange servers wuld be required t supprt in the US and Eurpe. If a cmpany wanted t have any disaster recvery capabilities, additinal servers wuld be required. The cmpsite rganizatin des nt have additinal servers at a disaster recvery facility. The cmpsite rganizatin was ffering 1 gigabyte mailbxes prir t Office 365. T make 25 gigabyte mailbxes available wuld have required a significant investment in additinal strage. Every cmpany interviewed said that they wuld nt be able t prvide such a large mailbx but that having a mailbx f this size is f great benefit t the emplyees and rganizatin. The added strage wuld mst likely be a cmbinatin f SAN fr SharePint and direct attach fr Exchange. Fr simplicity, a single price per terabyte was used acrss the bard. Page 20

22 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers Table 12 Eliminated Hardware Ref. Metric Calculatin Year 1 Year 2 Year 3 Ttal J1 J2 J3 Number f Exchange servers Number f SharePint servers Number f Lync servers J4 Cst per server $7,000 J5 Strage nt added (TB) - Exchange and SharePint J6 Cst per terabyte $5,000 $5,000 $5,000 J7 Ttal hardware csts ([J1+J2+J3)*J4)+(J5*J6) $42,500 $0 $5,000 J8 J9 Avided maintenance In-huse hsting csts Sum J7 [thrugh current year]*10% $4,250 $4,250 $4,750 (J1+J2+J3)*$200 $1,000 $1,000 $1,000 Jt Eliminated hardware J7+J8+J9 $47,750 $5,250 $10,750 $63,750 Surce: Frrester Research, Inc. Eliminated Third Party Sftware Office 365 includes sme features that wuld therwise be purchased separately typically frm third party vendrs. Examples given by interviewed custmers include antivirus/anti-spam, enterprise mailbx search, backup, and archiving. The cmpsite rganizatin nly had antivirus/anti-spam (FOPE) and backup slutins, s these csts are included in the study. Anther area t pssibly eliminate third-party sftware and slutin csts is vic systems. Exchange Online includes a full hsted vic slutin fr n-premises phne systems. Custmers wh integrate their n-premises phne systems with Exchange Online can retire their n-premises vic systems and eliminate the assciated maintenance and backup csts. Nne f the interviewed custmers had implemented this ptin, but a cuple were cnsidering it. In additin t the cst savings, the reader shuld als cnsider the slutin capabilities. As an example, ne f the cmpanies interviewed nly kept ne day f backed up in a readily accessible frmat. After that, it Page 21

23 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers was transferred t a tape drive, making recvery mre time-cnsuming. Reducing the number f vendrs that need t be cntracted with als simplifies the prcurement and accunts payable prcesses. Table 13 Eliminated Third-Party Sftware Ref. Metric Calculatin Year 1 Year 2 Year 3 Ttal K1 Antivirus/anti-spam 150 users[a4]*$1/mnth*12 $1,800 $1,800 $1,800 K2 backup agent ($1,000*J1)[Year 1 nly]+20% $3,600 $600 $600 Kt Eliminated third-party sftware K1+K2 $5,400 $2,400 $2,400 $10,200 Surce: Frrester Research, Inc. Web Cnferencing Savings Lync Online prvides a full-feature web cnferencing slutin that will result in less usage f third-party web cnferencing slutins in favr f integrated, simplified multimdal cmmunicatins. The benefit is less in Year 1 as users get accustmed t Lync Online and migrate away frm the incumbent web cnferencing slutin. This migratin can als include eliminating cases in which an emplyee uses a credit card t purchase a web cnferencing slutin fr their wn use. Table 14 Web Cnferencing Savings Ref. Metric Calculatin Year 1 Year 2 Year 3 Ttal L1 Web cnferencing slutin fees $5,000 $10,000 $10,000 Lt Web cnferencing savings L1 $5,000 $10,000 $10,000 $25,000 Surce: Frrester Research, Inc. Substituted Micrsft Licenses An n premises slutin wuld have required a variety f Micrsft licenses fr the 2010 slutin set. This wuld have included server licenses fr SharePint, Exchange, and Lync. Per-asset licenses wuld have been required fr Office Prfessinal Plus as well as CALs fr SharePint, Exchange, and Lync. The assumptin was made that each user wuld have nly ne asset. In additin, in rder t create custmer extranets a SharePint fr Internet Sites Standard 2010 license wuld be required. These substituted csts are included in the Benefits sectin s that the ROI analysis will be based n the incremental slutin csts paid t Micrsft - that is t the say the difference between the Office 365 Page 22

24 Frrester Cnsulting The Ttal Ecnmic Impact Of Micrsft Office 365 Midsize Custmers subscriptin csts and the ptential n premises license csts. That way, readers can get a clearer understanding f the financial impact assciated with benefits they may realize by investing mre fr Office 365 cmpared with maintaining their lder Micrsft slutins. This des nt reduce the ttal payments t Micrsft as utlined in the Cst sectin f the study. Mst small and medium-size rganizatins d nt have an enterprise agreement r purchase Sftware Assurance. Neither f these was included fr the cmpsite rganizatin. Table 15 Substituted Micrsft Licenses Ref. Metric Calculatin Year 1 Year 2 M1 Office Prfessinal Plus 2010 licenses 150 devices*$508 $76,200 Year 3 Ttal M2 M3 Exchange Standard 2010 server licenses SharePint Standard 2010 server licenses J1*$708 $2,124 J2*$4,926 $4,926 M4 Lync Standard 2010 server licenses J3*$708 $708 M5 SharePint fr Internet Sites Standard 2010 $11,793 M6 Client Access Licenses 150 devices*$195 $29,250 Mt Substituted Micrsft licenses M1+M2+M3+M4+M5+M6 $125,001 $125,001 Surce: Frrester Research, Inc. Avided On Premises Planning And Implementatin Labr This benefit represents the incremental effrt that wuld be required, abve and beynd an Office 365 deplyment, t build a cmparable slutin n premises. Deplying the 2010 slutin set n premises requires fully specifying, installing and cnfiguring bth the hardware and sftware. There are still migratin effrts t get users nt the new slutin. Fr mst f the cmpanies interviewed, IT resurce cnstraints were ne f the main reasns that Office 365 was s appealing. Finding the time t take n this prject in additin t the nrmal daily activities wuld have been very difficult. Additinal prfessinal services wuld als be required, in mst cases, t fill this resurce gap bth time and knwledge. It is als wrth nting that a prtin f these labr csts wuld be incurred again whenever the hardware r sftware slutin is updated as part f a cmpany s nrmal refresh life cycle. Page 23