The Total Economic Impact Of: LifeSize HD Video Conferencing Solutions

Transcription

1 A Frrester Ttal Ecnmic Impact Study Prepared Fr LifeSize, a Divisin f Lgitech The Ttal Ecnmic Impact Of: LifeSize HD Vide Cnferencing Slutins Prject Directr: Jnathan Lipsitz Cntributr: Paul Devine March 2011

2 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin TABLE OF CONTENTS Executive Summary... 2 LifeSize Delivers Excellent High Definitin Experiences With A Lwer TCO... 2 Factrs Affecting Benefits And Csts... 4 Disclsures... 4 TEI Framewrk And Methdlgy... 6 Analysis... 7 Interview Highlights... 7 Csts... 9 Benefits...13 Flexibility...16 Risk...16 Financial Summary...18 Appendix A: LifeSize Prduct Prtfli Overview...20 Appendix B: Ttal Ecnmic Impact Overview...21 Appendix C: Glssary...22 Appendix D: Endntes Frrester Research, Inc. All rights reserved. Frrester, Frrester Wave, RleView, Techngraphics, TechRankings, and Ttal Ecnmic Impact are trademarks f Frrester Research, Inc. All ther trademarks are the prperty f their respective wners. Reprductin r sharing f this cntent in any frm withut prir written permissin is strictly prhibited. Fr additinal reprductin and usage infrmatin, see Frrester s Citatin Plicy lcated at Infrmatin is based n best available resurces. Opinins reflect judgment at the time and are subject t change. 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 LifeSize HD Vide Cllabratin Executive Summary In Nvember 2010, LifeSize, a divisin f Lgitech, cmmissined Frrester Cnsulting t examine the ttal ecnmic impact and ptential return n investment (ROI) enterprises may realize by implementing a LifeSize HD vide cllabratin slutin. The purpse f this study is t prvide readers with a framewrk t evaluate the ptential financial impact f LifeSize slutins n their rganizatins. LifeSize ffers a full range f pen, standards-based HD vide cnferencing systems designed t make vide cnferencing truly universal. The slutin encmpasses cre infrastructure, endpint cnference rms, and management cnsle technlgies. The slutin has been designed fr mdular implementatin, enabling additinal lcatins t be easily added and integrated within the verall vide cnferencing slutin. LifeSize Delivers Excellent High Definitin Experiences With A Lwer TCO An interview with ne existing custmer and subsequent financial analysis revealed that the custmer, a Eurpean divisin f a Japanese cnsumer electrnics cmpany, was able t quickly implement a high definitin vide cnferencing slutin at 47 ffices acrss Eurpe, the Middle East, Africa, and Russia. The slutin prvided superir vide quality in lcatins with limited bandwidth cmpared t ther vide cnferencing slutins being cnsidered. Additinally, the LifeSize HD vide cllabratin slutin had a lwer ttal cst f wnership (TCO). Table 1 shws the risk-adjusted ROI, internal rate f return (IRR), csts, and benefits realized by the custmer. Table 1 Five-Year Risk-Adjusted ROI 1 ROI Internal rate f return Payback perid Ttal benefits (PV) Ttal csts (PV) Net present value (NPV) 392% 137% Nine mnths $6,270,936 ($1,273,780) $4,997,156 Surce: Frrester Research, Inc. Benefits. The first three bullet pints belw culd be quantified fr the ROI analysis prtin f the study. The remainder culd nt be quantified but may be f equal r greater imprtance t the reader s rganizatin. All benefits shuld be taken int cnsideratin when evaluating the ptential value f using the LifeSize vide cnferencing slutin. The quantitative and qualitative benefits include: Lwer TCO nging maintenance and supprt. Onging maintenance and supprt csts were apprximately half the cst f ther vide cnferencing slutins cnsidered by the custmer. This resulted in a lwer TCO f apprximately 24% as cmpared t ther cmparable slutins being cnsidered. Reduced travel csts. Implementing a high definitin vide cnferencing slutin allwed the custmer t greatly reduce the number f business trips required. Page 2

4 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Increased prductivity reduced travel. Fewer travel days meant that emplyees culd remain fully prductive instead f lsing time while in transit. Higher-reslutin vide cnferencing/lwer bandwidth requirements. At the time the custmer began investigating vide cnferencing slutins, it made a crprate decisin that bandwidth wuld nt be added at any ffice. The rganizatin was able t achieve its cllabratin plans by delivering HD vide cnferencing t all its ffices, including smaller nes with limited bandwidth because f LifeSize s lwer bandwidth requirements. Imprved field selling. The custmer can win mre sales pprtunities, and d s mre easily, by using vide cnferencing t cnnect sales managers with the sales frce at remte ffices and their custmers. Mre efficient and better wrk experiences. Vide cnferencing has made wrkers generally mre efficient thrugh better interactin with peers at different lcatins. It has als imprved the quality f life fr emplyees by allwing them t travel less. Reduced carbn emissins. The custmer was able t meet its aggressive CO 2 emissin reductin gals. Csts. The fllwing csts are included in the TCO analysis: Initial implementatin labr csts. The effrt t initially cnfigure the slutin and t rll it ut t each lcatin. Hardware and sftware csts. This includes all hardware, sftware licenses, maintenance, and supprt csts paid t the LifeSize reseller. The cst f the custmer installing its wn brand f high definitin vide prjectrs is included as well. Internal training csts. This nly cvers travel csts frm remte ffices, since LifeSize included end user and administratr training as part f its slutin package. Onging administratin labr csts. The cst f internal effrts t keep the slutin up and running. It is imprtant t nte that there were n additinal bandwidth csts incurred. The custmer was able t deliver LifeSize HD vide cnferencing using the bandwidth that was already in place. Readers are encuraged t cnsider the need fr additinal bandwidth when applying this study t their wn rganizatins. Figure 1 shws the benefits, csts, and the quick breakeven pint assciated with implementing LifeSize. It is imprtant t nte that this custmer prepaid fr five years f supprt and maintenance, resulting in the large Year 1 cst and very small nging csts. The recurring csts in Figure 1 are represented as gradually decreasing because the graph shws the present value f the cst stream. The actual cst incurred was the same in years ne thrugh five. Page 3

5 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Figure 1 Summary Financial Results Risk-Adjusted $5,500,000 $4,500,000 $3,500,000 $2,500,000 $1,500,000 $4,997,156 $3,986,298 $2,874,354 $1,651,216 Csts (PV) Benefits (PV) Cumulative cash flw (PV) $500,000 $305,763 ($500,000) ($1,500,000) $(1,174,234) Initial Year 1 Year 2 Year 3 Year 4 Year 5 Surce: Frrester Research, Inc. Factrs Affecting Benefits And Csts Table 1 illustrates the financial results fr the custmer. The fllwing factrs can affect the financial results a reader s rganizatin may experience: Factr 1: Ttal number f vide cnference rms installed. The largest factr in determining csts and benefits is the size f the implementatin. This is bth in terms f number f gegraphic lcatins and the number f vide cnference rms per lcatin. In this case the custmer installed 47 rms in 34 lcatins. Factr 2: Negtiating/structuring the cntract. The custmer had a fairly large initial implementatin, allwing it t negtiate vlume discunts. Additinally, management decided t pay five years f LifeSize maintenance and supprt csts upfrnt. This had an impact n bth the ttal csts and timing f the csts. Disclsures The reader shuld be aware f the fllwing: The study is cmmissined by LifeSize and delivered by the Frrester Cnsulting grup. Page 4

6 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Frrester makes n assumptins as t the ptential return n investment 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 LifeSize. LifeSize reviewed and prvided feedback t Frrester, but Frrester maintains editrial cntrl ver the study and its findings and des nt accept changes t the study that cntradict Frrester s findings r bscure the meaning f the study. The custmer name fr the interview was prvided by LifeSize. Page 5

7 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin 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 the LifeSize HD vide cllabratin slutin. 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 LifeSize can have n an rganizatin (see Figure 2). Specifically, we: Interviewed LifeSize marketing, sales, and cnsulting persnnel as well as Frrester analysts t gather data relative t LifeSize HD vide cllabratin and the marketplace fr the slutin. Interviewed ne rganizatin currently using LifeSize prducts t btain data with respect t csts, benefits, and risks. Cnstructed a financial mdel representative f the interview using the TEI methdlgy. The financial mdel is ppulated with the cst and benefit data btained frm the interview. Figure 2 TEI Apprach Perfrm due diligence Cnduct custmer interviews Cnstruct financial mdel using TEI framewrk Write case study Surce: Frrester Research, Inc. Frrester emplyed fur fundamental elements f TEI in mdeling the LifeSize ROI: 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 6

8 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Analysis Interview Highlights The custmer interviewed is a divisin f a Japanese cmpany with respnsibility fr Eurpe, the Middle East, Africa, and Russia (EMEAR). The cmpany manufactures printers, scanners, desktp cmputers, prjectrs, large hme theatre televisins, rbts, laptps, and LCD cmpnents. Headquartered in Amsterdam. 50 ttal ffices in the EMEAR regin: Six full-service ffices with sales, supprt, and administrative peratins. Frty-fur sales ffices cnsisting f ne ffice manager and apprximately five salespeple. 2,500 emplyees. The individual interviewed fr this study was the senir manager fr IT infrastructure and etechnlgy. He is respnsible fr nline prperties, all IT infrastructure (including data centers), and running Micrsft Office and Exchange. He said, I am [a] firm believer in vide cnferencing, having used it extensively when I wrked fr a previus emplyer. The interview with the custmer uncvered a number f salient pints that may be f interest t the readers: The rganizatin was in great need f a new vide cnferencing slutin by the time it began investigating a replacement in Fall We had a myriad f vide cnferencing systems, sme dating back t 1996, that were hardly used. The president wuld put a piece f paper in frnt f a camera t share dcuments. Nbdy paid attentin t the ld vide cnferencing slutin. It was used very little, mainly by the Eurpean and Japanese headquarters. There was a lt f user frustratin because f different slutins. Quality was really awful. We were using ISDN t cnnect with Japan. We needed t make the switch t HD, which is where everything is ging. I used this t raise attentin t ur needs. The rganizatin did nt have the management prcesses in place fr effective peratin f its ld vide cnferencing slutin. Vide cnferencing was being managed by the facilities team instead f IT. They did nt have a gd knwledge f hw t manage it as [an] IT infrastructure rather than anther piece f furniture. This meant we culd never get the best ut f the slutin. Page 7

9 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin If peple were screaming, facilities wuld help. Otherwise, the vide cnferencing slutin was nt practively managed. Nw, we remtely make sure that it is wrking frm ur headquarters. New travel and CO 2 reductin initiatives culd nt be met withut a new vide cnferencing slutin. Reduce travel by 10%. Reduce CO 2 emissins by 5%. The IT rganizatin decided t wn its vide cnferencing slutin instead f paying fr a sftware-as-aservice (SaaS) slutin. We decided quickly that we shuld wn the slutin t avid additinal cmplexity. With a SaaS slutin, we have n cntrl ver updates and new feature additins. Unplanned updates cnfuse users. Peple wuld use the typical SaaS cnferencing slutins just fr the phne cmpnent. This wuld undermine full adptin. We write equipment ff ver five years, and we have strng buying pwer. SaaS vendrs d nt give me that benefit. Their price will stay the same as lng as I m in cntract. The custmer makes every cnference rm a vide cnference facility instead f having a few, dedicated telepresence rms. This is dne t increase usage and shwcase its HD prjectrs. We did nt want the facilities team t have t set up highly specialized vide cnferencing rms. Making every meeting rm a vide cnferencing rm helps with user adptin. Using ur HD prjectrs makes fr an excellent prduct dem t ur custmers. At the time f selecting a vendr in 2008, the custmer decided that LifeSize was the slutin that best met its needs. LifeSize technlgy was better than the cmpetitin fr HD. LifeSize easily supprted bth Mac and PC installatins. We needed t be able t put ut updates ver the wire t ur remte ffices. The ther slutins we lked at were nt able t d that. The LifeSize Cntrl management slutin is the single interface fr managing all vide cnferencing slutins. We are still running a cuple f vide cnferencing slutins frm ther vendrs that were bught just prir t deciding n using LifeSize as the single slutin. We manage these ther installatins within LifeSize. The dialing plan fr vide cnferencing at all f ur ffices, regardless f the vendr, is fully integrated int the LifeSize management cnsle. Page 8

10 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin LifeSize is very respnsive t the custmer s needs. LifeSize is very keen t wrk clsely with custmers and pen t their suggestins. They are very easy t wrk with and adapt t custmers requirements. Framewrk Assumptins All calculatins in this study are shwn in US dllars. In reality, this prject was based ut f Eurpe, and sme csts were incurred in Eurs and sme in US dllars. T simplify the mdel fr the reader, an average exchange rate f 1.00 equal t $1.30 was used thrughut the life f the study. Sme dllar values presented in this study have been runded t the nearest whle cent. 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. Table 2 prvides the general mdel assumptins that Frrester used in this analysis. Table 2 General Mdel Assumptins Ref. Metric Calculatin Value A1 Annual fully burdened cst* per full-time equivalent (FTE) resurce $104,000 A2 Daily fully burdened cst* per FTE resurce A1/220 wrkdays $ *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 financial mdel t calculate the PV and NPV presented in this study is 10%, and the time hrizn used fr the financial mdeling is five 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. Csts This sectin utlines the csts incurred by the custmer fr the initial implementatin and nging management f the LifeSize vide cnferencing slutin. Initial Implementatin Labr Csts The custmer undertk a cmprehensive due diligence prcess in rder t select and negtiate the best vide cnferencing slutin. A three-mnth request-fr-qute (RFQ) effrt began in late The decisin was taken t use an RFQ instead f a request-fr-prpsal (RFP) prcess in rder t persnally spec ut the slutin and ensure an apple-t-apple cmparisn between the respnding vide cnferencing vendrs. In December 2008, LifeSize was selected as the vendr t prvide the HD vide cnferencing slutin. Page 9

11 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin The initial implementatin t install LifeSize in 47 cnference rms acrss 34 lcatins lasted eight weeks. Accrding t the custmer, they decided t take a big-bang apprach t avid the extra cmplexities assciated with a lnger rllut that wuld result in lder equipment being used at different lcatins. All hardware was received and cnfigured at the Eurpean headquarters. It was then sent with simple installatin instructins t the ffices acrss the regin. Each ffice spent apprximately 4 hurs installing the vide cnferencing slutin. The majrity f this time was spent installing the vide prjectrs n ceiling munts. A ttal f man-days were spent n this prject (20 man-days fr the RFQ, 60 man-days fr setting up the central infrastructure and cnfiguring the endpint hardware, and 23.5 man-days fr field-ffice installatins) man-days times $ is equal t $48, Table 3 Initial Implementatin Labr Csts Ref. Metric Calculatin Initial B1 RFQ effrt man-days 20 B2 Infrastructure implementatin and endpint cnfiguratin effrt man-days 1.5 FTEs fr eight weeks 60 B3 Per lcatin installatin man-days 0.5 days 47 vide cnference rms 23.5 B4 Daily fully burdened csts A2 $ Bt Initial implementatin labr csts (B1+B2+B3) B4 $48, Surce: Frrester Research, Inc. Since the initial implementatin, apprximately ne dzen ther cnference rms have been fitted ut with LifeSize technlgies. Fr simplicity, the assciated cst and benefits fr these installatins have been left ut f the ROI analysis. They are discussed in the Flexibility sectin f this study. Hardware And Sftware Fr the initial implementatin, the custmer installed the LifeSize 200 series slutin in 47 cnference rms spread amng 34 lcatins. In additin t the hardware and sftware installed at each cnference rm, the slutin als cmprised the LifeSize Multipint, LifeSize Transit, LifeSize Gateway, and LifeSize Cntrl infrastructure and management prducts. These were purchased thrugh a LifeSize reseller, and the price included several days f cnsulting and the required training. The custmer negtiated a cntract that included paying fr five years f maintenance and supprt at the initial time f purchase. This arrangement is nt typical f mst vide cnferencing implementatins. The result was a higher initial Page 10

12 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin cst and a lwer nging peratins cst. The last cst was fr the vide display hardware. The custmer installed its wn brand f HD vide prjectrs. Typical installatins will either cnsist f a vide prjectr r a 50-inch HD televisin. The cst fr a display can vary greatly by cuntry and has been cming dwn in price very quickly. Table 4 Hardware And Sftware Ref. Metric Calculatin Initial C1 LifeSize hardware and sftware $550,000 C2 Five-year LifeSize maintenance and supprt cntract prepaid $275,000 C3 HD prjectrs 47 vide cnference rms $5,000 $235,000 Ct Hardware and sftware C1+C2+C3 $1,060,000 Surce: Frrester Research, Inc. Internal Training Csts LifeSize training csts were included in the initial license csts. Therefre, the nly training csts incurred by the custmer were fr participants travel. Twelve individuals frm majr ffices arund the regin participated in the training. The average travel cst per emplyee was $975. Table 5 Internal Training Csts Ref. Metric Calculatin Initial D1 Number f peple 12 D2 Travel and ther internal csts $975 Dt Internal training csts D1 D2 $11,700 Surce: Frrester Research, Inc. Onging Administratin The LifeSize slutin is very easy t administer. Fr the central IT team, apprximately 0.25 FTE is required fr managing sftware updates, changing the number scheme, and dealing with replacing any faulty hardware. There is Page 11

13 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin practically n effrt required at the lcal level. Replacing faulty hardware fllws the same prcess as the riginal setup cnfigured at a central lcatin and then shipped t the field ffice fr simple installatin. Table 6 Onging Administratin Ref. Metric Calculatin Initial Year 1 Year 2 Year 3 Year 4 Year 5 E1 Number f FTEs E2 Annual fully burdened cst A1 $104,000 $104,000 $104,000 $104,000 $104,000 Et Onging administratin E1 E2 $26,000 $26,000 $26,000 $26,000 $26,000 Surce: Frrester Research, Inc. Ttal Csts Ttal csts fr implementing and administering the LifeSize HD vide cllabratin slutin are shwn in Table 7 belw. Table 7 Ttal Csts (Nn-Risk-Adjusted) Ref. Csts Initial Year 1 Year 2 Year 3 Year 4 Year 5 Ttal Bt Ct Dt Et Initial implementatin labr csts Hardware and sftware Internal training csts Onging administratin ($48,928) ($48,928) ($1,060,000) ($1,060,000) ($11,700) ($11,700) ($26,000) ($26,000) ($26,000) ($26,000) ($26,000) ($130,000) Ttal csts ($1,120,628) ($26,000) ($26,000) ($26,000) ($26,000) ($26,000) ($1,250,628) Surce: Frrester Research, Inc. Page 12

14 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Benefits The first half f the Benefits sectin details the quantitative benefits included in the ROI analysis. The secnd half describes the qualitative benefits that the custmer 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 the LifeSize slutin. Lwer TCO Onging Maintenance And Supprt The ttal cst f wnership f any given technlgy slutin varies greatly frm rganizatin t rganizatin. This is largely dependent n the best deal that can be negtiated at the time f purchase. Additinally, current market cnditins have a heavy influence n negtiated prices. Fr these reasns, it was nt pssible t generalize many TCO categries in a way that wuld be useful t the reader. One area that the custmer culd prvide clear infrmatin n was the price f an nging maintenance and supprt cntract. The ttal cst fr a prepaid maintenance and supprt cntract with LifeSize was apprximately ne half f what ther vendrs were quting. This amunted t a lwer verall TCO f apprximately 24%. Table 8 Lwer TCO Onging Maintenance And Supprt Ref. Metric Calculatin Year 1 Year 2 Year 3 Year 4 Year 5 F1 Maintenance and supprt cntract savings $60,000 $60,000 $60,000 $60,000 $60,000 Ft TCO savings nging maintenance and supprt F1 $60,000 $60,000 $60,000 $60,000 $60,000 Surce: Frrester Research, Inc. Reduced Travel When the vide cnferencing RFQ prcess was initiated, there was a travel reductin target f 10%. The custmer explained that as ecnmic cnditins cntinued t wrsen, the divisin president decided t put a ttal freeze n travel. Every trip required his [persnal] apprval. The nly reasn we culd d this was because we had a new vide cnferencing slutin in place. Travel was reduced by 46% in the first year, and the travel ban is still in place. The custmer estimated that apprximately $2.6 millin per year have been saved in travel expenditures since LifeSize was implemented and the travel ban was put in place. Sme f this savings wuld have been realized even if there was n vide cnferencing slutin by utilizing phnes r simply nt cllabrating as well. It was estimated that nly 50% f the ttal benefit was directly attributable t the LifeSize slutin. Page 13

15 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Table 9 Reduced Travel Ref. Metric Calculatin Year 1 Year 2 Year 3 Year 4 Year 5 G1 Reduced travel expenditure $2,600,000 $2,600,000 $2,600,000 $2,600,000 $2,600,000 G2 Percent attributable t LifeSize 50% 50% 50% 50% 50% Gt Reduced travel G1 G2 $1,300,000 $1,300,000 $1,300,000 $1,300,000 $1,300,000 Surce: Frrester Research, Inc. Increased Prductivity Reduced Travel As anyne wh travels fr wrk knws, it can be very disruptive t cmpleting nrmal wrk activities. Even with smartphnes and airplane wireless, smene traveling is much less prductive than smene sitting in the ffice. Therefre, in additin t eliminating the travel csts described abve, fewer travel days meant that these wrkers were mre prductive. In rder t be cnservative, it was estimated that nly 50% f the reduced travel time wuld actually result in increased prductivity. Table 10 Increased Prductivity Reduced Travel Ref. Metric Calculatin Year 1 Year 2 Year 3 Year 4 Year 5 H1 Number f travel days eliminated per year (attributable t LifeSize) 2,000 2,000 2,000 2,000 2,000 H2 Percent prductivity gain 50% 50% 50% 50% 50% H3 Daily fully burdened cst A2 $ $ $ $ $ Ht Increased prductivity reduced travel H1 H2 H3 $472,730 $472,730 $472,730 $472,730 $472,730 Surce: Frrester Research, Inc. Ttal Quantified Benefits Table 11 summarizes the ttal quantified benefits realized by implementing the LifeSize HD vide cllabratin slutin. Page 14

16 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Table 11 Ttal Quantified Benefits (Nn-Risk-Adjusted) Ref. Benefits Year 1 Year 2 Year 3 Year 4 Year 5 Ttal Ft TCO savings nging maintenance $60,000 $60,000 $60,000 $60,000 $60,000 $300,000 Gt Reduced travel $1,300,000 $1,300,000 $1,300,000 $1,300,000 $1,300,000 $6,500,000 Ht Increased prductivity reduced travel $472,730 $472,730 $472,730 $472,730 $472,730 $2,363,650 Ttal benefits $1,832,730 $1,832,730 $1,832,730 $1,832,730 $1,832,730 $9,163,650 Surce: Frrester Research, Inc. Qualitative Benefits Higher-Reslutin Vide Cnferencing/Lwer Bandwidth Requirements Many field sales ffices had less than 2 MB f bandwidth available. This meant that LifeSize was the nly slutin evaluated that culd deliver HD vide cnferencing withut adding bandwidth. Instead f incurring the cst t increase bandwidth t these ffices, we wuld have nly delivered regular-definitin vide cnferencing. LifeSize required 20% less bandwidth than the ther cmpanies we evaluated. We were able t deliver high definitin service t every ffice. This was a huge benefit. Since the time f implementatin, subsequent LifeSize sftware releases have further reduced bandwidth requirements. Imprved Field Sales HD vide cnferencing has greatly imprved the custmer s ability t crdinate sales effrts in the field and t prvide assistance in clsing large deals. Prduct managers have a better way t bring salespeple up t speed n new prducts and hw t sell at ur smaller ffices. Sales and finance can nw wrk tgether with the field sales frce t clse deals mre easily and quickly. Our VP f sales has a LifeSize installatin in his ffice s he can wrk directly with the sales team. If yu see smene, yu can strike a deal. If yu hear them, yu can nly infrm them. Mre Efficient And Better Wrk Experiences The custmer makes extensive use f the LifeSize vide cnferencing facilities typically, each endpint is used at least 30 hurs per week. This has made emplyees mre prductive and efficient. Overall cmmunicatin has imprved. Peple are able t accmplish mre in less time. Als, it frces internatinal meetings t be run mre efficiently, [as] the vide cnference facility is bked fr a set perid f time. This is especially imprtant when meeting with the Japanese headquarters. Utilizing the LifeSize slutin has als imprved emplyees wrk experience. Fr thse wh travel, being able t wrk frm their lcal ffices means less disruptin t their persnal lives. Als, being able t see clleagues frm ther ffices has made the wrk experience mre enjyable and fstered a greater sense f cmmunity. Page 15

17 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Reduced Carbn Emissins The custmer has set very aggressive glbal gals t reduce carbn emissins. Lng term, the gal is t reduce carbn emissin by 90% by the year Fr the first year that LifeSize was being used, the gal was t reduce carbn emissins by 5%. The actual reductin was clser t 12%, eliminating 807,000 tns f CO2. Reduced travel was a majr cntributr t achieving this. Flexibility Flexibility, as defined by TEI, represents an investment in additinal capacity r capability that culd be turned int business benefit fr sme future additinal investment. This prvides an rganizatin with the right r the ability t engage in future initiatives but nt the bligatin t d s. LifeSize creates inherently mre flexible rganizatins by allwing emplyees frm different ffices t wrk mre clsely tgether and t respnd mre effectively t marketplace dynamics. Since the initial implementatin described in the ROI analysis, the custmer has installed 11 mre vide cnference facilities acrss several lcatins. This has included the installatin f lwer-end hardware in the private ffices f cmpany executives. This allws them t meet at a mment s ntice t effectively discuss critical issues, n matter where they are based. There are plans t install five mre lcatins in the next year. It was explained that the emplyees are always lking fr new and creative ways t use the technlgy. User demand is cnstantly grwing. T meet this need, we are lking at ding mre with smartphnes and ipads. We are als investigating the pssibility f putting in lw-cst vide phnes t prvide additinal private installatins fr secndand third-level managers. Nne f the flexibility benefits were included in the ROI analysis. Risk Frrester defines tw types f risk assciated with this analysis: implementatin risk and impact risk. Implementatin risk is the risk that a prpsed investment in LifeSize may deviate frm the riginal r expected requirements, resulting in higher csts than anticipated. Impact risk refers t the risk that the business r technlgy needs f the rganizatin may nt be met by the investment in LifeSize, resulting in lwer verall ttal benefits. The greater the uncertainty, the wider the ptential range f utcmes fr cst and benefit estimates. Quantitatively capturing investment and impact risk by directly adjusting the financial estimates results in mre meaningful and accurate estimates and a mre accurate prjectin f the ROI. In general, risks affect csts by raising the riginal estimates, and they affect benefits by reducing the riginal estimates. The risk-adjusted numbers shuld be taken as realistic expectatins because they represent the expected values cnsidering risk. The fllwing implementatin risks that affect csts are identified as part f this analysis: Initial implementatin labr csts culd be slightly higher if the hardware is nt cnfigured centrally befre sending t field ffices withut an IT staff. Hardware and sftware csts culd be higher if cmparable vlume discunts are nt available. Page 16

18 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Internal training csts culd be slightly higher if travelling greater distances r if nt absrbed by the vendr. Onging administratin f the slutin culd be slightly higher fr a larger, mre cmplex installatin. The reader shuld als cnsider the cst f adding bandwidth, if necessary. The fllwing impact risks that affect benefits are identified as part f the analysis: TCO savings assciated with an nging maintenance and supprt cntract can be lwer based n cntract negtiatins. Hwever, ther areas f TCO savings may be fund t cmpletely ffset this. An rganizatin may nt save as much in travel if it has fewer ffices and/r des nt generally engage in substantial business travel. An rganizatin will nt see a prductivity gain related t reduced travel time if the rganizatin des nt engage in substantial business travel. Table 12 shws the values used t adjust fr risk and uncertainty in the cst and benefit estimates. The TEI mdel uses a triangular distributin methd t calculate risk-adjusted values. T cnstruct the distributin, it is necessary t first estimate the lw, mst likely, and high values that culd ccur within the current envirnment. The risk-adjusted value is the mean f the distributin f thse pints. Readers are urged t apply their wn risk ranges based n their wn degree f cnfidence in the cst and benefit estimates. Table 12 Cst And Benefit Risk Adjustments Csts Lw Mst likely High Mean Initial implementatin labr csts (lw risk) 98% 100% 105% 101% Hardware and sftware (medium risk) 100% 100% 115% 105% Internal training csts (lw risk) 98% 100% 105% 101% Onging administratin (lw risk) 98% 100% 105% 101% Benefits Lw Mst likely High Mean TCO savings nging maintenance and supprt (lw risk) 90% 100% 105% 98% Reduced travel (medium risk) 80% 90% 100% 90% Increased prductivity reduced travel (medium risk) 80% 90% 100% 90% Surce: Frrester Research, Inc. Page 17

19 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Financial Summary The financial results calculated in the Csts and Benefits sectins can be used t determine the ROI, IRR, NPV, and payback perid fr the custmer s investment in the LifeSize slutin. These are shwn in Table 13 belw. Table 13 Cash Flw Nn-Risk-Adjusted Cash flw riginal estimates Initial Year 1 Year 2 Year 3 Year 4 Year 5 Ttal Present Value Csts ($1,120,628) ($26,000) ($26,000) ($26,000) ($26,000) ($26,000) ($1,250,628) ($1,219,188) Benefits $1,832,730 $1,832,730 $1,832,730 $1,832,730 $1,832,730 $9,163,650 $6,947,489 Net benefits ($1,120,628) $1,806,730 $1,806,730 $1,806,730 $1,806,730 $1,806,730 $7,913,022 $5,728,301 ROI 470% IRR 160% NPV $5,728,301 Payback perid 7 mnths Surce: Frrester Research, Inc. Table 14 shws the risk-adjusted ROI, IRR, NPV, and payback perid values. These values are determined by applying the mean risk-adjustment values frm Table 12 in the Risk sectin t the cst and benefits numbers in Table 13. Table 14 Cash Flw Risk-Adjusted Cash flw risk-adjusted estimates Initial Year 1 Year 2 Year 3 Year 4 Year 5 Ttal Present Value Csts ($1,174,234) ($26,260) ($26,260) ($26,260) ($26,260) ($26,260) ($1,305,534) ($1,273,780) Benefits $1,654,257 $1,654,257 $1,654,257 $1,654,257 $1,654,257 $8,271,285 $6,270,936 Net benefits ($1,174,234) $1,627,997 $1,627,997 $1,627,997 $1,627,997 $1,627,997 $6,965,751 $4,997,156 ROI 392% IRR 137% NPV $4,997,156 Payback perid 9 mnths Surce: Frrester Research, Inc. Page 18

20 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin These risk-adjusted results are summarized in Figure 3 belw. Figure 3 Summary Financial Results Risk-Adjusted $5,500,000 $4,500,000 $3,500,000 $2,500,000 $1,500,000 $4,997,156 $3,986,298 $2,874,354 $1,651,216 Csts (PV) Benefits (PV) Cumulative cash flw (PV) $500,000 $305,763 ($500,000) ($1,500,000) $(1,174,234) Initial Year 1 Year 2 Year 3 Year 4 Year 5 Surce: Frrester Research, Inc. Page 19

21 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Appendix A: LifeSize Prduct Prtfli Overview Accrding t LifeSize, it ffers a cmprehensive high definitin vide cllabratin prduct prtfli. It includes a cmplete range f high definitin vide cmmunicatins slutins fr rganizatins ranging frm glbal enterprises, gvernments, and universities t midmarket cmpanies and small businesses. LifeSize has designed its slutin with a mdular infrastructure t allw the easy additin and remval f endpints. The LifeSize prduct prtfli is a cmplete package cmprised f: Vide. LifeSize prvides persnal, rm, and cnference HD vide cnferencing systems, HD vide sftware slutins, cameras and accessries designed t enable genuine human interactin ver any distance. Infrastructure. LifeSize infrastructure slutins include NAT/firewall traversal prducts, multipint bridging, management and cntrl, multiplatfrm netwrk integratin, vide recrding and bradcasting as well as API supprt, all designed t be enterprise class and IT friendly. Services. LifeSize prvides services t enhance the selectin, deplyment and nging management f LifeSize prducts within the enterprise, including installatin, deplyment, warranties, leasing, grant applicatin assistance, training and 24/7 supprt. Page 20

22 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Appendix B: Ttal Ecnmic Impact Overview Ttal Ecnmic Impact is a methdlgy develped by Frrester Research that enhances a cmpany s technlgy decisin-making prcesses and assists vendrs in cmmunicating the value prpsitin f their prducts and services t clients. The TEI methdlgy helps cmpanies demnstrate, justify, and realize the tangible value f IT initiatives t bth senir management and ther key business stakehlders. The TEI methdlgy cnsists f fur cmpnents t evaluate investment value: benefits, csts, risks, and flexibility. Benefits Benefits represent the value delivered t the user rganizatin IT and/r business units by the prpsed prduct r prject. Often prduct r prject justificatin exercises fcus just n IT cst and cst reductin, leaving little rm t analyze the effect f the technlgy n the entire rganizatin. The TEI methdlgy and the resulting financial mdel place equal weight n the measure f benefits and the measure f csts, allwing fr a full examinatin f the effect f the technlgy n the entire rganizatin. Calculatin f benefit estimates invlves a clear dialgue with the user rganizatin t understand the specific value that is created. In additin, Frrester als requires that there be a clear line f accuntability established between the measurement and justificatin f benefit estimates after the prject has been cmpleted. This ensures that benefit estimates tie back directly t the bttm line. Csts Csts represent the investment necessary t capture the value, r benefits, f the prpsed prject. IT r the business units may incur csts in the frms f fully burdened labr, subcntractrs, r materials. Csts cnsider all the investments and expenses necessary t deliver the prpsed value. In additin, the cst categry within TEI captures any incremental csts ver the existing envirnment fr nging csts assciated with the slutin. All csts must be tied t the benefits that are created. Risk Risk measures the uncertainty f benefit and cst estimates cntained within the investment. Uncertainty is measured in tw ways: 1) the likelihd that the cst and benefit estimates will meet the riginal prjectins, and 2) the likelihd that the estimates will be measured and tracked ver time. TEI applies a prbability density functin knwn as triangular distributin t the values entered. At a minimum, three values are calculated t estimate the underlying range arund each cst and benefit. Flexibility Within the TEI methdlgy, direct benefits represent ne part f the investment value. While direct benefits can typically be the primary way t justify a prject, Frrester believes that rganizatins shuld be able t measure the strategic value f an investment. Flexibility represents the value that can be btained fr sme future additinal investment building n tp f the initial investment already made. Fr instance, an investment in an enterprisewide upgrade f an ffice prductivity slutin can ptentially increase standardizatin (t increase efficiency) and reduce licensing csts. Hwever, an embedded cllabratin feature may translate t greater wrker prductivity if activated. The cllabratin can nly be used with additinal investment in training at sme future pint in time. Hwever, having the ability t capture that benefit has a present value that can be estimated. The flexibility cmpnent f TEI captures that value. Page 21

23 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Appendix C: Glssary Discunt rate: The interest rate used in cash flw analysis t take int accunt the time value f mney. Althugh the Federal Reserve Bank sets a discunt rate, cmpanies ften set a discunt rate based n their business and investment envirnment. Frrester assumes a yearly discunt rate f 10% fr this analysis. Organizatins typically use discunt rates between 8% and 16% based n their current envirnment. Readers are urged t cnsult their respective rganizatins t determine the mst apprpriate discunt rate t use in their wn envirnments. Net present value (NPV): The present r current value f (discunted) future net cash flws given an interest rate (the discunt rate). A psitive prject NPV nrmally indicates that the investment shuld be made, unless ther prjects have higher NPVs. Present value (PV): The present r current value f (discunted) cst and benefit estimates given at an interest rate (the discunt rate). The PV f csts and benefits feed int the ttal net present value f cash flws. Payback perid: The breakeven pint fr an investment. The pint in time at which net benefits (benefits minus csts) equal initial investment r cst. Return n investment (ROI): A measure f a prject s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus csts) by csts. A Nte On Cash Flw Tables The fllwing is a nte n the cash flw tables used in this study (see the example table belw). The initial investment clumn cntains csts incurred at time 0 r at the beginning f Year 1. Thse csts are nt discunted. All ther cash flws in Years 1 thrugh 3 are discunted using the discunt rate (shwn in Framewrk Assumptins sectin) at the end f the year. Present value (PV) calculatins are calculated fr each ttal cst and benefit estimate. Net present value (NPV) calculatins are nt calculated until the summary tables and are the sum f the initial investment and the discunted cash flws in each year. Table [Example] Example Table Ref. Categry Calculatin Initial cst Year 1 Year 2 Year 3 Ttal Surce: Frrester Research, Inc. Page 22

24 Frrester Cnsulting The Ttal Ecnmic Impact Of LifeSize HD Vide Cllabratin Appendix D: Endntes 1 Frrester risk-adjusts the summary financial metrics t take int accunt the ptential uncertainty f the cst and benefit estimates. Fr mre infrmatin n Risk, please see Appendix B. Page 23