WHITE PAPER Determining the Return on Investment of Web Application Acceleration Managed Services

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1 WHITE PAPER Determining the Return on Investment of Web Application Acceleration Managed Services Sponsored by: Akamai Lucinda Borovick August 2006 Randy Perry Global Headquarters: 5 Speen Street Framingham, MA USA P F EXECUTIVE SUMMARY As Web-based applications have become critical to many business operations, a number of enterprises have grown frustrated with the performance and reliability of the applications and have turned to outsourcing some aspects of Web applications management and support. Akamai pioneered the approach of offering application acceleration as a service rather than as a hardware-based solution. To assess and quantify the business benefits of Akamai's Web Application Accelerator (WAA), IDC conducted in-depth interviews with IT staff members of eight organizations using WAA. A structured set of questions was used to capture the costs and benefits directly associated with WAA. The study is based on standard IDC return-on-investment (ROI) methodology, which is used to calculate the benefits of cost savings, increased productivity, and revenue realization. The IT managers interviewed reported that they had realized substantial increases in the efficiency of their operations. IT productivity increased by an average of 15% annually. The IT managers also claimed that user productivity improved by an average of 2%, while enterprise application downtime dropped by an average of 14%. The most significant benefits were generated by increasing the performance for external users customers or partners. The interviewed companies enjoyed an average revenue increase of 0.5%, which they directly attributed to WAA. Based on the results of these eight interviews, the total benefits averaged more than $7 million annually on an average investment of $174,000. INTRODUCTION Enterprise IT professionals face a number of challenges in delivering centrally located and managed applications on a global scale. These online applications, which represent critical business processes, are often slow, unreliable, and unpredictable, affecting user adoption, satisfaction, and productivity. In particular, inefficient Web-based applications can inhibit revenue growth and prove costly to IT professionals tasked with optimizing application performance. By enhancing the performance of Web-based applications, organizations can increase adoption and user satisfaction of enterprise extranets, improve branch office collaboration, and boost supply chain efficiency. This IDC White Paper presents the results of an IDC study, commissioned by Akamai, to quantify the financial benefits of using Akamai's Web Application Accelerator (WAA).

2 The problem of inefficient enterprise applications is becoming critical as companies deploy new Web-based applications to become more competitive and productive. At the same time, companies are Web-enabling a growing number of financial and other important business applications, such as enterprise resource planning and customer relationship management. Additionally, many companies are introducing enterprise information portals as a single source of information for decision making and action. Meanwhile, increased globalization has dispersed employees and customers around the world, making content and application delivery more difficult. Regardless of their location, users want timely access to all types of information and applications. Ideally, they would like access to corporate applications, Web content, and a wide range of audio and video formats from anywhere, at any time, and in a format they can readily use. Moreover, they would like access to be as quick and easy as if they were close to the datacenter. Faced with these challenges, and the need to optimize bandwidth use and reduce operating costs, an increasing number of companies are using application acceleration services to speed the distribution and delivery of information and applications. These managed services allow companies to deploy bandwidthintensive applications without sacrificing network performance or making capital outlays to add servers and bandwidth to support them. Alternative solutions to optimizing application performance, such as those that are network equipment based, require businesses to implement and maintain hardware and create their own network infrastructure and IT management staff. By improving employee, partner, and customer access to business-critical information and applications worldwide, application acceleration services can generate new revenues and increase customer satisfaction and corporate productivity while reducing capital and IT personnel costs substantially and minimizing revenue lost through downtime. One company that offers application acceleration as a managed service is Akamai. Its Web Application Accelerator, announced in May 2005, enables enterprises to extend dynamic, highly interactive, externally facing Web applications including customerfacing portals, collaboration platforms, elearning environments, and business-tobusiness commerce to the Akamai platform. Enterprises employ WAA to achieve greater adoption of their Web applications through improved performance, higher availability, and an enhanced worldwide user experience. The Akamai WAA service also includes tools that give enterprises the visibility and control to help them optimize their sites' performance and ensure the effectiveness of application delivery via Akamai's EdgeControl Management Center. The Akamai WAA service is designed to leverage Akamai's globally deployed platform to deliver consistent, improved application performance for users worldwide. Activation of the service is designed to be simple and nonintrusive, requiring a single DNS change by the customer. Because of the large, global footprint of its network infrastructure, the Akamai service is especially helpful to organizations with widely dispersed facilities and locations in less developed parts of the world, where communications services are limited. 2 # IDC

3 Akamai claims that it provides a number of techniques for accelerating customers' dynamic Web application content, including:! Dynamic mapping of user requests to an optimal Akamai edge server, which allows Akamai to respond in real time to changing Internet conditions, alleviating the impact of network problems and improving the availability of customer applications! Route optimization technology, which allows Akamai to avoid Internet problem spots, sending application transactions over Internet paths that are fast and reliable! Connection optimization technology, which incorporates a number of capabilities, including compression, long-lived interserver connections, content prefetching, and transport protocol optimization! Application security by delivering applications over Secure Sockets Layer (SSL) and through integration with leading access control mechanisms that enterprises may already have in place! Flexible caching technology, which enables Akamai to store dynamic pages according to customized business rules set by customers As a result, Akamai promises consistent application performance, regardless of where users are located, as well as application capacity on demand, where and when it's needed, without significant investments in additional infrastructure. QUANTIFYING THE BUSINESS BENEFITS OF WEB APPLICATION ACCELERATION MANAGED SERVICES To validate and quantify the business benefits of Web application acceleration as a managed service, IDC interviewed companies that have used the Akamai WAA service for at least six months and asked a series of questions about the cost savings and increased revenue made possible by the service. Did improved performance increase adoption and boost revenue? How much value was created by increasing customer satisfaction and retention? By how much were future infrastructure and management costs reduced, or were they eliminated? What were the cost savings from simplified capacity planning and replacing manual business processes? What value was assigned to having a more secure, controllable environment for the most critical business processes? How much was saved from having the scalability to accommodate peak usage with ease and the capacity to maintain performance regardless of load, thereby eliminating downtime and lost productivity? Using the results of the interviews, IDC applied a proprietary ROI methodology to the cost savings and added revenue resulting from use of the WAA managed service to determine the average payback period and ROI realized by the surveyed companies IDC #

4 Survey Demographics For this survey, IDC interviewed IT managers at eight medium-sized to large organizations with operations in North America, Europe, and Asia and from various industries that have used the Akamai WAA service for at least six months. The organizations offered a diverse range of uses for the acceleration services and included government institutions, service providers, and enterprises in the chemical and manufacturing industries. The average number of employees was 28,000, though some companies had more than 70,000 employees. What the IT managers surveyed had in common were complex enterprise application environments. The respondents relied on WAA to optimize their most critical enterprise applications, including the following:! Supply chain management (SCM): 88%! ebusiness: 75%! Portal: 75% On average they had as many external users (8,389) as internal users (8,180). Many of these external users were distributors or resellers that represented a significant portion of the interviewees' revenues. Over half of the respondents were already outsourcing their Web-based applications prior to switching to application acceleration services. In all cases, the organizations were seeking to improve the performance of their enterprise applications to reduce delays for users and increase customer satisfaction. Six of the eight were in the process of expanding the use of the applications. IDC's ROI Methodology To quantify the business value of technology solutions such as Web application acceleration services, IDC has developed an ROI methodology that measures the total costs of the technology solution from initial deployment through three to five years of operations and the sum of the benefits achieved over the same period. The methodology calculates the ROI in a three-step process: 1. Ascertain the investment made in the solution, including the following chart of accounts: # Initial hardware and software purchase # Migration costs such as software updates # Installation costs (internal staff time and external services) # Initial training of IT staff # Annual service, maintenance support, or licensing fees # Ongoing maintenance and upgrades # Ongoing IT staff costs for direct support 4 # IDC

5 2. Measure the gains in IT staff and user productivity from deploying the service, the revenue generated from improved business operations or recaptured from reduced downtime, and the cost savings from increased IT staff efficiency and lower capital and operating expenses. # Productivity savings. IT staff productivity indicates how effectively IT managers and their staff use their time. Besides reducing operations costs, gains in IT productivity can free up staff to implement new initiatives more rapidly, helping to create a competitive edge. # User productivity is increasingly dependent on service uptime as organizations become progressively more network-centric. When users are unable to access network resources, their productivity may be severely impaired. User productivity also suffers when employees have to wait for help desk support or other IT administrative tasks. Since users often are able to move to other business applications when service interruptions or performance degradations occur, only a small fraction of the potential user impact time is counted toward the final ROI result. In addition to reducing impediments to productivity, WAA actually enhanced productivity by reducing latency and speeding up performance. # Revenue. WAA impacted revenue realization through business operations in two ways: Increased speed and performance enabled more orders to be processed and quickened time to market, and higher service availability contributed to the businesses' top lines because less revenue is lost due to downtime. Additionally, increased performance and lower downtime are the two most important contributors to improved customer satisfaction, which impacts future revenue. IDC converts top-line revenue changes by subtracting the costs to produce those revenues (85 90% reduction) and then taxes the net at 30 50%. # IT cost savings. IT costs can be cut by improving IT staff efficiency, which is a measure of how well the IT management organization can achieve economies of scale and scope of work with its people, tools, and practices. To remain competitive, companies must be able to grow their systems and networks at a faster rate than the IT staff required to support them. Skilled IT professionals continue to be scarce, so companies are expecting existing staff to take on more work and responsibilities. If IT departments are unable to achieve the required economies of scale and scope, they restrain corporate managers' business decisions and discourage aggressive deployment of technology to gain a competitive advantage. The customers in the study were able to reduce or reallocate IT resources that were formerly tied to the IT resources supporting the Web-based applications. The other major area of savings came from eliminating the hardware and software resources required to deliver the enterprise applications IDC #

6 3. Calculate the payback period and ROI for the deployed solution. From the results of the interviews, IDC was able to calculate the average payback period and ROI from using the Akamai WAA service based on the net present value (NPV) methodology. IDC bases its calculations on a number of assumptions: # User and IT staff productivity are functions of time multiplied by burdened salary (salary + 28% for benefits and overhead) and uplifted at an annual rate of 5%. # Lost user productivity is the value of the time lost to downtime, performance degradations, help desk calls, or other availability issues multiplied by a discount factor of 10 50% to recognize that users are still productive even though they may not have access to enterprise applications. # Increased revenue is captured verbatim from interviews and then converted to a percentage of total revenue. # Lost revenue is a product of downtime multiplied by the average revenue loss per hour (based on interviews). # IT cost reductions are based on interviews. # The investment includes an initial investment plus three years of annual costs, all derived from interviews. # The benefits are based on the change in business operations before and after the deployment of the solution, projected over three years across the organization. # Because IT solutions require a deployment period, the full benefits of the solution are not available during deployment. To capture this reality, IDC prorates the benefits on a monthly basis and then subtracts the deployment time from the first-year savings. # The NPV is calculated by subtracting the total investment from the total benefits discounted at a 12% rate to account for average cost of capital plus risk. # ROI is the ratio of the NPV and the investment. # Payback is the time period from deployment to when the cash flow becomes positive (and stays positive). 6 # IDC

7 STUDY RESULTS In this study, IDC asked a number of quantitative questions about management processes and the associated time and staffing requirements before and after deploying the Akamai WAA service. IDC analyzed the implementation costs as well as the benefits realized, including the revenue generated through improved business operations. Additionally, IDC asked a number of qualitative questions regarding the decision-making process for deploying the service, how well the service had met expectations, and how well the service had achieved anticipated business objectives. Cost-Benefit Analysis From the results of the interviews, IDC was able to determine the average benefits realized from increased user productivity, IT cost reduction, and increased revenue. Comparing these benefits with the average three-year investment in Akamai WAA service yielded the ROI and payback period. Benefits from all sources averaged $42,830 per 100 users (internal and external) annually (see Figure 1). FIGURE 1 Annual Benefits from Deploying Akamai Web Application Accelerator User productivity ($5,882) Hardware/ software savings ($3,048) Bandwidth savings ($4,996) IT operations savings ($954) Revenue impact ($27,950) Total = $42,830 per 100 users Source: IDC, IDC #

8 User Productivity User productivity analysis was based on two factors: 1. Internal productivity, which increased by 2%. Productivity increase is the result of reduced latency (45%) and enhanced speed and performance (144%) among remote users. These improvements increased the utilization of the applications and reduced the time spent waiting for them to load or respond. 2. Increased availability. Enterprise application downtime was reduced by 14%, which contributed to improved confidence and higher utilization rates. The combined user productivity increased by 3.8 hours per user per year, generating $5,882 in annual benefits per 100 users. IT Cost Savings IT budget reductions were realized in three areas: hardware/software, bandwidth, and IT staff. Companies achieved hardware and software savings either through eliminating infrastructure as they migrated their enterprise applications to Akamai's network or through cost avoidance from not having to add infrastructure to support additional users, sites, and applications. One company estimated that it would cost $11 million in hardware to duplicate the WAA service in its environment. Reduced hardware and software spending accounted for $3,048 per 100 users per year. WAA performance enhancements enabled companies to reduce their bandwidth utilization and costs by 5 20%. Because these companies are heavy users of Web-based applications with multiple sites, the resulting savings averaged $4,996 per 100 users per year. Outsourcing reduced the demands on IT staff, enabling companies to reallocate 0.5% of their IT staff and save another 1.5% in not having to grow IT staff to meet increased numbers of users and applications. IT staff efficiency savings totaled $954 per 100 users per year. In total, IT budgets were reduced by $8,998 per 100 users annually. Revenue Impact With the exception of one government organization, the companies in this study relied on their Web-based applications to generate a significant portion of their revenue. As a result, increased revenue accounted for 65% of total benefits, including the reduction in downtime. Companies experienced different drivers for revenue generation (see Table 1). 8 # IDC

9 TABLE 1 Examples of Revenue Realization from the Deployment of Web Application Accelerator Web Application Accelerator Business Impact Revenue per 100 Users Increased speed enables more orders from dealers. $1,500,000 Ease of use adds one to two new customers per year. $45,000 Customer satisfaction leads to increases in basket size and repeat business. $20,000 By providing information to clients and partners more quickly, companies are included in more bids and specifications. $1,700 Customer churn is reduced. $47,000 Source: IDC, 2006 Companies participating in the study experienced an average revenue benefit per year of $27,950 per 100 users. The magnitude of generated revenue, even when only taking 10% and taxing the income at 30%, is so large that it skews the benefits picture. Because not all companies may enjoy revenue benefits, we purposely focused the ROI analysis on IT cost savings only. Payback and ROI Overall, the companies invested an average of more than $520,000 over three years in deploying the Akamai WAA service, or $31.55 per user. Unlike most IT investments, where the initial investment accounts for 50 70% of the total investment, only 11% of the investment for WAA is made initially; 82% of the investment is in the fees, which average $10,000 per month. For the Akamai WAA service customers surveyed, the hard IT operations savings averaged more than $1.49 million annually, or $8,998 per 100 users. IDC accounts for the opportunity costs realized by not having invested the initial amount in some other instrument yielding a 12% return. This results in an NPV for the three-year benefits of $18,350 per 100 users (see Table 2). If revenue and productivity were included, the ROI would increase by a factor of five. Based only on the cost reduction benefits, the payback period from deploying the Akamai WAA service averaged 1.8 months for the companies surveyed, yielding an average ROI of 582% IDC #

10 TABLE 2 ROI Analysis: IT Cost Reduction (per 100 users) Annual benefits $8,998 Annual investment $1,052 Three-year net present value $18,350 Return on investment over three years 582% Payback period 1.8 months Discount rate 12% Source: IDC, 2006 CHALLENGES AND OPPORTUNITIES As Web applications evolve, it is clear that demand for Web application delivery is growing and that customers are increasingly interested in solutions that enhance application performance and availability. To realize this vision, companies are working to articulate strategies that emphasize enterprise requirements and coexistence with the existing networking infrastructure. Despite the broader market adoption of application delivery services, challenges still exist, including:! Cultivating an ecosystem. As customers increasingly view application delivery solutions within the context of the greater enterprise connectivity, Akamai will need to expand and cultivate its ecosystem of partners. Incumbent providers are likely to expand their managed portfolios to include application acceleration services. As such, Akamai will need to continue to focus on working with partners across all aspects of the network, software, and services layers to benefit from an application networking ecosystem.! Demonstrating the benefit of a services approach. Network equipment providers are increasingly positioning application networking as integral to next-generation networking deployments. Network managers are deploying application networking as both standalone solutions and blade-based upgrades to routers and switches. Akamai will need to continue to emphasize not only the services benefit in very large, globally dispersed deployments but also its ability to complement and enhance existing deployed technology.! Encompassing mission-critical requirements. Web applications continue to evolve beyond consumers and are now a vital aspect of the business process. As companies look to Akamai, the company must demonstrate that its network is meeting enterprise requirements and objectives such as security, quality of service, and service-level priorities. 10 # IDC

11 CONCLUSION The data collected in this study strongly suggests that companies engaging in substantial levels of ebusiness, or companies deploying critical business applications over the Web, should evaluate the costs and benefits of deploying Akamai's Web application acceleration managed services. Participants in this study experienced substantial benefits generated by increased application performance and much higher usage by employees, business partners, and customers. The higher performance was coupled with lower capital and operational costs. The pricing structure for these services is transparent and consistent, regardless of the size and complexity of the environment, which makes it relatively simple for companies to do their own analysis and make informed buying decisions. CASE STUDIES BrassRing BrassRing is a provider of talent management solutions. Its recruitment expertise includes online technology, consulting, and sourcing services. The company's solutions help customers reduce hiring costs and streamline recruiting processes. BrassRing provides solutions to help organizations identify, assess, recruit, and retain a global workforce. BrassRing has deployed the Akamai solution for use with its recruiter application, which is responsible for the entire life cycle of its talent management solution. BrassRing has over 50 clients with users in 79 countries and is used by organizations in the following industries: aerospace, defense, biotechnology, pharmaceutical, business services, education, energy and utilities, financial services, government, healthcare, insurance, manufacturing, media, entertainment, retail/wholesale, and telecommunications. A primary impetus for BrassRing's decision to select Akamai's WAA was that the company needed to accelerate its recruiter application to meet the needs of its global clients. BrassRing has a rapidly expanding global user base, and user satisfaction with the application was related to the location of the end user. The company realized that it needed a global Web acceleration platform. BrassRing's clients are global, but a number of them have significant presences in China and the Pacific Rim. Implementing Akamai's WAA was a proactive measure that BrassRing took in order to scale globally and confidently expand efforts in Asia IDC #

12 Key benefits of the Akamai WAA solution include the following:! Productivity. Akamai's WAA helps increase IT staff members' productivity by decreasing the time they spend on the phone with end users. Prior to the WAA deployment, the IT staff had long discussions with end users explaining why the Internet had wide area communication limitations. Today, the IT staff can now simply point customers to the Akamai URL and the performance problems are solved. As a result, BrassRing's IT staff can work on other issues.! Global expansion. BrassRing has a rapidly expanding global user base. The company discovered that the further users were from the East Coast datacenter, the less likely they were to use the enterprise application. To continue to expand its user base within existing customers, and to expand into new customers, the company needed to increase the performance of the applications. With the Akamai WAA service, customers in the Midwest noticed a 20 30% performance enhancement while customers in China reported a 140% performance improvement. Critical to the decision to implement an Akamai base solution were Akamai's 20,000 servers worldwide. BrassRing decided that Akamai's points of presence (POPs) are the most comprehensive in the industry and magnitudes more complete than any solution it could build.! Revenue growth. The company recently expanded its global presence in the Asia/Pacific region with the opening of an office in Hong Kong. The new office will provide BrassRing with centralized access to the entire Asia/Pacific region and support the company's global business development initiatives. Akamai's WAA service enables BrassRing to confidently offer a service that will meet users' performance expectations.! Customer satisfaction. Customer satisfaction is critical to BrassRing's ongoing revenue stream. By implementing the Akamai WAA service, BrassRing alleviated the concern that some percentage of a client's multinational end users would decline to use the service because of poor performance outside the United States. In essence, it is an insurance policy that customers will not renegotiate smaller contracts with fewer end users. Blue Tech Blue Tech Inc. is a network systems integrator and IT support services company that focuses on the following areas: IT systems integration, IT infrastructure, video teleconferencing, as well as network and physical security access control. The company provides custom solutions to federal and state agencies, private industries, and the United Nations. Blue Tech has deployed the Akamai solution for use with a client's inventory management system. The system is responsible for the logistics of delivering inventory across the globe. Blue Tech has over 8,000 users in 250 countries utilizing this management system via Akamai. Implementing Akamai's WAA was a proactive measure that Blue Tech took in order to be increasingly agile in a large-scale global deployment. 12 # IDC

13 Key benefits of the Akamai WAA solution include the following:! Global scale. The users of the Blue Tech inventory management system are spread across the globe. This user base is fluid and needs predictable, reliable performance independent of location. With Akamai, Blue Tech can both expand to support new users and easily support the shifting concentration of users. With Akamai's WAA service, users of the inventory management system realized a greater than 20% performance improvement while users in some circumstances reported a 40% performance improvement.! End-user satisfaction. The end users of the inventory management system are in a constant cycle of interactivity with the database. The response time provided by the Akamai WAA system provides a comfort factor to end users, who find satisfaction in knowing that their interactions with the system are complete and recognized.! Expanded offerings. With the introduction of the Akamai service, Blue Tech is considering adding new features to the inventory management system as well as developing new services for the customer. By utilizing Akamai's ability to both pre-position data and route traffic to the closest server, Blue Tech can empower end users to make more informed decisions with appropriate content available anytime, anywhere.! IT productivity. The beauty of the WAA for Blue Tech is that it required little effort from the IT staff. End users gain in performance and response time, and the IT staff only had to reroute the DNS lookup. Copyright Notice External Publication of IDC Information and Data Any IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country Manager. A draft of the proposed document should accompany any such request. IDC reserves the right to deny approval of external usage for any reason. Copyright 2006 IDC. Reproduction without written permission is completely forbidden IDC #