A Forrester Total Economic Impact Study Commissioned By SanDisk Project Director: Dean Davison January 2014 The Total Economic Impact Of FlashSoft TM Software From SanDisk
Table Of Contents Executive Summary... 3 Disclosures... 4 TEI Framework And Methodology... 5 Analysis... 6 Financial Summary... 11 FlashSoft Software: Overview... 12 Appendix A: Total Economic Impact Overview... 13 Appendix B: Glossary... 14 ABOUT FORRESTER CONSULTING Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting. 2013, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to www.forrester.com. [1-MASJ5J]
3 Executive Summary In January 2014, SanDisk commissioned Forrester Consulting to conduct a Total Economic Impact (TEI) study and examine the potential value that enterprises may realize by deploying FlashSoft TM software. The purpose of this study is to provide readers with a framework for evaluating the potential financial impact of FlashSoft software on their organizations. To better understand the benefits, costs, and risks associated with using FlashSoft software, Forrester interviewed customers with extensive hands-on experience using FlashSoft software in virtualized and physical (bare metal) installations. FlashSoft software monitors data usage and caches hot data on solid state drives (SSDs). In enterprise environments, a relatively small subset of data about 20% is responsible for approximately 80% of input-output operations per second (IOPS). By intelligently caching active data, the organizations that Forrester interviewed experience a significant boost in storage performance and improved IO density (IOPS/GB). During Forrester s interviews, companies benefited from FlashSoft software by: Offloading IOPS requests from storage spindles to server cache. Using SSD cache effectively shifts IOPS away from the storage system for server-side processing. Releasing underutilized storage capacity. By releasing the unused capacity on drives set up for short stroking, one company released enough capacity to meet its storage needs for more than 18 months. Protecting investment in the current storage system. FlashSoft software extended the life of the current storage system for 16 months. FlashSoft software benefited customers by: Caching hot data on SSDs improved the IO density from 0.7 to 9.7 IOPS/GB for highperformance storage. Reducing the cost of high-performance storage from $8.50 per IOPS to $1.05 per IOPS lowers the total cost of storage by $485,065. Postponing a storage system upgrade by 16 months frees up working capital, providing a financial benefit of $22,499. FLASHSOFT SOFTWARE REMOVES BOTTLENECK IOPS THAT DRIVE UP STORAGE COSTS Our interviews with four existing customers and subsequent financial analysis found that a composite organization based on these companies realized $393,374 in benefits based on an investment of $132,440 over three years. Most significantly, among the companies that Forrester interviewed, the average cost for high-performance storage dropped from $8.50 per IOPS to $1.05 per IOPS. Overall, the composite organization realized a risk-adjusted ROI of 197% by using FlashSoft software with a payback period of six months. TABLE 1 Composite Company Three-Year Impact ROI Payback period Total benefits (present value) Total costs (present value) Net present value 197% 6 months $393,374 ($132,440) $260,935 Source: Forrester Research, Inc.
4 Costs. The composite organization experienced the following costs: Licensing and implementing FlashSoft software for a cost of $115,600. Licensing FlashSoft software along with architecting, testing, and implementing cost $85,000 in Year 2 and additional $15,300 for the subsequent two years. Purchasing a total of 2 TBs of SSD drives at a cost of $30,720. This cost equipped four servers with 256 GB capacity each or 512 GB raw flash per server for a total of 2 TBs of SSD drives. The SSDs are mirrored to protect writes in the event of a (SSD) media failure. Benefits. The composite organization realized the following benefits: Reducing the cost of high-performance storage for a savings of $485,065. Introducing caching of hot data increased the IO density from 0.7 to 9.7 IOPS/GB for high-performance storage. Postponing a storage system upgrade for 16 months for savings of more than $22,499. The composite company delayed upgrading its storage system for 16 months. Disclosures The reader should be aware of the following: The study is commissioned by SanDisk and delivered by Forrester Consulting. Forrester makes no assumptions as to the potential return on investment (ROI) that other organizations will receive. Forrester strongly advises that readers use their own estimates within the framework provided in the report to determine the appropriateness of an investment in FlashSoft software from SanDisk. SanDisk reviewed and provided feedback to Forrester, but Forrester maintains editorial control over the study and its findings and does not accept changes to the study that contradict Forrester's findings or obscure the meaning of the study. The customer names for the interviews were provided by SanDisk.
5 TEI Framework And Methodology INTRODUCTION From the information provided in the interviews, Forrester constructed a Total Economic Impact (TEI) framework for those organizations considering implementing FlashSoft software from SanDisk. The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision. APPROACH AND METHODOLOGY Forrester took a multistep approach to evaluate the impact that FlashSoft software can have on an organization (see Figure 1). Specifically, Forrester: Interviewed SanDisk executives and Forrester analysts to gather data relative to FlashSoft software and the marketplace for enterprise flash. Interviewed four organizations currently using FlashSoft software to obtain data with respect to costs, benefits, and related risks. Designed a composite company based on characteristics of the interviewed organizations. Constructed a financial model representative of the data obtained from the interviews, with the model then applied to the composite organization. Forrester employed four fundamental elements of TEI in modeling FlashSoft software: Costs. Benefits to the entire organization. Flexibility. Risk. Given that enterprises are using increasingly sophisticated methods to estimate the expected ROI from investments, Forrester s TEI methodology provides a complete picture of the total economic impact. Please see Appendix A for additional information on the TEI methodology. FRAMEWORK ASSUMPTIONS The discount rate used in the present value (PV) and net present value (NPV) calculations is 10%, and the time horizon used for the financial modeling is three years. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult with their respective company s finance department to determine the most appropriate discount rate to use within their own organizations. FIGURE 1 TEI Approach TEI Approach Perform due diligence Condu ct customer interviews Design composite organization Construct financial model using TEI framework Write case study Source: Forrester Research, Inc. Perform due diligence Condu ct customer interviews Construct financial model using TEI framework Write case study
6 Analysis COMPOSITE ORGANIZATION For this study, Forrester conducted a total of four interviews with representatives from the following companies: Financial services company: Large financial services company headquartered in North America with business units for commercial and consumer markets. Transportation provider: Global provider of air traffic and freight transportation around the globe. Commercial utilities management firm: Manager of commercial utilities and specialized disposal services for companies across North America. Regional cloud infrastructure vendor: Provider of cloud infrastructure, including servers, storage, and network, within the Asia Pacific region. Based on the interviews, Forrester constructed a composite company that illustrates the areas financially affected. The composite organization that Forrester synthesized from interviews has the following characteristics: Workload requirements (IOPS) are 143,750 in Year 1 and increase 15% annually. Typical growth requires a wholesales storage system upgrade every three to four years. The ratio for IOPS averages 70% reads to 30% writes. Thirty percent of drives are configured for short stroking. A drive that is configured for short stroking uses 30% of its total capacity. Eliminating short stroking releases the remaining 70% capacity on each drive. SAN storage is managed in a RAID10 configuration, incurring a 20% capacity penalty for RAID, in addition to the 100% cost of mirroring. A wholesale (i.e., rip and replace) upgrade to a new high-performance system was not economically feasible since the existing system was still relatively new (had time left for depreciation and still had existing warranty). INTERVIEW HIGHLIGHTS Situation The composite company was facing challenges that led it to evaluate FlashSoft software, including: Though its existing storage system has abundant capacity, the organization found that its application performance workload was exceeding the current IOPS performance capabilities of its system. The composite organization measured its IO density at 0.7 IOPS/GB, meaning that the organization needed more than 200 TBs of usable storage for its 143,750 IOPS workload. By configuring 30% of drives for short stroking making 70% of each drive unusable the composite organization had more than 80 TBs of installed, but unusable, capacity. Solution The composite organization selected FlashSoft software for an initial proof of concept (POC) because it: Monitors data usage and prioritizes data to cache. Caches data blocks rather than entire files or folders. Provides a hybrid automated solution for leveraging existing or future investments in enterprise flash. Results Forrester s interviews revealed that the composite company: Eliminated short-stroking configured drives, freeing more than 80 TBs of capacity. Improved the IO density from 0.7 to 9.7 an increase of more than 13 times. Shifted the cost for high-performance storage from $8.50 to $1.05 per IOPS, providing a savings of $485,065 over three years.
7 BENEFITS The quantified benefits that the composite organization experienced from using FlashSoft software are: Reducing the cost for high-performance storage. Postponing a costly unplanned storage system upgrade. Reduced Cost Of High-Performance Storage After implementing FlashSoft software, the composite company is now able to: Reduce the number of drives that are configured for short stroking, releasing more than 80 TBs of capacity. Increase IO density from 0.7 to 9.7 by caching frequently accessed information on SSDs. As a result, the cost for high-performance storage drops from $8.50 to $1.05 per IOPS, providing a savings over three years of $485,065 (see Table 2). Postponed Capital Investment To Upgrade Storage System The composite organization was able to postpone a planned upgrade to the storage system by 16 months, giving it access to working capital (see Table 3). Forrester s price of $0.66/GB includes a base price for the storage system of $0.30/GB, an additional 80% ($0.24/GB) for implementation, and 40% ($0.12/GB) for testing and configuration. The value of working capital over 16 months measured by the return on assets of 12% is $22,499. TABLE 2 Reduced Cost For High-Performance Storage Ref. Metric Calculation Year 1 Year 2 Year 3 Total A1 Company IOPS workload 143,750 165,313 190,109 A2 Additional IOPS needed 15% growth 18,750 21,563 24,797 A3 Reduced cost per IOPS $8.50-$1.05 $7.45 $7.45 $7.45 At Total reduced cost $139,688 $160,641 $184,737 $485,065 TABLE 3 Postponed Capital Investment To Upgrade Storage System Ref. Metric Calculation Year 1 Year 2 Year 3 Total B1 Installed storage (GBs) 15% growth 205,357 236,161 B2 B3 Bt Months postponed in each fiscal year Avoided upgrade cost during each fiscal year Total value of postponing storage system upgrade Source: Forrester Research, Inc. 16 months 12 months 4 months B1*B2*$0.66/ GB $135,536 $51,955 B3*12% $16,264 $6,235 $22,499
8 Total Benefits As shown in Table 4, the composite organization realizes $507,564 in benefits by using FlashSoft software. The company s direct savings come from avoiding capital expenditures for a storage system and using existing released capacity instead of purchasing additional drives. Unquantified Benefits Additional benefits that some companies might experience but that are outside of the findings of Forrester s model are the abilities to: Reduce staffing of storage administrators. Most companies hire, on average, one storage administrator per 200 TBs of storage. Using FlashSoft software could give companies a short reprieve in hiring storage admins while avoiding the purchase of additional drives. Increase productivity of employees. The objective of improving application performance is to enhance the productivity of employees using the application. The composite organization expects to see a marked improvement in productivity but had not measured productivity at the time of this study. Increase revenue from revenue-generating applications. The composite organization has some applications that directly support its online customer experience. Although it had not measured the impact at the time of this study, the composite organization expects an increase in revenue that ultimately stems from improved application performance by using FlashSoft. Avoid investment in expensive storage technologies. Companies that are evaluating expensive alternatives, such as all-flash arrays or tier one storage systems, will have bigger windows of opportunity without having to make decisions in crisis mode. Avoid investment in upgrading facilities. FlashSoft can boost performance without adding disk systems, which will increase the overall power and rack space consumption of the storage environment. TABLE 4 Total Benefits Ref. Metric Year 1 Year 2 Year 3 Total At Reduced cost of highperformance storage $139,688 $160,641 $184,737 Bt Total value of postponing storage system upgrade $16,264 $6,235 Present value Total benefits $155,952 $166,875 $184,737 $507,564 $418,483 Source: Forrester Research, Inc.
9 COSTS Forrester quantifies the cost to the composite company of using FlashSoft Software. The costs shown in Table 5 are: Licensing and implementing FlashSoft software. The composite organization incurred indirect costs for the staff time to evaluate alternative technologies, architect a solution, and run a pilot using FlashSoft software. In total, the organization incurred fees of $85,000 in Year 1 followed annual costs of $15,300. Purchasing SSDs. The composite organization purchased 2 TBs of SSDs at $15/GB for a total cost of $30,720. FLEXIBILITY Flexibility, as defined by TEI, represents an investment in additional capacity or capability that could be turned into business benefit for some future additional investment. This provides an organization with the ability to engage in future initiatives that would otherwise be impossible. FlashSoft software creates flexibility for the composite organization in several ways. Specifically, it enables the composite organization to: Experiment with storage configurations. Storage teams experiment with new ideas such as ratcheting up the IO density for databases in low-cost ways that are controlled on an application-by-application basis. Commit to service levels for storage response times. In database storage configurations, FlashSoft software makes it much easier (and lower-risk) to ensure that response times are met. TABLE 5 Total Costs Ref. Metric Year 1 Year 2 Year 3 Total Present value D1 FlashSoft software license $85,000 D2 FlashSoft software maintenance $15,300 $15,300 D3 2 TBs of SSDs $30,720 Dt Total cost of enterprise flash environment $15,300 $15,300 $15,300 $115,600 $101,412 Source: Forrester Research, Inc.
10 RISK Quantitatively capturing investment and impact risk by directly adjusting the financial estimates results in more meaningful and accurate estimates and a more accurate projection of the ROI. In general, risks affect costs by raising the original estimates, and they affect benefits by reducing the original estimates. The risk-adjusted numbers should be taken as realistic expectations since they represent the expected values considering risk. Table 8 shows the values used to adjust for risk and uncertainty in the cost and benefit estimates. The TEI model uses a triangular distribution method to calculate risk-adjusted values. To construct the distribution, it is necessary to first estimate the low, most likely, and high values that could occur within the current environment. The risk-adjusted value is the mean of the distribution of those points. Readers are urged to apply their own risk ranges based on their own degree of confidence in the cost and benefit estimates. TABLE 6 Cost And Benefit Risk Adjustments Costs Risk score Low Most likely High Mean FlashSoft software license fees Low 98% 100% 105% 101% Enterprise flash drives Low 98% 100% 105% 101% Benefits Risk score Low Most likely High Mean Reduced cost of high-performance storage Medium 80% 100% 103% 94% Total value of postponing storage system upgrade Medium 80% 100% 103% 94% Source: Forrester Research, Inc.
11 Financial Summary The financial results calculated in the Costs and Benefits sections can be used to determine the NPV and payback period for the organization s investment in FlashSoft software. These are shown in Table 7 below. Table 8 below shows the risk-adjusted NPV and payback period values. These values are determined by applying the risk-adjustment values from Table 6 in the Risk section to the cost and benefits numbers in Tables 4 and 5. TABLE 7 Cash Flow: Non-Risk-Adjusted Initial Year 1 Year 2 Year 3 Total Present value Costs ($30,720) ($85,000) ($15,300) ($15,300) ($146,320) ($132,132) Benefits $0 $155,952 $166,875 $184,737 $507,564 $418,483 Net benefits ($30,720) $70,952 $151,575 $169,437 $361,244 $286,351 TABLE 8 Cash Flow: Risk-Adjusted Initial Year 1 Year 2 Year 3 Total Present value Costs ($31,027) ($85,000) ($15,300) ($15,300) ($146,627) ($132,440) Benefits $0 $146,595 $156,863 $173,653 $477,110 $393,374 Net benefits ($31,027) $61,595 $141,563 $158,353 $330,483 $260,935 Source: Forrester Research, Inc.
12 FlashSoft Software: Overview FlashSoft software from SanDisk is engineered to be a costeffective solution for using enterprise flash storage that improves the performance of standalone applications, virtualized infrastructure, and physical storage. The software enables companies to create a solid-state storage cache in servers, enabling server-side flash to complement the storage systems. As a result, FlashSoft delivers the benefits of flash storage with minimal disruption to existing server and storage infrastructure. Organizations typically deploy FlashSoft software when performance workloads are constrained by storage I/O latency. Typical applications are: Transactional database applications. Analytics and business intelligence workloads. Information access and records systems. Virtualized server and desktop environments. FlashSoft software is available for Windows Server, Linux, and VMware vsphere environments. The software works with SATA, SAS, or PCIe solid-state devices from any vendor.
13 Appendix A: Total Economic Impact Overview Total Economic Impact is a methodology developed by Forrester Research that enhances a company s technology decision-making processes and assists vendors in communicating the value proposition of their products and services to clients. The TEI methodology helps companies demonstrate, justify, and realize the tangible value of IT initiatives to both senior management and other key business stakeholders. The TEI methodology consists of four components to evaluate investment value: benefits, costs, risks, and flexibility. BENEFITS Benefits represent the value delivered to the user organization IT and/or business units by the proposed product or project. Often product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place equal weight on the measure of benefits and the measure of costs, allowing for a full examination of the effect of the technology on the entire organization. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line. COSTS Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs in the form of fully burdened labor, subcontractors, or materials. Costs consider all of the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created. RISK Risk measures the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two ways: 1) the likelihood that the cost and benefit estimates will meet the original projections, and 2) the likelihood that the estimates will be measured and tracked over time. TEI applies a probability density function known as triangular distribution to the values entered. At a minimum, three values are calculated to estimate the underlying range around each cost and benefit. FLEXIBILITY Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the initial investment already made. For instance, an investment in an enterprisewide upgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated. The collaboration can only be used with additional investment in training at some future point in time. However, having the ability to capture that benefit has a PV that can be estimated. The flexibility component of TEI captures that value.
14 Appendix B: Glossary TERMS USED BY FORRESTER Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although the Federal Reserve Bank sets a discount rate, companies often set a discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their respective organization to determine the most appropriate discount rate to use in their own environment. A NOTE ON CASH FLOW TABLES The following is a note on the cash flow tables used in this study. The initial investment column contains costs incurred at time 0 or at the beginning of Year 1. Those costs are not discounted. All other cash flows in Years 1 through 3 are discounted using the discount rate (shown in the Framework Assumptions section) at the end of the year. PV calculations are calculated for each total cost and benefit estimate. NPV calculations are not calculated until the summary tables and are the sum of the initial investment and the discounted cash flows in each year. Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs. Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total NPV of cash flows. Payback period: The breakeven point for an investment. This is the point in time at which net benefits (benefits minus costs) equal initial investment or cost. Return on investment (ROI): A measure of a project s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs. Return on assets (ROA): Often referred to as working capital, ROA is the value to a company of not spending capital within a particular period of time. When a company delays a cost by one year, it is able to use the capital for other purposes, providing a benefit that is equivalent to the company s average ROA.