SMARTPHONE TOTAL COST OF OWNERSHIP:

Aug. 2015 SMARTPHONE TOTAL COST OF OWNERSHIP: Analyzing the Impact of Device Failure for Line-of-Business Applications By: David Krebs EVP, Enterprise Mobility and AIDC 0

Enterprise Mobility Investments: TCO & ROI Models Becoming More Critical With almost 100 million mobile devices expected to be used by frontline enterprise mobile workers in 2015, demands for robust enterprise mobile management solutions are increasing. Of equal importance are strong metrics such as ROI and TCO to not only validate investments, but to track and measure use of mobile solutions within the enterprise post-deployment. Today, the most sophisticated enterprise mobility solutions remain concentrated in line-of-business and operations-centric environments such as transportation and delivery, field-service automation, security, material management and retail automation, among others. It is within these environments where enterprise organizations have been most actively (re)evaluating their investments, especially around mobile device types, level of ruggedness and mobile OS. The use of smartphones and tablets especially those running ios and Android has exploded with enterprise support and acceptance similarly increasing. In customer-facing line-of-business applications, these devices are increasingly being evaluated and deployed by enterprise organizations. This is, in part, a result of lower upfront adoption costs of these devices in relation to more enterprise-centric devices, especially ruggedized devices. However, of equal importance is the intuitive nature of the user experiences and interfaces unique to those platforms. Traditional enterprise mobile OS platforms, especially for handheld, smartphone and tablet form factors (primarily Microsoft), have lagged in that respect, creating a perceptible void and opportunity in the market. While the availability of third-party device management, accessory and other capabilities have created a stronger value proposition of ios and Android devices in the enterprise, major functionality and use gaps remain, especially for line-ofbusiness solutions. At the core of the issue is that many of these consumer devices are not designed for use in many line-of-business environments and hardware failure is a major issue. It is not uncommon for enterprises to report failure rates in excess of 50%. However, issues extend well beyond hardware failure and span management and support requirements of mobile devices, mobile OS stability and support options, and sustainable development. It is within the context of these issues that mobile devices supporting business and mission-critical line-of-business applications needs to be evaluated. 1

Mobile Device Failure Has Disruptive Impact on Enterprise Workflows, Increasing Mobile Device TCO The recent influx of consumer devices into the enterprise through broader support for BYOD programs and the desire by users for a more intuitive and modern platform has contributed to an increase in device failure rates. Enterprises are also equipping their frontline mobile workers with these lower-cost consumer devices to support a variety of business and mission-critical workflows. However, failure rates for popular (non-rugged) consumer devices used to support line-of-business applications exceeds 20% for smartphones, representing a measurable increase in comparison to the previous research conducted by VDC. Annual failure rates of legacy rugged handheld devices estimated at 6.2% by VDC have also increased over recent years as enterprises have elected to extend replacement cycles as they evaluated next-generation alternative solutions. Although demand for these devices remains, end users have become frustrated with their high price points and limited functionality of the legacy software. However, the integrated data-capture capabilities once unique to these devices is now also being offered by a growing ecosystem of third-party accessories. Many smartphones and tablets are being deployed with specialized accessories such as a sled-based device for scanning and payment. While accessories can be valuable to create a more flexible and functional mobile platform without having to invest in a more purpose-built or integrated solution. Important considerations for end users is that these accessories can represent a significant increase to upfront investments and also represent an additional source of failure. There is a growing opportunity for ruggedized smartphones that embrace the design elements of modern mobile devices while delivering capabilities critical for enterprise workflows, including rugged design, unique enterprise requirements (such as Push to Talk) and key service and support. 2

Adverse Impact of Mobile Device Failure on Line-of-Business Workflows Non-Rugged Smartphone 20% Average annual failure rate 85 mins Downtime per failure Rugged Smartphone 6% Average annual failure rate 15% Replaced by second year 3x Lower failure rate 46% Lower annual TCO 3

Rugged Mobile Value Proposition Evolving Beyond Legacy Data-Collection Terminals The value proposition of rugged mobile devices is changing as OEMs place greater emphasis on device durability Segment has been facing a growing design and usability gap between rugged and more consumer-oriented mobile. End users are showing greater tolerance for less rugged/industrial designed devices in return for greater ease of use and ergonomics. Legacy rugged handheld devices with their high price points and poor user interfaces are at odds with what the market was looking for. The market for data-capture-intensive solutions will remain true to these types of devices (e.g., keyboard-centric, gun form factor). However, opportunity in more field- and customer-facing scenarios eroding and increasingly challenged by consumer devices. However, consumer devices falling short in many use cases with limitations from device functionality and support service use cases. Door is opening for new class of enterprise-focused mobile devices/smartphones that combine the requirements of the enterprise customer and end user with the ease of use and industrial design made popular by consumer technology. Positioning of rugged mobile needs to extend beyond traditional TCO arguments and look more specifically at the lifecycle requirements of enterprise-class devices and their applications. Closer accounting of the management and support costs of the add-on peripherals that make up a consumer-grade solution is critical. Critical will be to address the perception that rugged devices or enterprise-user-focused devices are lagging in terms of keeping up with leading technology trends and providing meaningful innovation. Moreover, the enterprise support channel for more consumer-oriented solutions especially for services such as break-fix, depot and helpdesk services is often lacking, yet represents a critical requirement for enterprise mobility end users. The TCO value proposition for rugged solutions needs to extend beyond accepted failure rate models and focus more on the lost opportunity cost of failure (customer service impact, for example). In addition, the value of sustainable development and support needs to be clearly communicated. Ease of use critical not only in use but also in deployment and support Ease of deployment and support are just as critical. For example, for more sophisticated solutions that require vehicle mounting and wiring, numerous failure points emerge making the consolidation of wires into a wiring bracket or frame a key value-add. Value proposition of Android needs to extend well beyond the OS There is growing interest from the vendor community to leverage Android as a differentiated (consumer-like) platform for next-generation rugged handheld and tablet solutions. The value of Android lies not in the user interface and design of the platform, but rather in the promise of a vibrant ecosystem and broad choice of targeted applications. Hardware OEMs need to ensure that they are actively supporting the development of this ecosystem by engaging and investing in third-party application development. Part of the enterprise Android requirement will also be to support an enterprise hardened Android solution that functions outside of the volatile consumer upgrade cycles and subsequent platform fragmentation. 4

Refreshing of Rugged Mobile Value Proposition Required Which of the following best reflects your attitude toward ruggedized devices? 25% Which of the following best reflects your impression of the technical capabilities of ruggedized devices? 6% 6% 41% 52% 42% 28% Ruggedized devices are overpriced relative to their value Ruggedized devices are critical for several workflows We are planning on replacing ruggedized devices with non-ruggedized devices None of the above Ruggedized devices are significantly lagging behind key mobile technology trends Ruggedized devices are on a par with key mobile technology trends Ruggedized devices are leading key mobile technology trends 5

It s Still a Consumer Technology World, However, Level of Replacement Slowing 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Evaluation of Rugged Devices Prior to Deployment 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Replacement of Existing Rugged Devices with Consumer Devices 0% Smartphones Handheld Computers 0% Smartphones Handheld Computers Yes No Yes No Don't know 6

Batteries Not Lasting Entire Shift a Frequent Issue for Frontline Workers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Frequency Battery Does Not Last Entire Shift Rugged Smartphones Smartphones Don't know Never Rugged Handheld Devices Occasionally (Less than 50% of the time) Frequently (50% or more of the time) Handheld Devices As mobile devices embed more functionality and operate faster processers battery performance is increasingly exposed. For lineof-business applications the need for a device to support a full shift on a single charge is especially critical. According to our research seven in ten Smartphone users either occasionally or frequently experience batteries not lasting an entire shift. For the majority of Smartphone users this issue is further complicated by the fact that for several models batteries cannot be replaced. Another key requirement for enterprise users is a strong battery management program including, for example, servicing and replacing batteries that cannot charge beyond a certain point. 7

Considering Environment Critical to Device Selection Use of device in direct sunlight Use of device in wet conditions (rain) Use of device with gloved hands Environmental Scenarios Common to Mobile Use Cases Device exposure to extreme (low/high) temperatures Device exposure to dirt/dust particulates Device exposure to extreme vibration None of the above 5% 10% 9% 16% 15% 15% 16% 45% 35% 39% 26% 39% 26% 32% 22% 32% 33% 42% 38% 34% 37% 58% 58% 50% 64% 49% 58% 64% The unique usage scenarios and environments common to many line of business workers and applications create substantial complications for consumer devices. Key issues range from interfacing with a device using gloved or wet hands to using a device in direct sunlight or exposing the device to extreme temperature and vibration. Key causes of failure of consumer devices include exposure to water, dropping the device and temperature exposure. 0% 20% 40% 60% 80% Handheld Devices Smartphones Rugged Handheld Devices Rugged Smartphones 8

Cases Provide Some Protection, However, Do Not Fully Cover All Vulnerabilities Leading Mobile Device Failure Symptoms Leading Mobile Device Failure Causes 89% 33% Cracked display 87% 38% 68% 48% Damaged keyboard/keypad 20% 16% 47% 18% Peripheral/accessory 21% 25% 42% 58% Software failures 40% 59% 25% 4% I/O Port 26% 16% 13% 10% Wireless radios 17% 21% 0% 20% 40% 60% 80% 100% Dropping device Water/liquid exposure Software related issues Excessive vibration exposure Excessive heat/cold temperature exposure Dust particulates exposure Unauthorized changes to device configuration/settings by end user 12% 18% 7% 4% 3% 7% 2% 14% 8% 5% 16% 22% 26% 36% 35% 10% 2% 28% 18% 30% 44% 40% 55% 59% 69% 65% 92% 89% 0% 25% 50% 75% 100% Handheld Rugged Handheld Smartphone Rugged Smartphone Handheld Rugged Handheld Smartphone Rugged Smartphone 9

TCO Critical to Making Right Investment Decision Hard Costs Soft Costs Hardware Mobile Platforms Peripherals Training Initial User Training On-going User Training Software Upfront Fees License Fees Development Costs System Design and Integration Application Design and Development System Integration Staging Operational System Maintenance 3 rd Party Technical Support Internal Technical Support Upgrades Application Management Downtime Lost Manpower/Wages Lost Revenues HW Replacement 10

Mobile Device Failure Rates by Device Type (Supporting Line-of-Business Applications) 6.2% 11.0% 6.6% 20.2% 25.0% 20.0% 15.0% 10.0% 5.0% Average Annual Device Failure Rates The recent influx of consumer devices into the enterprise through broader support for BYOD programs and the desire by users for a more intuitive and modern platform has contributed to an increase in device failure rates. Failure rates for popular (non-rugged) consumer devices used to support line-ofbusiness applications exceeds 20% for Smartphones, in line with previous research conducted by VDC Research. Failure rates of rugged handheld devices have increased slightly in comparison to previous years. This can primarily be attributed to organizations postponing planned upgrades and extending the lifecycles of these devices as they decide on next-generation solutions. 0.0% Handheld Devices Rugged Non-Rugged Smartphones 11

$1,755 $2,085 $3,321 $3,875 Mobile Device Annual TCO for Line-of-Business Applications $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 As a result of the increased failure rates of consumer devices used in line-of-business environments, their TCOs relative to rugged options is up significantly. An additional factor contributing the to the higher TCO (and failure scenarios) is the added cost of accessories (such as scanner and payment sleds) required for consumer devices to deliver similar levels of line-of-business functionality. In addition to the high adoption cost of these accessories, many of them are not forward-compatible when device OEMs change the interface and I/O configurations of their devices. Nevertheless, the appeal of consumer devices lies not only in their lower upfront adoption cost but also the significantly superior user experiences delivered on these devices and improved industrial design. $0 Handheld Devices Rugged Non-Rugged Smartphones 12

40 Minuites 50 66 69 67 85 Productivity Loss, Time Required to Repair and Redeploy Devices Significant: Each Device Failure Can Cost an Organization Upwards of 170 Minutes of Labor 90.0 80.0 70.0 Productivity Loss, Diagnosis and Time Require to Redeploy The largest contributor to mobile device TCO is the loss in productivity of the mobile worker and the time and staff required to support these mobile devices. Each device failure can result in up to 170 to 200 minutes in lost mobile worker productivity and internal support. 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Handheld Devices Smartphones Productivity Loss Internal Time Spent to Diagnose and Repair Time Required to Redeploy 13