Evaluating Cloud UC Costs

One of the most frequent questions enterprise clients ask us when contemplating a move to the cloud is, "Will we save money?" And in typical consulting fashion, my answer is that it depends.

This question of cost savings isn't going away anytime soon. The majority of companies are moving unified communications and collaboration (UCC) into the cloud, planning to do so, or evaluating the option. In fact, only 16% of organizations are doing nothing with cloud UC.

This comes from Nemertes Research's most recent UC cost data research, which includes detailed cost figures for 264 organizations. We found that companies actually spend more on ongoing operational costs for cloud than those who run UC on premises.

Specifically, cloud UC will cost more in operational costs at least for the first two to three years for midsize to large enterprises, though an on-premises solution almost always costs more in total costs for the first year because of capital and implementation. (Small companies typically see a cost savings, particularly when comparing apples-to-apples in terms of 24 x 7 support.)

Analyzing costs by year

One of the drivers of cloud UC adoption is a perception of cost savings. I write "perception" because that's truly what it is for most organizations.

Among all companies of all sizes, total cost per license for on-premises UCC is $733, compared to only $535 for a cloud solution in the first year. So in year one, cloud is cheaper because the provider is absorbing the capital and implementation costs.

By years two and three, however, those costs shift to $224 per endpoint (phone, audio bridge, softphone, etc.) license for an on-prem solution, and $437 per license for the cloud solution. Factors making up these costs include (where relevant) equipment maintenance, internal staffing, third-party managed services, monthly license fees for cloud (annualized), and IT staff training. By years three to four, we anticipate IT staffs will be able to reduce the IT staff working on cloud, thus reducing costs further.

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