The Total Economic Impact Of Microsoft Windows Azure - Infrastructure, Data, And App Services Can Help Save IT Costs And Enable New Revenue ...

A Forrester Total Economic   Project Director:
                                                           Sean Owens
                              Impact™ Study
                              Commissioned By Microsoft
                                                           October 2013

The Total Economic
Impact Of Microsoft
Windows Azure
Infrastructure, Data, And App Services
Can Help Save IT Costs And Enable
New Revenue Opportunities
Table Of Contents
Executive Summary .................................................................................... 3
Disclosures .................................................................................................. 4
TEI Framework And Methodology ............................................................ 5
Analysis ........................................................................................................ 7
Financial Summary ................................................................................... 23
Microsoft Windows Azure: Overview ..................................................... 24
Appendix A: Composite Organization Description .............................. 25
Appendix B: Total Economic Impact™ Overview ................................. 26
Appendix C: Glossary ............................................................................... 27
Appendix D: Endnotes .............................................................................. 27

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Executive Summary                                                       Windows Azure enabled several key benefits for
                                                                        many interviewed organizations, such as:
In August 2013, Microsoft commissioned Forrester                         Infrastructure services help increase
Consulting to conduct a Total Economic Impact™ (TEI)                       revenue with an easier-to-use and more
study and examine the potential return on investment (ROI)                 streamlined application delivery platform.
enterprises may realize by deploying Windows Azure. The
                                                                           Infrastructure and data services help
purpose of this study is to provide readers with a framework
                                                                            increase revenue with a scalable pay-what-
to evaluate the potential financial impact of Windows Azure
                                                                            you-use development and test environment
on their organizations.
                                                                            leading to faster time-to-market.
To better know the benefits, costs, and risks associated with              App Services help connect data and
a Windows Azure implementation, Forrester interviewed                       applications for faster setup and reduced
current customers, each with at least a year of experience.                 errors related to business marketing
Interviewed organizations have taken advantage of                           activities, like a coupon campaign.
Windows Azure’s infrastructure, data, and application
offerings, leveraging services such as: Virtual Machines,
Storage, SQL Database, StorSimple, and Service Bus.                   with many now being completely handled by Microsoft
                                                                      and other processes being greatly reduced by the
Prior to Windows Azure, customers had a variety of on-                simplicity of Windows Azure.
premises solutions, perhaps located in a hosted data center
but still fully managed and administered by the organization.     ›   Improve marketing effectiveness and reporting by
This led to a variety of issues, such as: the existing data           leveraging Windows Azure App Services like Service Bus
center running out of room, opportunities or sales having             to communicate with internal systems and retail partners.
been missed because of slow application development or
delivery, and IT budgets rising at the same time the              WINDOWS AZURE LEADS TO FINANCIAL BENEFITS
company was calling for savings.
                                                                  Interviews with six existing customers and subsequent
With Windows Azure, customers were able to:                       financial analysis found that a composite organization based
›   Increase revenue through greater sales and faster time-
                                                                  on these companies estimated startup costs of about
    to-market, leveraging Windows Azure Infrastructure            $70,000, followed by annual service and management costs
    Services like Virtual Machines, for fast initiation and       of almost $100,000, versus benefits of around $330,000 per
                                                                  year, plus a one-time first-year benefit of nearly $700,000 in
    removal of development and test environments, and a
    more mature and easier-to-use application delivery            avoided hardware costs.
    channel.                                                      These add up to the risk-adjusted results shown in Figure 1
                                                                  and Figure 2. See Appendix A for a description of the
›   Save costs in IT administration and backup processes
                                                                  composite organization.
    with the Virtual Machines, Storage and Backup Services,

    FIGURE 1
    Composite Organization Overview Of Risk-Adjusted ROI And NPV With Key Benefits

                                                                97.5%                                   33%
       ROI:                      NPV:                   Improvement in                    Increase in customers in the first
       349%                   $1,105,902         development/test environment             year with a cloud-based software
                                                    setup and configuration                      distribution system

Source: Forrester Research, Inc.

›   Benefits. Some of the most impactful benefits                  ›   Costs. The composite organization experienced the
    experienced by the composite organization are listed               following risk-adjusted costs:
    here, as identified by interviewed companies:
                                                                         •   Estimated Windows Azure subscription fees
       •   Increased service subscription sales of about                     starting of about $80,000 per year over three
           $60,000 to $120,000 per year with a more                          years. Fees for Windows Azure, including Windows
           advanced client application connected with                        Server Virtual Machines, SQL Server, BizTalk
           Windows Azure. The composite organization                         Server-based Service Bus, Storage, Backup, and
           previously distributed its application via CD-ROM,                Support services, are paid based on usage. Costs
           which led to delivery and update difficulties. But                are estimates: Because pay-per-use service
           now with a hybrid application model that includes                 charges are applied only to what is used, light
           Windows Azure, it is easier to distribute, share, and             periods may be less expensive, and heavy periods
           manage the application. This has enabled easier                   may be more expensive. Additionally, the
           trial and update processes that have helped lead to               composite organization signed a 12-month
           more sales — an increase of 33% in the first year,                commitment, which includes a significant discount.
           with growth at a lower rate in following years.
                                                                         •   Annual costs for managing Windows Azure of
       •   By migrating to Windows Azure, one-time costs                     about $20,000. This is an annual estimate of
           estimated at nearly $700,000 for planned new                      resource costs to administer and manage Windows
           and upgraded servers, hosting, and other                          Azure. However, as shown in the Benefits column,
           hardware purchases were avoided. Keeping the                      it is much less than managing an on-premises
           previous solution made up of resources housed on-                 solution, since many management tasks (like
           premises and at a colocation site would have                      patches, updates, server health monitoring, etc.)
           required continued investment including new                       are handled by the Azure platform when used as a
           hardware to meet scale, upgrades to existing                      platform-as-a-service (PaaS) offering, and an
           hardware, and continued hosting costs.                            infrastructure-as-a-service (IaaS) offering (but to a
                                                                             lesser extent with the latter).
       •   Windows Azure’s App Services help marketing
           connect data and applications for faster setup                •   Implementation costs of about $70,000. This is
           and reduced errors, leading to $50,000 in                         based on time required for planning, migration (or
           savings per year. Windows Azure Service Bus                       new development), and implementation of an
           helped to more easily and quickly initiate a coupon               existing or new application or service to Windows
           marketing campaign, track sales, set coupon valid                 Azure.
           dates, and reduce duplicate coupon use.
                                                                   See Figure 2 for more details on these and other benefits
                                                                   and costs reviewed in this study.

The reader should be aware of the following:

›   The study is commissioned by Microsoft and delivered by Forrester Consulting.

›   Forrester makes no assumptions as to the potential 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 Microsoft Windows Azure.

›   Microsoft 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 Microsoft. Microsoft did not participate in customer interviews.

   Summary Of Risk-Adjusted, One-Time, And Annual Costs And Benefits

                                   Present Value

       Costs                                                                      Benefits
  ($317 thousand)                                                              ($1.42 million)
                                                               Improved revenue from increased
                                                             customers and faster time-to-market
                                                             Reduced marketing costs from
                                                            better business responsiveness
                                                                                                                    Avoided hardware
                                                                                                                    costs (one-time)
                                                                            Reduced IT management and
                                                                            software development costs
                                                   Initial planning and
                                                   implementation (one-time)

                                                   Annual resource consumption
                                                   and management costs

         ($500,000)        ($250,000)                        $250,000        $500,000         $750,000 $1 million           $1.25 million $1.5 million

Source: Forrester Research, Inc.
Note: This is based on three-year risk-adjusted figures. Values of costs and benefits are representative of a composite organization constructed from
aggregated feedback based on interviews with Microsoft Windows Azure customers.

TEI Framework And Methodology                                                    APPROACH AND METHODOLOGY
                                                                                 Forrester took a multistep approach to evaluate the impact
INTRODUCTION                                                                     that Microsoft Windows Azure can have on an organization
From the information provided in the interviews, Forrester                       (see Figure 3). Specifically, we:
has constructed a Total Economic Impact™ (TEI)                                   ›   Interviewed Microsoft marketing, sales, and/or consulting
framework for those organizations considering implementing                           personnel, along with Forrester analysts, to gather data
Microsoft Windows Azure. The objective of the framework is                           relative to Windows Azure and the marketplace for
to identify the cost, benefit, flexibility, and risk factors that                    Windows Azure.
affect the investment decision.

     FIGURE 3
     TEI Approach

Source: Forrester Research, Inc.

›   Interviewed six organizations currently using Microsoft
    Windows Azure to obtain data with respect to costs,
    benefits, and risks.

›   Designed a composite organization based on
    characteristics of the interviewed organizations (see
    Appendix A).

›   Constructed a financial model representative of the
    interviews using the TEI methodology. The financial
    model is populated with the cost and benefit data
    obtained from the interviews as applied to the composite
Forrester employed four fundamental elements of TEI in
modeling Microsoft’s Windows Azure service:

›   Costs.

›   Benefits to the entire organization.

›   Flexibility.

›   Risk.
Given the increasing sophistication that enterprises have
regarding ROI analyses related to IT investments,
Forrester’s TEI methodology serves the purpose of
providing a complete picture of the total economic impact of
purchase decisions. Please see Appendix B for additional
information on the TEI methodology.

Analysis                                                         ›   Further investigation and potential implementation of
                                                                     additional Windows Azure services are planned.
For this study, we conducted a total of six interviews with      “We had been spending a lot of time
representatives from the following companies, which are
Microsoft customers based in the US and Europe:
                                                                 on server updates, security patches,
                                                                 and other management tasks, which
›   A multinational consumer- and business-products
    manufacturing company headquartered the US.                  are now part of the Windows Azure
›   A midsized sporting-goods manufacturing company              services.”
    based in the US.
                                                                 ~ Project manager at a European school system
›   A large retail firm headquartered and primarily located in
    the US.
                                                                 INTERVIEW HIGHLIGHTS
›   A global furniture manufacturing company headquartered
    in the US.                                                   Information was collected from the six interviewed
                                                                 organizations and summarized as a composite organization.
›   A global construction company headquartered in the US.       The following situation, solution, and results are based on
                                                                 this analysis.
›   A local government school system in Europe.
Based on the interviews, Forrester constructed a TEI
framework, a composite company, and an associated ROI            The composite organization was faced with several key
analysis that illustrates the areas financially affected. The    business issues that it wanted to resolve quickly:
composite organization that Forrester synthesized from
these results represents an organization with the following
                                                                 ›   The organization developed and sold a well-regarded
                                                                     niche software solution but saw flat (and even decreasing)
                                                                     subscription sales in what should have been a growing
›   A US-based firm that develops and sells products sold in         market. The application was built on old development
    retail stores as well as some software.                          technologies that occasionally connected to a simple
                                                                     database, which led to distribution problems, update
›   About 50,000 employees.                                          delays, and version issues.
›   About 1,500 customers of the primary software product.       ›   The organization was projecting significant investment
                                                                     requirements for a number of in-house server resources,
›   Twenty to 30 servers supporting development, testing,
                                                                     including dedicated development and test environments.
    and operations for that group.

›   On-site storage and tape backup solutions, along with off-
                                                                 ›   The organization had a nightly tape backup system that
                                                                     was reaching its limits as backup times approached 24
    site services such as tape storage.
                                                                     hours — an upgraded or replacement system was
After an extensive request-for-proposal (RFP) and business           needed soon.
case process evaluating multiple vendors, the composite
organization chose Microsoft Windows Azure and began             ›   The organization saw rising costs in areas such as
deployment:                                                          marketing, IT management, development, and testing, as
                                                                     resources had to spend more time using older systems
›   Implementation started in early 2013.                            for more and more complex problems.

›   This first phase included subscriptions for IaaS virtual     Solution
    machine services as well as backup and storage services.     The composite organization had used a few cloud-based
                                                                 point solutions but selected Windows Azure for its full

solution set, high-quality services based on worldwide                 •   Avoid the purchase of at least one new tape backup
infrastructure, and the confidence that Microsoft’s name                   system.
                                                                       •   Greatly reduce the amount of time spent on
While Windows Azure provides a broad variety of services,                  management tasks dealing with the above
the organization started with compute services for                         equipment and services, such as managing a
virtualized Windows Server environments, data services for                 development/test server farm, backup tasks, and
SQL Server and backup, and application services for                        services costs for off-site storage and retrieval of
Service Bus.                                                               tape backups.
Results                                                         ›   Time-to-market is improved with faster time-to-
The interviews revealed that for the composite organization:        implement, more scalable, and more reliable
                                                                    development and test Windows Azure Compute
›   Windows Azure enables a more streamlined and                    services. A new development and test environment can
    better-managed application development,                         be set up quickly — and not six or eight weeks after you
    distribution, and licensing platform. Coupled with an           request the server from procurement and have it set up by
    application migration to .NET development, moving the           IT. That means development and testing can start
    back-end of the application to a shared application             immediately — and those eight weeks could mean
    database to Azure meant that it could ensure a reliable         significant additional revenue for certain applications
    data store that could scale to larger markets, check and        (such as a new sales tool that helps reps close more
    automatically update client software as needed, and             deals).
    implement a user account system as a required step to
    use the client software. This allowed the organization to
    eliminate draconian distribution policies and simply post   “Anytime you have to requisition
    the client software on the site — which resulted in near-
    instant positive feedback as well as a greater number of
                                                                hardware, it will take weeks to
    organizations downloading, testing, and purchasing the      coordinate efforts between
                                                                procurement, data center
“Windows Azure’s geo-redundant                                  management, IT operations, and
offering is a much better setup than a                          other groups.”
                                                                ~ Development manager at a sporting goods manufacturer
company of my size would ever be
able to afford.”
                                                                ›   Easy setup of environments and the ability to only
~ Vice president of information technology at a construction
                                                                    pay for what’s used with Windows Azure mean
management firm
                                                                    development and test cost savings. In addition to
                                                                    increased revenue, faster development or test
                                                                    environment setup means much less management time
›   Costs associated with the purchase of servers and               — setup takes just a few clicks. Also, production,
    other hardware, hosting services, and ongoing                   development and test environments are all exactly the
    management are avoided by migrating to Windows                  same Windows Azure environment — unforeseen issues
    Azure services. The composite organization was able to          that might arise because the development and test
    reduce or avoid a number of IT costs:                           environments were domain-attached servers (for
       •   Avoid purchasing a number of new servers and             example) are eliminated. Finally, the organization only
           upgrading existing servers.                              pays for what it needs — instead of having to buy a new
                                                                    server to support new development and test
       •   Eliminate costs to colocation hosts for resources        environments needed for a busy period, it simply expands
           moved to Windows Azure.                                  and then turns down its Windows Azure service needs.

›   With Windows Azure Service Bus, data transfer
    between internal and partner systems leads to
    immediate marketing campaign improvements. The
    composite organization, with Windows Azure Service
    Bus, can more easily share information between internal
    systems, partners, and customers; a service bus is a
    mechanism for centralizing and optimizing
    communications between multiple disparate systems.
    Based on the responses from interviewed organizations,
    the specific process of distributing and redeeming
    coupons was included in the composite organization
    model, measuring benefits in areas such as more easily
    and quickly initiating a coupon marketing campaign and
    more accurately tracking and reporting campaign
    effectiveness. With Windows Azure, the composite
    organization was able to distribute coupons via email,
    track incoming redeemed codes more effectively, and
    save significant costs in coupon marketing campaign
    upfront initiation and campaign-end reporting.

BENEFITS                                                           wrapped product. Even though it was for a very specific
                                                                   market and connected to a central database for data
The composite organization based on the interviewed with
                                                                   storage and business logic, it did not include authentication.
six Windows Azure customers experienced several
                                                                   So the organization couldn’t just post the application online
quantified benefits enabled by Windows Azure integrated
                                                                   and allow subscribers to download it — that would make it
with other cloud and on-premises business applications,
                                                                   available to virtually anyone and provide access to the full
data, and processes:
                                                                   product. This resulted in a number of organizational and
›   Increased revenue from better software scalability and         customer difficulties as illustrated in Figure 4, including:
                                                                   ›   The organization spent significant time and money
›   Increased revenue from faster time-to-market.                      printing and shipping the client application via CD-ROM.

›   Improved marketing management and reporting.                   ›   It also spent significant time handling customer requests
                                                                       for new and updated software — each request had to be
›   Hardware and hosting costs avoidance.                              verified manually before shipping a CD-ROM.
›   Reduced ongoing management costs.                              ›   The organization would ship updates to all subscribers,
                                                                       but there was no validation or reminders to ensure that
›   Higher developer productivity through faster test
                                                                       updates were installed.
    environment procurement.
                                                                   ›   Since it was harder to get updates, remember to install
Increased Revenue With Better Software Scalability And                 them, and/or request a replacement CD-ROM, new
Distribution Enabled By Windows Azure                                  customers were starting to choose alternative solutions,
                                                                       and even existing customers were starting to move.
With Windows Azure, the organization improved its
application platform delivery, support, and distribution           This, coupled with the fact that the application developed on
platform, leading to a reported 33% more new customers for         an older application platform, meant a flat, and even
its most popular software offering in the first year, plus an      shrinking, subscriber base. Windows Azure and a client
estimated continued growth in subsequent years.                    application re-development to .NET enabled subscriber
                                                                   authentication and validation checks for the latest version.
Previously, the application was distributed like a shrink-
                                                                   The central application database was deployed on Windows

     TABLE 1
     Non-Risk-Adjusted Incremental Revenue From Increased Number Of Customers

    Ref.   Metric                                               Calculation             Year 1          Year 2           Year 3
    A1     Customers today                                                               1,700

    A2     Revenue per customer/subscriber (per year)                                    $775

    A3     Expected growth with Windows Azure                                             33%              10%             10%
           Expected customer growth with Windows
    A4                                                            A1*A3                  2,261           2,487            2,487
    A5     Total revenue with Windows Azure                     (A5-A1)*A2           $434,775         $610,003        $610,003
           Profit margin (for revenue from software apps
    A6                                                                                    16%
           on Windows Azure)
           Increased revenue from more customers,
    At                                                            A6*A7               $69,564          $97,600        $128,440
           enabled by the Azure platform scalability
Source: Forrester Research, Inc.

   Application Deployment Is Streamlined And Reduces Potential Customer Barriers To Entry

Source: Forrester Research, Inc.

Azure for a full hybrid solution built on Windows Azure, the    Increased Revenue From Faster Time-To-Market
client application, and back-end systems.                       In addition to an increase in customers for the primary
With the updated solution, the organization saw a return to     consumer product, the composite organization is able to
strong subscription sales (primarily from the reduced           generate additional revenue from faster development of it
customer barriers to test and subscribe), adding up to nearly   and other consumer and internal applications. With
$70,000 in the first year, and expects nearly $100,000 in the   Windows Azure, the organization found it much quicker and
second year and $130,000 in the third year since moving to      easier to set up development and test environments,
Windows Azure.                                                  particularly:

                                                                ›   It avoided the process and logistics of ordering, waiting,
“Prior to going to Azure, we had to                                 and setting up new hardware to support development and
                                                                    test environments — which can take as much as eight
physically distribute our software,                                 weeks or more. Additionally, this delay may also be an
                                                                    issue for new applications sent to production — even
including printing CDs, stuffing                                    when planning ahead, there may be no avoiding a release
envelopes, sending them out, and                                    delay if data center expansions are required, such as
                                                                    waiting for servers to be shipped, setting up and
such. With Windows Azure, we’re able                                integrating with the current infrastructure, and testing the
                                                                    hardware to make sure it’s ready and correctly configured.
to put our software on the website
available for download.”                                        ›   Development and test environments may not quite match
                                                                    production servers (e.g., a development environment may
~ Project manager at a European school system                       be a virtual or physical server attached to a corporate
                                                                    domain), which may require extra time or special
                                                                    handling. So developers can be more efficient by focusing
Customers are much more satisfied with the improved                 on core application needs and not infrastructure changes.
reliability and ease of support (for example, simply
downloading the application to install it on a new or
                                                                ›   The development and test virtual server farm is used for a
                                                                    number of application projects, and each project requires
upgraded PC), and the organization not only has seen
                                                                    some special setup or configuration. Instead of constantly
increased revenue but also is able to spend less time and
                                                                    making configuration changes, uninstalling past work, and
money on old-fashioned distribution processes, like burning
                                                                    reinstalling required resources like SQL Server, with
and shipping CDs.
                                                                    Windows Azure, setting up a new environment is very

    quick, and recreating past environments is complete in           significant number of new and updated products and
    just a few clicks of the mouse.                                  internal applications. The composite organization develops
                                                                     an average of one new or upgraded application per year,
›   Also, virtual development and test environments can be           which both:
    shut down quickly with Windows Azure, so the
    organization is not charged for it when not in use (and the      ›   Can generate new otherwise-unrealized revenue.
    environment profile can be saved for quick recreation).
                                                                     ›   Would have required new hardware for development/test
                                                                         or production environments or was faster than past
“Profits from improved and faster                                        development cycles due to the quick setup of saved
                                                                         development/test environments with Windows Azure.
application sales improve local
                                                                     On average, the application development time is 7.5 weeks
services and benefit taxpayers — a                                   faster with Windows Azure, leading to the generation of
                                                                     about $20,000 to $35,000 in additional revenue per year, as
great example of good government!”                                   shown in Table 2.
~ Project manager at a European school system

                                                                     “A lot of companies fail to realize: We
The cost savings from quick setup, easier management,                get our pick of the best developers
and reduced infrastructure costs are all covered in the
license and management costs savings sections. However,              because they want to work in the
applications that provide consumers or internal users with
new capabilities can also help generate new direct or
                                                                     cloud, and turnover is less since
indirect sales — for example, an update to the main                  moving to Azure.”
application should lead to more new sales than without the
update, or a new or updated internal sales tool can help             ~ Development manager at a sporting goods manufacturer
close more deals. In both cases, making those applications
available two months early can mean new revenue for a

     TABLE 2
     Non-Risk-Adjusted Increased Revenue From Faster Time-To-Market

    Ref.   Metric                                                 Calculation           Year 1          Year 2            Year 3
           Average on-premises server procurement
    B1                                                                                      8.0
           cycle time (weeks)
           Percent improvement in resource allocation
    B2                                                                                 93.75%
           time with Azure
    B3     Resource allocation time with Azure (weeks)                                      0.5

    B4     Value of one week faster time-to-market                                      $8,360        $11,730          $15,440
           Applications developed per year that could
    B5                                                                                      2.0            2.0               2.0
           generate increased revenue
           Profit margin (for revenue from software apps
    B6                                                                                    16%             16%              16%
           on Windows Azure)
           Increased revenue, due to faster                       (B1-B3)*B4*
    Bt                                                                                 $20,064        $28,152          $37,056
           application time-to-market                               B5*B6
Source: Forrester Research, Inc.

Avoided Costs From Better Marketing And Business                    These and other issues meant that the organization was not
Responsiveness                                                      able to accurately measure the results of a coupon-based
In addition to software- and IT-related benefits, the               marketing campaign. Coupons were redeemed and sales
organization, as a global conglomerate with many different          were made, but it was very hard to tell whether the coupon
business units, also included Windows Azure Service Bus in          helped drive more sales; what days, weeks, or seasons
its subscription, specifically for its product marketing teams      might be the most effective times for a campaign; and what
to implement a hybrid environment where data and                    markets or consumer types would be the best targets.
information among organization, partners, and customers
can be shared across a variety of systems — Windows
Azure, other cloud solutions, or on-premises. Based on the          “All our coupons had to be
interviews with users of Windows Azure and discussions of           individually activated; even with
their experiences, the specific process modeled for the
composite organization is the distribution and redemption of        some automation, it would take more
coupons distributed directly to consumers or through retail
                                                                    than a day, as many groups were
With a variety of channels and distribution modes, the
                                                                    involved. With Service Bus,
organization had problems syncing information and sharing           information-sharing across groups is
accurate information with partners. For example, a one-use
coupon available for store or online purchase was not               automated, and activating a million
properly validated, so coupons could be used multiple
times. Also, quick validation of coupons was not possible,
                                                                    coupons takes less than an hour.”
so coupons were distributed live, meaning that even with            ~ Director of information technology at a large retailer
specific start and end dates, coupons could be used any
time after distribution, and coupons were very time-
consuming to set up within the disconnected systems.                The organization identified benefits in areas such as: more
Furthermore, accurate coupon redemption data was hard to            easily and quickly initiating a coupon marketing campaign,
come by, or come by within a reasonable time.                       more accurately tracking sales during coupon marketing

   TABLE 3
   Non-Risk-Adjusted Better Marketing And Business Responsiveness Cost Savings

  Ref.     Metric                                                Calculation           Year 1            Year 2           Year 3
   C1      Coupon campaigns per year                                                        15
           Average number of hours required to set up
   C2      and initialize a coupon campaign for                                             80
           distribution before Windows Azure
           Average number of hours required to prepare
   C3      a marketing campaign report, collecting data                                     16
           from multiple sources
           Percent improvement with Windows Azure
   C4                                                                                     75%
           Service Bus
           Average marketing full-time equivalent salary
   C5                                                                                      $50
           (FTE) per hour
           Avoided costs from better marketing and               C1*(C2+C3)
   Ct                                                                                 $54,000           $54,000          $54,000
           business responsiveness                                 *C4*C5
Source: Forrester Research, Inc.

campaigns, more accurately setting coupon valid dates, and
reducing duplicate coupon use. In particular, the first two        “We started Windows Azure with four
areas were seen as the most measurably affected by
                                                                   instances. If we built our data center
Windows Azure. The organization implemented Windows
Azure Service Bus, which provides a messaging channel for          on-premises, I would have requested
connecting cloud applications to on-premises applications
as well as services and systems both inside and outside of         10 or 20 servers.”
the organization. With Service Bus, the organization was           ~ Marketing manager at a multinational consumer- and
able to create a central data source where it could share          business-products manufacturer
and receive coupon validation and usage information, with
retail partners able to leverage that information, validate
online coupon use, and more easily integrate coupon data           Avoided Hardware And Other Costs
with other line-of-business systems to assess campaign
                                                                   The composite organization realized a key benefit from
performance and drive improvement for future campaigns.
                                                                   Windows Azure by avoiding a much greater hardware
Table 3 shows that the organization estimates that it took 80      investment for a similar on-premises solution. To meet the
hours to set up and initialize the electronic coupon records       scale and reliability needs with an on-premises
for a marketing campaign and 16 hours to pull together the         implementation, the organization would have had to:
information and data afterwards for an average of 15
campaigns per year. Since subscribing to and implementing          ›   Purchase 20 additional servers.
Service Bus, it estimates saving 75% of the time it takes to       ›   Upgrade 50 others.
do these tasks, adding up to a savings of nearly $55,000
per year. The organization also expects to see significant         This adds up to a total server count of more than the
benefits in its return on marketing investment, and                equivalent size of the Windows Azure subscription, because
increased revenue from marketing process and targeting             the on-premises solution needs to be ready for peak traffic
improvements enabled by Service Bus. However, it has not           times. And Windows Azure provides the same or better
been in use long enough to track that level of benefit.            security of the organization’s data, which meets industry
                                                                   standards for security and reliability, provides data

   TABLE 4
   Non-Risk-Adjusted Avoided Server And Implementation Costs

  Ref.                       Metric                             Calculation            Year 1            Year 2        Year 3
           Non-Azure estimated servers to purchase, to
   D1                                                                                        20
           meet estimated peak need
   D2      Estimated average per-server purchase cost                                 $25,000
           Non-Azure estimated servers to upgrade, to
   D3                                                                                        50
           meet estimated peak need
   D4      Estimated average per-server upgrade cost                                   $3,000
           Estimated average new server setup and
   D5                                                                                        16
           configuration time (hours)
   D6      IT FTE hourly salary                                                             $35
           Other scheduled or expected hardware,
   D7                                                                                 $25,000
           hosting, or other costs
   Dt      Avoided server and implementation costs          (D3*D4)+(D1             $686,200                $0             $0
                                                            *D5*D6) +D7
Source: Forrester Research, Inc.

encryption, and is continually tested and improved.                   The organization also implemented Windows Azure Storage
                                                                      Services and StorSimple, which meant it could retire its
The organization was also able to avoid the purchase of a
                                                                      difficult, error-prone, and time-intensive tape backup system
new tape backup system estimated to cost about $25,000.
                                                                      for the data stored in its on-premises SharePoint Server; the
Total avoided costs added up to a one-time savings of
                                                                      estimates include savings from tape backup process and
nearly $690,000 during the initial migration to Windows
                                                                      management costs (including recovery fees from the third-
Azure, as shown in Table 4.
                                                                      party tape storage provider) as well as overall easier
                                                                      processes with StorSimple and SharePoint integration.
Reduced Ongoing Management Costs
In addition to hardware and other avoided costs, the
composite organization saw a significant reduction in                 “We selected and implemented
ongoing server management costs following the Windows                 StorSimple because it is integrated
Azure implementation. With Windows Azure Compute and
virtual machine subscriptions:                                        with SharePoint. Everything has
›   Many server management tasks are included with                    worked great!”
    Windows Azure subscriptions (especially for PaaS
                                                                      ~ Manager of core infrastructure services at a global
    Compute services), such as operating system updates,
                                                                      furniture manufacturer
    patches, security updates, etc.

›   The organization was able to refocus its resources to
    managing applications and data.                                   Development And Test Environment Setup, Procurement,
                                                                      And Management Cost Savings
›   Supporting a larger customer base was possible with
                                                                      Along with reduced hardware purchases that would have
    Windows Azure (because the application is easier to
                                                                      been necessary, in part, for ongoing development and test
    distribute now that it is connected to resources installed
                                                                      environment needs, the organization is able to save process
    on Windows Azure and the SQL Server database on
                                                                      time and costs associated with setting up, configuring, and
    Windows Azure — along with the updated client
                                                                      retiring development/test physical or virtual servers. Also,
    application — is more reliable).
                                                                      any delays in waiting for procurement, shipping, and
With the retirement or repurposing of nearly all of the 70            configuration are eliminated.
servers, the organization estimates that it will save nearly all
                                                                      The composite organization, with multiple development
of the 80 hours per week previously spent on system
                                                                      efforts happening throughout the year, was able to almost
management and backup processes, adding up to more
                                                                      completely eliminate the tasks associated with the setup
than $130,000 per year in costs as shown in Table 5.
                                                                      and management of development and test environments

     TABLE 5
     Non-Risk-Adjusted Avoided Management And Support Effort

    Ref.    Metric                                                 Calculation           Year 1           Year 2              Year 3
            Average number of hours per week required to
    E1                                                                                       80
            support the solution before Azure
            Percent reduction of hours per week required
    E2                                                                                     90%
            to support Windows Azure
    E3      IT FTE hourly salary                                                            $35

     Et     Avoided management and support effort                E1*E2*E3*52          $131,040         $131,040         $131,040
Source: Forrester Research, Inc.

with Windows Azure. Before, a new development and                handled with the appropriate IT teams.
testing process might require new hardware (which added
                                                                 With Windows Azure, nearly all of those steps are
significant time while waiting for the procurement and data
                                                                 eliminated, as virtual machine setup requires a few clicks of
center teams to complete their tasks) and nearly always
                                                                 the mouse — fewer when using saved configurations. As
required some setup or configuration from the previous
                                                                 few or as many virtual machines can be set up as needed
setup — often back to the same or similar setup from a
                                                                 — to meet the number of environment configurations and/or
previous version of the same application. Additionally, any
                                                                 scale necessary. Also, these development and test
networking or configuration issues would have needed to be

   TABLE 6
   Non-Risk-Adjusted Reduced Costs From Improved And Faster Development And Test Processes

  Ref.     Metric                                             Calculation              Year 1          Year 2         Year 3
           Time to set up/configure/take down a
   F1      development/testing environment before                                        20.0
           Windows Azure (hours)
           Percent improvement in development/testing
   F2      environment setup (etc.) time, with Windows                                97.50%
           Time to set up (etc.) development/testing
   F3                                                           F1*F2                     0.5
           environment with Windows Azure (hours)
           Development/test environments set up per
   F4                                                                                     2.0
   F5      Development/test FTE salary                                                   $60
           Cost savings from improved dev/test                (F1-
   Ft                                                                                 $28,080         $28,080        $28,080
           processes                                      F2)*F4*F5*12
Source: Forrester Research, Inc.

   TABLE 7
   Total Benefits (Non-Risk-Adjusted)

 Benefit                                        Initial       Year 1         Year 2       Year 3          Total       value
 Increased revenue from more customers,
                                                    $0     $69,564          $97,600     $128,440      $295,605     $240,401
 enabled by the Azure platform scalability
 Increased revenue, due to faster
                                                    $0     $20,064          $28,152      $37,056       $85,272      $69,347
 application time-to-market
 Avoided costs from better marketing and
                                                    $0     $54,000          $54,000      $54,000      $162,000     $134,290
 business responsiveness
 Avoided server and implementation costs            $0    $686,200              $0              $0    $686,200     $623,818

 Avoided management and support effort              $0    $131,040      $131,040        $131,040      $393,120     $325,877
 Cost savings from improved dev/test
                                                    $0     $28,080          $28,080      $28,080       $84,240      $69,831
 Total benefits                                     $0    $988,948      $338,872        $378,616     $1,706,437   $1,463,564
Source: Forrester Research, Inc.

environments are the same as the Windows Azure
production environment; an application can be changed or
moved from test to production with a few clicks of the
mouse, and any past issues (though few) that arose from
slightly different development, test, and production
environments are eliminated.

“With every new operating system,
we have to add that environment to
our development and test farm.”
~ Development manager at a sporting goods manufacturer

The organization spent an average of 20 total hours setting
up, configuring, and managing each development/test
virtual server farm. With Windows Azure, that is reduced to
almost nothing — just an hour or so. The organization
develops and tests two new or upgraded applications per
month, on average, which adds up to a total savings of
nearly $30,000 per year as shown in Table 6.

Total Benefits
Table 7 shows the total of all benefits across the areas
listed previously as well as present values discounted at
10%. Over three years, the composite organization expects
total benefits to represent a present value of more than
$1.46 million.

COSTS                                                             Windows Azure management interfaces for the couple of
                                                                  people who would manage and monitor it on a regular
The composite organization experienced the following costs
associated with the Windows Azure solution:

›   Annual Windows Azure subscription fees.                       Windows Azure Resource Consumption Fees
›   Annual management costs.                                      Windows Azure fees are billed monthly based on actual
                                                                  consumption of resources, measured to the nearest minute;
›   One-time implementation and migration costs.                  these are estimated as an average monthly cost and then
                                                                  added up annually for this discussion. Microsoft provides an
These represent the mix of internal and external costs
                                                                  online pricing tool that prospective customers can use to
experienced by the composite organization for initial and
                                                                  estimate the cost of consuming Azure subscription-based
ongoing resources associated with the solution.
                                                                  resources (or the cost of consuming other subscription
                                                                  options), and that tool was used to calculate costs for the
“Once we explained Windows Azure’s
                                                                  composite organization. For the composite organization,
                                                                  resource consumption options include:
comprehensive security, our
                                                                  ›   Compute:
executives were onboard.”
                                                                        •   Four Windows Server medium virtual machines.
~ Manager of core infrastructure services at a global
                                                                        •   Two SQL Enterprise Server medium instances.
furniture manufacturer
                                                                        •   One Standard BizTalk Server medium instance.
                                                                        •   Bandwidth of 1,000 GB.
Windows Azure Implementation Costs
The organization’s implementation of Windows Azure,                     •   Standard support.
shown in Table 8, included setting up the necessary
databases, server resources, and Service Bus; configuring
                                                                  ›   Storage/Data Management:
StorSimple and Windows Azure Storage Services and                       •   Geo-redundant storage of 25,000 GB.
migrating data, application pointers, and other necessary
                                                                        •   Backup space of 2,000 GB.
changes. Application updates were not included, as they
were already deemed necessary and planned before the                    •   Included support.
move to Windows Azure. Training was also not included. As
                                                                  Additionally, the composite organization expects a 10%
for the most part, it was not necessary, except to review the

    TABLE 8
    Non-Risk-Adjusted Planning And Implementation Costs

    Ref.                  Metric                    Calculation             Initial      Year 1         Year 2        Year 3
           Planning and implementation time
    H1                                                                       12.0
    H2     Planning and implementation FTE                                     4.0

    H3     Estimated FTE hourly salary                                        $35

    H4     Other initial costs (e.g., training)                                $0
           Initial planning and implementation      H1*40*H2*
    Ht                                                                   $67,200                $0         $0              $0
           costs                                     H3+H4
Source: Forrester Research, Inc.

annual growth in Windows Azure resource needs.                    Annual Maintenance Cost
These add up to around $7,500 to $9,000 per month.                Windows Azure management is expected to be minimal,
Because the composite organization signed a 12-month              given that Microsoft Windows Azure resources handled the
commitment, a 22.5% discount can be applied, and the              day-to-day management of Azure servers, which is included
updated total is about $6,000 to $7,000 per month.                in the subscription fees. Any remaining tasks that the
                                                                  organization will need to continue are mainly related to
(Discounts are available to organizations to subscription         reviewing and adjusting scale options, setting up and
commitments, pre-pay estimated subscription costs, and/or         shutting off test and development servers, dealing with
include Windows Azure in their volume licensing agreement         backup retrieval support issues, and managing any changes
such as an Enterprise Agreement.)                                 or updates to the Service Bus. The organization estimates
Over a full three-year analysis, including discounts and          this to be one-fourth of an FTE’s time (one or more IT
estimated growth, this adds up to about $70,000 to $85,000        resources with other responsibilities related to other server
per year, as shown in Table 9.                                    and line-of-business systems that have remained on-

   TABLE 9
   Non-Risk-Adjusted Windows Azure Estimated Annual Consumption Fees

  Ref.                        Metric                         Calculation             Year 1           Year 2          Year 3
           Estimated Annual Growth Rate of Windows
   I1                                                                                  10%
           Azure implementation
           Estimated Azure VM Costs per month
   I2                                                                                $5,000          $5,500           $6,050
           (charged per minute; billed monthly)
           Other Azure Service Costs per month (charged
   I3                                                                                $2,500          $2,750           $3,025
           per minute; billed monthly)
           12-Month-Commitment Discount (based on
   I4                                                                                22.5%            22.5%            22.5%
           Azure resource consumption costs)
           Other Annual Costs, including system
   I5                                                                                    $0               $0               $0
           Annual Azure Resource Consumption                 (I2 + I3 + I5) *
    It                                                                             $69,750          $76,725          $84,398
           Costs                                                    12

Source: Forrester Research, Inc.

   TABLE 10
   Non-Risk-Adjusted Annual Organization Resource Maintenance Costs For Windows Azure

  Ref.     Metric                                            Calculation             Year 1           Year 2          Year 3
   J1      Average management time per week (hours)                                      10               10               10
           Estimated Windows Azure Management FTE
   J2                                                                                   $35              $35              $35
           hourly salary
           Annual organization resource costs for
   Jt                                                          J1*52*J2            $18,200          $18,200          $18,200
           Windows Azure management
Source: Forrester Research, Inc.

premises). As shown in Table 10, resource time is
estimated to cost about $20,000 per year.

“Long-term, because we’ve been very
happy with Azure, we want to move
all our stuff over.”
~ Vice president of information technology at a construction
management firm

Total Costs
Table 11 shows the total of all costs as well as associated
present values, discounted at 10%. Over three years, the
composite organization expects costs to total a net present
value of a little more than $315,000.

   TABLE 11
   Total Costs (Non-Risk-Adjusted)

 Benefit                                         Initial          Year 1      Year 2      Year 3         Total       value
 Initial planning and implementation costs    ($67,200)           $0          $0          $0        ($67,200)    ($67,200)

 Annual Azure resource consumption                $0           ($69,750)   ($76,725)   ($84,398)    ($230,873)   ($190,227)
 Annual organization resource costs for           $0           ($18,200)   ($18,200)   ($18,200)    ($54,600)    ($45,261)
 Windows Azure management
 Total costs                                  ($67,200)        ($87,950)   ($94,925)   ($102,598)   ($352,673)   ($302,688)

Source: Forrester Research, Inc.

FLEXIBILITY                                                      RISK
Flexibility, as defined by TEI, represents an investment in      Forrester defines two types of risk associated with this
additional capacity or capability that could be turned into      analysis: implementation risk and impact risk.
business benefit for some future additional investment. This     Implementation risk is the risk that a proposed investment in
provides an organization with the right or the ability to        Windows Azure may deviate from the original or expected
engage in future initiatives but not the obligation to do so.    requirements, resulting in higher costs than anticipated.
There are multiple scenarios in which a customer might           Impact risk refers to the risk that the business or technology
choose to implement Windows Azure and later realize              needs of the organization may not be met by the investment
additional uses and business opportunities. Flexibility would    in Windows Azure, resulting in lower overall total benefits.
also be quantified when evaluated as part of a specific          The greater the uncertainty, the wider the potential range of
project (described in more detail in Appendix B).                outcomes for cost and benefit estimates.
Windows Azure provides a variety of options for future           The TEI includes a focus on risk to quantitatively capture
expansion of cloud strategies and delivery of new cloud-         potential investment and impact uncertainties by directly
based services to employees, partners, and/or customers.         adjusting the financial estimates to provide a more accurate
Two areas identified during customer interviews are              projection of the ROI analysis. In general, risks affect costs
highlighted here:                                                by raising the original estimates, and they affect benefits by
                                                                 reducing the original estimates. The risk-adjusted numbers
›   First, the two revenue-generating benefits, increased        should be taken as realistic expectations since they
    software sales and improved time-to-market, are              represent the expected values considering risk.
    examples of specific benefits that, with broader adoption,
    could become new revenue and profit opportunities.           The following implementation risks that affect costs are
                                                                 identified as part of this analysis:
       •   If all costs were doubled to meet new resource
           consumption and management task needs, it would       ›   Windows Azure resource consumption costs. Since
           add up to about $300,000 (three-year cumulative           these estimates are based on charges calculated to the
           costs, undiscounted and not risk-adjusted).               minute of future, actual consumption of services, any
           Migrating one or more applications could generate
           new revenue plus additional management cost
           savings. Doubling all associated benefits (as costs
           were doubled) could add up to nearly $1 million in             TABLE 12
           added benefits over three years (again                         Cost And Benefit Risk Adjustments
           undiscounted and cumulative over three years).
                                                                        Costs                              Risk adjustment
›   Second, Windows Azure provides a platform that could
    completely or nearly completely replace an organization’s           Windows Azure resource
    internal data center requirements. Daily management,                consumption costs
    support, patching, security, and other primary tasks would          Windows Azure organization
    all be handled by Microsoft, and the organization could             management resource costs
    reduce more costs related to hardware, support, help
                                                                        Benefits                           Risk adjustment
    desk, data center hosting, on-premises office rental,
    HVAC and power, resources, and a variety of other costs.            Increased revenue with better
                                                                        software scalability and           10%
    Firms that use technology to enable their business can
    focus on their core business.                                       distribution
                                                                        Increased revenue from faster
                                                                        Avoided costs from better
                                                                        marketing and business             10%

                                                                       Source: Forrester Research, Inc.

    increase or decrease in actual use could mean changes
    to these estimates. To be conservative, a low risk
    adjustment of 5% was added to these costs

›   Composite organization resource costs in the event
    of Windows Azure outages. While Windows Azure
    provides a service-level agreement (SLA) that includes
    reimbursement of the subscription costs for unplanned
    outage time, that does not include resource costs of
    scrambling to implement a mitigation plan. Outages are
    rare — there have been three significant outages of 8 or
    more hours over the past three years (as of August 2013)
    — but possible and would require significant organization
    resource time in remediating issues, setting up alternative
    processes, etc. While the likelihood of a major outage is
    low, the IT and resource costs could be quite high. To
    provide a conservative estimate, 10% was added to
    Windows Azure management costs to cover the business
    and resource costs of possible Windows Azure outages.
The following impact risks that affect benefits are identified
as part of the analysis:

›   Increased revenue with better software scalability and
    distribution enabled by Windows Azure. As highlighted
    previously, Windows Azure provides an SLA, but any
    compensation in the event of a longer outage won’t cover
    lost revenue. While an outage of that length is unlikely,
    the impact is high, so this benefit has been adjusted
    (reduced) by 10%.

›   Increased revenue from faster time-to-market. An
    Azure outage could affect revenue if it happens during a
    period of extra application revenue. Since that is not all of
    the time, the risk adjustment (reduction) is just 5%.

›   Avoided costs from better marketing and business
    responsiveness. Marketing and coupon campaigns rely
    on a lot of people, partners, consumers, systems, etc. A
    breakdown in any area, even one completely unrelated to
    Windows Azure, would likely mean extra time dealing with
    coupon administration and data management. A 10% risk
    reduction has been applied to this benefit.
Table 12 shows the values used to adjust for risk and
uncertainty in the cost and benefit estimate, but readers are
urged to apply their own risk estimates based the degree of
confidence in their own cost and benefit estimates.

Financial Summary                                                        FIGURE 5
                                                                         Risk-Adjusted Annual And Cumulative Costs
The financial results calculated in the Costs and Benefits
                                                                         And Benefits (In Thousands)
sections can be used to determine the ROI and net present
value (NPV) for the organization’s investment in Windows
Azure. These are shown in Table 13.                                              Costs
Table 14 and Figure 2 show the risk-adjusted ROI, NPV,                           Total
and cumulative values. These are determined by applying                          Benefits

the risk-adjustments from Table 12 in the Risk section to the                    Running
benefit and cost totals in Tables 7 and 11.                                      Total
                                                                                                            $322        $359
For the composite organization, the move to Windows
Azure enabled a variety of cost savings and revenue
opportunities and transitioned nearly all costs related to the
application development and marketing outlined previously                     ($67)           ($93)        ($101)       ($109)
from capital to operational expenses, which can now be
                                                                              Initial         Year 1        Year 2      Year 3
planned as a regular monthly expenses, like a utility.
                                                                      Source: Forrester Research, Inc.

    TABLE 13
    Cash Flow: Non-Risk-Adjusted

                                       Initial     Year 1           Year 2                  Year 3            Total   Present value

   Costs                            ($67,200)    ($87,950)        ($94,925)             ($102,598)       ($352,673)      ($302,688)
   Benefits                                $0    $988,948         $338,872               $378,616        $1,706,437      $1,463,564
   Net benefits                     ($67,200)    $900,998         $243,947               $276,019        $1,353,764      $1,160,876
   ROI                                 384%

 Source: Forrester Research, Inc.

    TABLE 14
    Cash Flow: Risk-Adjusted

                                       Initial     Year 1           Year 2                  Year 3            Total   Present value

   Costs                            ($67,200)    ($93,258)       ($100,581)             ($108,637)       ($369,676)      ($316,725)
   Benefits                                $0    $975,588         $322,305               $358,520        $1,656,413      $1,422,627
   Net benefits                     ($67,200)    $882,331         $221,724               $249,882        $1,286,737      $1,105,902
   ROI                                 349%

 Source: Forrester Research, Inc.

Microsoft Windows Azure: Overview
Windows Azure is an open and flexible cloud platform that
enables organizations to quickly build, deploy, and manage
applications across a global network of Microsoft-managed
data centers, which can be integrated with an existing IT
Windows Azure enables organizations to build and run
applications without focusing on the infrastructure. It
provides automatic OS and service patching, built-in
network load balancing, and resiliency regarding hardware
failure. It supports a deployment model that enables you to
upgrade applications without downtime.
Windows Azure supports many languages, frameworks, and
tools to build applications. Features and services are
exposed using open REST protocols. The Windows Azure
client libraries are available for multiple programming
languages and are released under an open source license.
Windows Azure enables application scaling to any size. It is
an automated self-service platform that allows for fast
resource provisioning, with a billing model that charges for
resources used. Windows Azure is available in multiple data
centers around the world, enabling deployment of
applications close to customers and users.
Windows Azure delivers a flexible cloud platform that can
satisfy many application needs. It enables organizations to
reliably host and scale out application code; store data
using relational SQL databases, NoSQL table stores, and
unstructured blob stores; as well as leverage Hadoop and
business intelligence services for data-mining. When
deployed with the StorSimple solution on-premises,
Windows Azure helps provide a more complete hybrid cloud
storage solution.
Windows Azure’s messaging capabilities enable scalable
distributed applications and deliver hybrid solutions that run
across a cloud and on-premises enterprise environment.
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