The Total Economic Impact Of Microsoft Windows Azure - Infrastructure, Data, And App Services Can Help Save IT Costs And Enable New Revenue ...
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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 ABOUT FORRESTER CONSULTING Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester’s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting. © 2013, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to www.forrester.com.
3 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.
4 › 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. Disclosures 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.
5 FIGURE 2 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.
6 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 organization. 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.
7 Analysis › Further investigation and potential implementation of additional Windows Azure services are planned. COMPOSITE ORGANIZATION 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. Situation 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) characteristics: 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
8 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. provides. • 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 software. 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.
9 › 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.
10 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: distribution. › 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 Azure 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.
11 FIGURE 4 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
12 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.
13 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 channels. 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.
14 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 (D1*D2)+ Dt Avoided server and implementation costs (D3*D4)+(D1 $686,200 $0 $0 *D5*D6) +D7 Source: Forrester Research, Inc.
15 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.
16 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% Azure 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 month 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) Present 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 processes Total benefits $0 $988,948 $338,872 $378,616 $1,706,437 $1,463,564 Source: Forrester Research, Inc.
17 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.
18 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 basis. 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 1 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 (weeks) 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.
19 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 2 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 management 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.
20 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) Present 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) costs 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.
21 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 5% internal data center requirements. Daily management, consumption costs support, patching, security, and other primary tasks would Windows Azure organization 10% 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 5% time-to-market Avoided costs from better marketing and business 10% responsiveness Source: Forrester Research, Inc.
22 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.
23 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 Total Azure. These are shown in Table 13. Costs $976 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.
24 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 environment. 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. For more information visit www.windowsazure.com.
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