Hosted Solutions

Weighing the Costs of the Cloud

30 Jun, 2011

By: Mariann McDonagh

Sometimes an analyst’s report makes you sit up and take notice. For me, that happened recently when I read Frost & Sullivan’s new study comparing the lifetime costs of traditional in-house contact center hardware/software with that of newer cloud-based services. 

Among other things, Frost & Sullivan calculated that hosted contact centers reduce overall costs by up to 43 percent over five years. That takes into account the total cost of ownership (TCO) including hardware, software, installation, configuration, routine integrations, upgrade and maintenance fees, staffing and monthly subscription fees.

(Full disclosure here: my company commissioned the study but we had no influence on the conclusions.)

With that finding, the report’s authors effectively debunked the theory that the upfront savings of the cloud model – achieved by eliminating the need to buy or lease ACDs and needed infrastructure - is offset over the long run by the service provider’s monthly subscription fees. 

The report - Premise Vs. Hosted Contact Center: Total Cost of Ownership Analysis – analyzed three- and five-year TCO for 12 contact center configurations ranging in size from 50 to 500 seats, and in functionality from ACD-only to a full-function ACD, IVR, chat, outbound dialer, quality monitoring, workforce management, customer feedback, agent hiring and eLearning system. 

Key findings were that:  

  • Hosted contact center services significantly reduce TCO over premise-based systems in both three- and five-year scenarios for all 12 of the configurations analyzed.

  • The larger the contact center, the higher the savings with the hosted model. Over five years, savings averaged 23 percent for 100-seat centers, 34 percent for 250-seat centers, and 43 percent for 500-seat centers.

  • The more contact center applications hosted in the cloud, the more money saved. In a 100-seat contact center, for example, the five-year savings jumps from 9 percent for a hosted ACD to 23 percent for a full-function, nine-application hosted system.

 

5-Year TCO Hosted Cost Savings % Over Corresponding Premise Deployment

 

Seats

 

 

Configuration

100

250

500

ACD Only

9%

10%

19%

ACD+

21%

28%

39%

Full Function

23%

34%

43%

 

Anyone familiar with the hosted model knows where some of these savings come from. One major source, of course, is the elimination of upfront capital investment for premise-based equipment, installation and configuration.

(Even a relatively small operation like the non-profit Washington Information Network 2-1-1 saved $640,000 in initial capital outlays alone while also connecting seven regional call centers and avoiding IT oversight at each location. And affiliate marketer CLEARLINK Technologies estimated that it saved $2 million in upfront system costs by moving to the cloud instead of replacing its old premises-based infrastructure with another installed setup.)

Then there are factors like getting rid of upgrade and maintenance contracts (typically 15-20 percent of the original system purchase price per year); implementation fees; software license outlays; most in-house maintenance; and incremental equipment needs required to support larger call centers. 

As the Frost & Sullivan analysis shows, savings like these add up to significant budget relief even when monthly hosting fees are figured into the mix. 

Certainly, the premise-versus-hosted decision doesn’t rest on dollars alone. Other considerations that may play a role include only-in-the-cloud features like easy home agent support, inexpensive multi-site connectivity, and the ability to add or subtract agents on demand while only paying for the seats you need. 

But Frost & Sullivan’s analysis proves that outsourcing your core infrastructure can be considerably more cost-effective than equipment ownership. That, at least, answers a question that contact center managers have been asking since the first hosted services hit the market a decade ago.