There is continued market momentum to have many enterprise Information Technology (IT) applications migrate from premise-based solutions to hosted cloud services. For businesses considering the migration of an application to hosted cloud-based services, there is an important planning consideration – know your costs when making this decision, including future costs as your business grows.
Many enterprises today use some of the following IT applications for operating their businesses:
- Accounting and customer relationship management (CRM) software that provides invoicing, ledger management, expenses, inventory, timesheets, payroll, and more. Microsoft Dynamics 365, Zoho and Quickbooks are examples of popular CRM and accounting software packages
- Industry-specific practice software such as PCLaw for lawyers, SoftDent for dental practice and Compulink for medical practices
- Premised-based and hosted voice solutions from manufacturers such as Cisco, Avaya, Mitel, Vonage and RingCentral
Each of these applications can be deployed in a client-server model on the business premise or hosted in the Internet cloud where the server is accessed by a browser or standalone software client. The major advantage of premise-based IT application deployments is typically lower costs of ownership over the medium to long term. To achieve this lower cost advantage, the enterprise must purchase the software and install on an onsite server. They must also plan for software maintenance, backup and periodic server hardware refreshes. Hosted services avoid much of the premise-based server and licensing costs by placing the server components in the cloud and charging monthly user fees for the service.
A fictitious company called AcmeFinancial with 10 employees will be used to illustrate the costs between premise-based and hosted IT solutions. The remainder of this article uses pricing publically available on the Internet and does not include vendor discounts or discounted upgrade fees. Readers are encouraged to validate these numbers with vendors for specific pricing details for their own particular situation.
AcmeFinancial has been using the Intuit Quickbooks premised-based software for their accounting, invoicing, payroll, and time management applications for several years. Three people access the financial information in Quickbooks and everyone accesses the software for logging their time and charging to projects. AcmeFinancial installed Quickbooks in 2014 and requires an upgrade to the latest version as well as the hardware server that Quickbooks runs on.
The following chart illustrates the costs for a hosted Quickbooks solution on a monthly, annual and five-year basis for AcmeFinancial with three financial users, 10 employees and includes self-service payroll and timesheet capabilities.
Employees and financial users access the cloud-based Quickbooks server via a web browser on their computers that are connected to the Internet. Key advantages of the Quickbooks hosted solution includes immediate access to new Quickbooks features as they become available, no need for a hardware server to run the Quickbooks backend server and server backups are managed in the cloud.
In the next chart, the costs of upgrading to a premise-based Quickbooks server are detailed. One-time licensing costs for Quickbooks 2019 Desktop Pro and Windows 10 Pro software is included along with the purchase of a new hardware server to support the Quickbooks Server. Subscription costs for Quickbooks self-service Payroll and Tsheets Timesheets capabilities are identical between the premise and online host-based solutions. Backups and software upgrades must be managed internally when implementing this solution.
Given the minimal cost differences between the Quickbooks premise-based versus hosted cloud services over five years—combined with the cloud advantages of automated backups and regular software upgrades with the hosted solution—deploying Quickbooks as a cloud-based service is appropriate for AcmeFinancial.
AcmeFinancial also wants to upgrade their voice service and is considering premise versus cloud-based VoIP solutions. The company averages 4000 incoming and outgoing minutes of voice utilization across multiple calls per month. The following chart illustrates the costs for implementing a 10-line host-based VoIP solution using Vonage as the cloud service.
Hosted VoIP providers such as Vonage and RingCentral, deliver hosted voice services to businesses on a per-user (or extension basis) with extensions mapped to phones. Each user is charged a hosting fee of $38 per month with 10 user extensions translating to a $380 per month expense. For this monthly voice hosting expense, AcmeFinancial can place an unlimited number of incoming and outgoing calls throughout the United States. Polycom phones are sold by hosted providers at a premium of $200 versus $120 per phone purchased elsewhere. The other $200 in one-time charges is for a Power-over-Ethernet switch that powers the phones without needing a power adapter for each phone. The total one-time charge for the phones and Ethernet switch is $2200. Hosted carriers also offer leasing packages for phones but this option was not considered in this analysis.
The premise-based VoIP solution has higher one-time costs due to the installation of a voice server, uninterruptable power supply and professional services for configuration. The equipment cost is offset by the lower $120 Polycom VVX 411 phone costs purchased directly from suppliers. The monthly voice costs are lower than a hosted voice solution as AcmeFinancial will purchase voice connectivity on a metered basis from an Internet Telephony Service Provider (ITSP). For 4000 voice minutes, the monthly cost for voice services from VoIP carriers at $0.0125 per minute is $50 compared to $380 for the hosted VoIP solution.
The annual voice costs of $600 for a premised-based VoIP solution is significantly lower than the $4,560 cost using a cloud-based VoIP solution from Vonage. The savings are achieved by purchasing metered voice minutes from an ITSP. The five-year expenditures for voice services using a premised-based VoIP solution are $6,200 compared to $25,000 for a host-based VoIP solution. For this application, a premise-based VoIP solution is significantly more cost-effective than a cloud-based solution, especially if AcmeFinancial grows and adds more employees, and therefore phones, to their network.
There may be other factors besides costs—such as skillsets and operational simplicity—that influence the final choice when upgrading an IT application. That said, the Quickbooks and VoIP upgrade analysis for the AcmeFinancial firm emphasizes the importance of carefully understanding your costs when configuring an upgraded premise-based IT application versus hosting the solution in the cloud.
By Peter Krautle, Managing Partner, Louisa Voice
