Cost and Benefit Comparison: Cloud vs. Premise vs. Hosted

Learn why Cloud solutions are gaining a larger percentage of the contact center industry.

People and technology are the lifeblood of every contact center. Technology, in particular, is the centralized hub around which agents gather the information they need to respond to customer calls, and managers create forecasts and schedules that improve customer experience and service.

Three delivery methods are available for contact center technologies: on-premise, hosted, or cloud-based.

On-Premise

An on-premise system is one in which hardware and software must be installed, deployed, and maintained at the contact center. All equipment is purchased up front. It is traditionally associated with large enterprises that have the budget and the space to acquire the capabilities deemed necessary and the full-time staff available to configure and modify systems for optimal control.

Hosted

A hosted system relies on an outside service provider. The contact center purchases the necessary software, which is installed in a data center on either physical or virtual servers that may be owned or leased by the business. Implementation is similar to an on-premise solution but the cost is lower because the hardware need not be purchased. However, the contact center must pay an initial provisioning fee as well as a monthly fee for the rental or usage of the hosting center’s equipment and personnel.

Cloud

Cloud computing converts such physical resources as processors and storage into Internet resources. By developing applications in a virtual environment, a contact center’s computing infrastructure is treated as a utility service. Because there is no need to install software on the company’s IT system, such concerns as computing capacity, physical space, bandwidth, and storage are no longer issues. The contact center pays only for the time and capacity it needs.

Because hosted and cloud solutions both require some form of outsourcing, the terms have sometimes been considered synonymous, but they are not. Cloud solutions are distinguished from hosted client-server products by a distributed delivery model, a multi-tenant solution that easily allows for frequent updates while providing full scalability and guaranteed service levels and up times. With a hosted solution the vendor controls the product from a hosted facility where such virtualization and scalability are not possible.

The Ascension of the Cloud

Cloud computing is one of the key drivers of today’s IT services market, particularly in the contact center industry.

According to Juniper Research, the cloud computing market is on course to reach $90.7 billion by 2018, with both Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS) showing tremendous growth.1 Cloud solutions are set to grow six times faster than all software (according to IDC), at a compound annual growth rate of 26%.2

Even traditional and enterprise hardware firms have explored the cloud option. Hewlett-Packard will spend $1 billion to develop and offer cloud-computing services. The company’s most prominent competitors, IBM and Cisco, have also accelerated their cloud initiatives.

Why is this happening?

Cost

For contact centers, regardless of size, cost is, perhaps, the most significant factor in technology purchases. The savings accrued from avoiding investment in expensive servers (whether purchasing or leasing) is the most obvious advantage the cloud provides. But the server cost is not the only concern when a hardware infrastructure is built from scratch. Other items that may need to be purchased include a rack, a firewall, a load balancer, and a cooling system. To these must be added the costs of software licensing and storage. It may also be necessary to build a development environment, a test environment, and a production environment for an on-premise solution, that could further increase the total cost of the project. In addition, when making comparisons one should also consider electricity costs, equipment replacement costs, personnel costs, downtime costs, and the Total Cost of Ownership (TCO).

Electricity Costs

Servers run on electricity, and if they are running on the premises of a contact center, it’s another bill to pay. Even today’s energy-efficient hardware solutions may require hundreds of thousands of dollars in annual energy usage, including both direct power and cooling. Enterprise companies calculate these costs as power usage effectiveness (PUE), which takes the total energy of a facility and divides it by the direct energy consumed by IT equipment.

Equipment Replacement Costs

How many years can one expect an on-premise server to last? For many organizations, five years is typical. It may be possible to retain the same equipment longer, but that entails a greater risk of technical issues that could result in downtime or a more costly migration to a new system if software is long past obsolescence.

A contact center may be able to justify an on-premise solution in the short-term if the recurring cost of a cloud service is comparable or higher. But when hardware and software require replacement, a second significant investment is necessary, rendering the cloud a more favorable long-term option. Thus, there’s more to consider than the initial capital outlay.

When cloud services upgrade or replace their servers, which they do consistently, it does happen without the contact center’s knowledge and will not add another bill to the mailbox.

Personnel Costs

Proprietary research conducted by eLoyalty finds that shifting from a premise-based contact center environment to a hosting or cloud platform results in as much as a 15 percent reduction in IT personnel costs, depending on the number of IT resources dedicated to supporting a premise environment.3 Downtime Costs

How much does one hour of downtime cost a contact center? Depending on the size of the business, it might be anywhere from $500 to $50,000–or more. A rare power outage is inevitable whether one uses a on-premise, hosted, or cloud service. On average, however, cloud solutions deliver better reliability and uptime than premise or hosted solutions due to the geographically mirrored data sets and other redundancies built into cloud data centers, technology, that outside of the cloud, would be available only to the largest enterprise corporations.

Total Cost of Ownership

The total cost of ownership encompasses all of the price considerations previously described and requires a more holistic approach to technology investment. It’s a way to not only compare upfront costs but also those that inevitably follow over a five- or ten-year.

Non-Cost Comparisons

Of course, cost isn’t everything. These are some of the other bases for technology comparison. Start-Up Time

When assessing time for equipment installation for a on-premise solution, calculations are usually figured in months. But for a hosted solution, equipment connection can be achieved quicker. In the cloud model, software applications are already installed and configured. Users provision the server for the cloud and quickly have the application ready for use. With demos, prototyping, and agent training, start-up time can be figured in weeks instead of months.

Upgrades

Cloud vendors that provide software are responsible for all maintenance and upgrades, which typically occur automatically as they become available. In addition to the assurance of always running the current software version, such incremental upgrades also result in reduced testing and training costs. On-premise and hosted solutions are only updated when the company invests in each subsequent software version. Such updates tend to be more sporadic.

Security

The proximity factor that suggests on-premise solutions are more secure is changing, given how attacks from hackers seeking customer information can happen from anywhere at any time. Cloud vendors typically provide redundancies by having secure data centers in multiple geographies plus automatic backups from the vendor. Such precautions not only deliver an extra measure of security, they also provide protection of data in areas subject to such natural disasters as earthquakes or hurricanes. Integration and Scalability

A cloud service tailored precisely to customer needs can be seamlessly integrated into the existing enterprise IT infrastructure. Changes can be made quickly without business interruption, and overloading is never a concern as long as the system is managed properly. The same capability could not be accomplished through an on-premise or hosted solution without costly changes to existing IT systems. In this scenario, additional staffing would also be required to maintain the ability to scale efficiently.

Workforce Flexibility

Cloud applications are available from any computer or any device. That allows contact center personnel to be more flexible in and out of the workplace. Data can be accessed through web-enabled devices such as smartphones, laptops, and notebooks. The ability to simultaneously share documents and other files over the Internet supports both internal and external collaboration.

Conclusion

The flexibility, self-service provisioning, and cost savings provided by the cloud have revolutionized the way contact centers do business. This is particularly true among smaller and mid-sized facilities that traditionally could not match the IT budgets of enterprise firms. By removing the risk associated with substantial upfront investment in hardware and software, contact centers now can obtain the resources they need regardless of size and with the same scalability and automated upgrades that larger companies have enjoyed through onpremise and hosted solutions for years. The more flexible infrastructure provided by the cloud, particularly as the industry evolves toward multiple support tiers, has further expedited industry growth.

Sources

  1. “Cloud Computing Enterprise
    Markets: SaaS, PaaS & IaaS, 2014-2018”
    http://www.itworldcanada.com/article/saas-continues-to-dominate-enterprise-cloud-computing-market/92729
  2. “Worldwide Big Data Technology and Services Forecast, 2015-2019”
    http://www.idc.com/prodserv/4Pillars/bigdata
    http://www.idc.com/getdoc.jsp?containerId=prUS40560115
  3. ”Cloud Contact Center Total Cost of Ownership”
    http://www.eloyalty.com/files/wp-Cloud-Contact-Center-Total-Cost-of-Ownership.pdf

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Monet Software is a global provider of workforce optimization software solutions for contact centers. Monet’s cloud-based solution, Monet WFO Live, is an affordable and easy-to-use call center optimization software solution that includes workforce management, call recording, quality monitoring, and performance management. Contact centers will start improving service levels and reducing center costs without the upfront expenses and IT requirements of traditional workforce software. For more information about Monet Software, please go to www.monetsoftware.com or subscribe to our blogs about Workforce Management and call recording.

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