Cloud or Premise? It's About More Than Just Cost

In its early years, cloud-based technology was differentiated largely by price and rapid availability - you'd choose it over premise-based infrastructure to avoid large capital expenditures, or to smooth over a temporary need for more capacity in a limited area. Now, though, as cloud technology has matured, it is often as feature-rich and reliable as the tools you would own onsite. So the purchasing decision is more complex. Variables beyond price start to take center stage. Centers need to consider their long-term technology roadmaps, the ways in which their service tools connect to other enterprise systems, and the rapid pace of change within the wider customer experience environment. This makes the cloud vs. premise equation much more complicated than just a capex/opex decision.

Vendors that initially offered multi-tenant cloud services for contact centers targeted small businesses with the argument that the cloud would help them look "big" at a relatively low cost. The conventional wisdom since the turn of the century has been that cloud contact center services are best suited to the low end of the market, to small or informal centers that have limited growth prospects and extremely tight budgets. That assessment is not as accurate as it once was, and may lead some contact centers to make decisions based on a flawed notion of what hosting offers, and where or when it is the most appropriate solution.

Ovum recently studied the long term costs associated with both types of technology deployments. In general, Ovum findings showed that the more complex the technology deployment, the more likely that cloud tools would remain cost-effective over a five year span. For the simplest deployments (i.e., those featuring just basic voice call routing and IVR), premises tools have a better TCO over that span. In one scenario, that of a medium sized business (300 seats) selecting in the middle range of technologies (basic call routing plus workforce optimization, but no analytics or multichannel capabilities), the cloud option costs less during the first three years, but then the pay-by-the-month fees add up to more than the premise option. That's what most people expect to see across the board, but it's not an accurate reflection of what happens when you are a much larger, more sophisticated technology user.

Contrary to conventional wisdom, the largest contact centers (over 750 seats) can see significant benefits from cloud tools over a five year period. The key for large centers to extract the most value from the cloud is to combine as many high-value applications with call routing into the package as possible. When you bundle analytics, workforce optimization and multichannel routing together, the large center is able to save significantly on labor, IT and administration. Large centers also benefit when they leverage the combination of cloud-based contact center tools with hosted CRM and other enterprise software applications. Larger companies are also better positioned to combine the two deployment modes into a hybrid infrastructure, which might include some cloud systems such IVR and WFO along with premise-based data management and routing.

Over a five-year period, a large business choosing cloud will have been relieved of many of the burdens of technology management. The benefits of this go beyond cost: they allow an enterprise to be culturally flexible and more focused on its main mission, which is to employ the most appropriate technology to improve the customer experience. Most businesses would reconsider the lifecycle and utility of their core tools by the end of a five-year period anyway, which would reset the cost equation and make the on-premise side of the ledger even less appealing.

This is not to say that moving to the cloud makes sense for every company. But it does suggest that what businesses should be doing is looking at their technology framework through a filter that uses cost as just one of many important variables. The cost equation comparing premise to hosted is not a simple binary one of capex or opex. Indeed, subtle factors like future-readiness for new contact channels impose their own costs that are beginning to be measured and taken into account.

There is a truth to the conventional wisdom that, at the low end of the market, cloud-based technology is a commodity purchase. Price weighs heavily on decision-making in this segment, as it has since cloud tools first emerged a decade ago. But Ovum's research indicates that the more complex the suite of applications used, the more advantageous the cloud can be. Cloud tools seem to be a way to overcome one of the most pervasive emerging problems in today's service environment: the creation of information silos that keep businesses from offering smooth, friction-free customer experiences.

What this means is that businesses cannot consider their technology purchases based on a simple capacity measures or cost calculation. It is important that decision-makers look at the entire spectrum of technology usage to determine what application synergies they can reap from the cloud. Odds are they will find that their view of the cloud is outdated and too general to apply to their specific circumstances.

Keith Dawson is part of Ovum's customer interaction team, where he covers contact center technologies, including infrastructure, software, and services. His particular interest in recent years has been the customer experience: how to measure it, and how companies can use the contact center to manage that experience to their advantage.