The Total Economic Impact Of Microsoft Windows...

A Forrester Total Economic

Impact™ Study

Commissioned By Microsoft

Project Director:

Sean Owens

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

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3

Executive Summary

In August 2013, Microsoft commissioned Forrester

Consulting to conduct a Total Economic Impact™ (TEI)

study and examine the potential return on investment (ROI)

enterprises may realize by deploying Windows Azure. The

purpose of this study is to provide readers with a framework

to evaluate the potential financial impact of Windows Azure

on their organizations.

To better know the benefits, costs, and risks associated with

a Windows Azure implementation, Forrester interviewed

current customers, each with at least a year of experience.

Interviewed organizations have taken advantage of

Windows Azure’s infrastructure, data, and application

offerings, leveraging services such as: Virtual Machines,

Storage, SQL Database, StorSimple, and Service Bus.

Prior to Windows Azure, customers had a variety of on-

premises solutions, perhaps located in a hosted data center

but still fully managed and administered by the organization.

This led to a variety of issues, such as: the existing data

center running out of room, opportunities or sales having

been missed because of slow application development or

delivery, and IT budgets rising at the same time the

company was calling for savings.

With Windows Azure, customers were able to:

› Increase revenue through greater sales and faster time-

to-market, leveraging Windows Azure Infrastructure

Services like Virtual Machines, for fast initiation and

removal of development and test environments, and a

more mature and easier-to-use application delivery

channel.

› Save costs in IT administration and backup processes

with the Virtual Machines, Storage and Backup Services,

with many now being completely handled by Microsoft

and other processes being greatly reduced by the

simplicity of Windows Azure.

› Improve marketing effectiveness and reporting by

leveraging Windows Azure App Services like Service Bus

to communicate with internal systems and retail partners.

WINDOWS AZURE LEADS TO FINANCIAL BENEFITS

Interviews with six existing customers and subsequent

financial analysis found that a composite organization based

on these companies estimated startup costs of about

$70,000, followed by annual service and management costs

of almost $100,000, versus benefits of around $330,000 per

year, plus a one-time first-year benefit of nearly $700,000 in

avoided hardware costs.

These add up to the risk-adjusted results shown in Figure 1

and Figure 2. See Appendix A for a description of the

composite organization.

FIGURE 1

Composite Organization Overview Of Risk-Adjusted ROI And NPV With Key Benefits

97.5% 33%

ROI: 349%

NPV: $1,105,902

Improvement in

development/test environment

setup and configuration

Increase in customers in the first

year with a cloud-based software

distribution system

Source: Forrester Research, Inc.

Windows Azure enabled several key benefits for

many interviewed organizations, such as:

Infrastructure services help increase

revenue with an easier-to-use and more

streamlined application delivery platform.

Infrastructure and data services help

increase revenue with a scalable pay-what-

you-use development and test environment

leading to faster time-to-market.

App Services help connect data and

applications for faster setup and reduced

errors related to business marketing

activities, like a coupon campaign.

4

› Benefits. Some of the most impactful benefits

experienced by the composite organization are listed

here, as identified by interviewed companies:

• Increased service subscription sales of about

$60,000 to $120,000 per year with a more

advanced client application connected with

Windows Azure. The composite organization

previously distributed its application via CD-ROM,

which led to delivery and update difficulties. But

now with a hybrid application model that includes

Windows Azure, it is easier to distribute, share, and

manage the application. This has enabled easier

trial and update processes that have helped lead to

more sales — an increase of 33% in the first year,

with growth at a lower rate in following years.

• By migrating to Windows Azure, one-time costs

estimated at nearly $700,000 for planned new

and upgraded servers, hosting, and other

hardware purchases were avoided. Keeping the

previous solution made up of resources housed on-

premises and at a colocation site would have

required continued investment including new

hardware to meet scale, upgrades to existing

hardware, and continued hosting costs.

• Windows Azure’s App Services help marketing

connect data and applications for faster setup

and reduced errors, leading to $50,000 in

savings per year. Windows Azure Service Bus

helped to more easily and quickly initiate a coupon

marketing campaign, track sales, set coupon valid

dates, and reduce duplicate coupon use.

› Costs. The composite organization experienced the

following risk-adjusted costs:

• Estimated Windows Azure subscription fees

starting of about $80,000 per year over three

years. Fees for Windows Azure, including Windows

Server Virtual Machines, SQL Server, BizTalk

Server-based Service Bus, Storage, Backup, and

Support services, are paid based on usage. Costs

are estimates: Because pay-per-use service

charges are applied only to what is used, light

periods may be less expensive, and heavy periods

may be more expensive. Additionally, the

composite organization signed a 12-month

commitment, which includes a significant discount.

• Annual costs for managing Windows Azure of

about $20,000. This is an annual estimate of

resource costs to administer and manage Windows

Azure. However, as shown in the Benefits column,

it is much less than managing an on-premises

solution, since many management tasks (like

patches, updates, server health monitoring, etc.)

are handled by the Azure platform when used as a

platform-as-a-service (PaaS) offering, and an

infrastructure-as-a-service (IaaS) offering (but to a

lesser extent with the latter).

• Implementation costs of about $70,000. This is

based on time required for planning, migration (or

new development), and implementation of an

existing or new application or service to Windows

Azure.

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

TEI Framework And Methodology

INTRODUCTION

From the information provided in the interviews, Forrester

has constructed a Total Economic Impact™ (TEI)

framework for those organizations considering implementing

Microsoft Windows Azure. The objective of the framework is

to identify the cost, benefit, flexibility, and risk factors that

affect the investment decision.

APPROACH AND METHODOLOGY

Forrester took a multistep approach to evaluate the impact

that Microsoft Windows Azure can have on an organization

(see Figure 3). Specifically, we:

› Interviewed Microsoft marketing, sales, and/or consulting

personnel, along with Forrester analysts, to gather data

relative to Windows Azure and the marketplace for

Windows Azure.

FIGURE 2

Summary Of Risk-Adjusted, One-Time, And Annual Costs And Benefits


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.

$750,000

$1.25 million $500,000 $250,000 ($250,000)

Initial planning and implementation (one-time)

Present Value

Costs ($317 thousand)

Benefits ($1.42 million)

Improved revenue from increased customers and faster time-to-market

Reduced marketing costs from better business responsiveness

Reduced IT management and software development costs

Annual resource consumption and management costs

Avoided hardware costs (one-time)

($500,000) $1 million $1.5 million

6

› 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.

FIGURE 3

TEI Approach


7

Analysis

COMPOSITE ORGANIZATION

For this study, we conducted a total of six interviews with

representatives from the following companies, which are

Microsoft customers based in the US and Europe:

› A multinational consumer- and business-products

manufacturing company headquartered the US.

› A midsized sporting-goods manufacturing company

based in the US.

› A large retail firm headquartered and primarily located in

the US.

› A global furniture manufacturing company headquartered

in the US.

› A global construction company headquartered in the US.

› A local government school system in Europe.

Based on the interviews, Forrester constructed a TEI

framework, a composite company, and an associated ROI

analysis that illustrates the areas financially affected. The

composite organization that Forrester synthesized from

these results represents an organization with the following

characteristics:

› A US-based firm that develops and sells products sold in

retail stores as well as some software.

› About 50,000 employees.

› About 1,500 customers of the primary software product.

› Twenty to 30 servers supporting development, testing,

and operations for that group.

› On-site storage and tape backup solutions, along with off-

site services such as tape storage.

After an extensive request-for-proposal (RFP) and business

case process evaluating multiple vendors, the composite

organization chose Microsoft Windows Azure and began

deployment:

› Implementation started in early 2013.

› This first phase included subscriptions for IaaS virtual

machine services as well as backup and storage services.

› Further investigation and potential implementation of

additional Windows Azure services are planned.

“We had been spending a lot of time

on server updates, security patches,

and other management tasks, which

are now part of the Windows Azure

services.”

~ Project manager at a European school system

INTERVIEW HIGHLIGHTS

Information was collected from the six interviewed

organizations and summarized as a composite organization.

The following situation, solution, and results are based on

this analysis.

Situation

The composite organization was faced with several key

business issues that it wanted to resolve quickly:

› The organization developed and sold a well-regarded

niche software solution but saw flat (and even decreasing)

subscription sales in what should have been a growing

market. The application was built on old development

technologies that occasionally connected to a simple

database, which led to distribution problems, update

delays, and version issues.

› The organization was projecting significant investment

requirements for a number of in-house server resources,

including dedicated development and test environments.

› The organization had a nightly tape backup system that

was reaching its limits as backup times approached 24

hours — an upgraded or replacement system was

needed soon.

› The organization saw rising costs in areas such as

marketing, IT management, development, and testing, as

resources had to spend more time using older systems

for more and more complex problems.

Solution

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

infrastructure, and the confidence that Microsoft’s name

provides.

While Windows Azure provides a broad variety of services,

the organization started with compute services for

virtualized Windows Server environments, data services for

SQL Server and backup, and application services for

Service Bus.

Results

The interviews revealed that for the composite organization:

› Windows Azure enables a more streamlined and

better-managed application development,

distribution, and licensing platform. Coupled with an

application migration to .NET development, moving the

back-end of the application to a shared application

database to Azure meant that it could ensure a reliable

data store that could scale to larger markets, check and

automatically update client software as needed, and

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

the client software on the site — which resulted in near-

instant positive feedback as well as a greater number of

organizations downloading, testing, and purchasing the

software.

“Windows Azure’s geo-redundant

offering is a much better setup than a

company of my size would ever be

able to afford.”

~ Vice president of information technology at a construction

management firm

› Costs associated with the purchase of servers and

other hardware, hosting services, and ongoing

management are avoided by migrating to Windows

Azure services. The composite organization was able to

reduce or avoid a number of IT costs:

• Avoid purchasing a number of new servers and

upgrading existing servers.

• Eliminate costs to colocation hosts for resources

moved to Windows Azure.

• Avoid the purchase of at least one new tape backup

system.

• Greatly reduce the amount of time spent on

management tasks dealing with the above

equipment and services, such as managing a

development/test server farm, backup tasks, and

services costs for off-site storage and retrieval of

tape backups.

› Time-to-market is improved with faster time-to-

implement, more scalable, and more reliable

development and test Windows Azure Compute

services. A new development and test environment can

be set up quickly — and not six or eight weeks after you

request the server from procurement and have it set up by

IT. That means development and testing can start

immediately — and those eight weeks could mean

significant additional revenue for certain applications

(such as a new sales tool that helps reps close more

deals).

“Anytime you have to requisition

hardware, it will take weeks to

coordinate efforts between

procurement, data center

management, IT operations, and

other groups.”

~ Development manager at a sporting goods manufacturer

› Easy setup of environments and the ability to only

pay for what’s used with Windows Azure mean

development and test cost savings. In addition to

increased revenue, faster development or test

environment setup means much less management time

— setup takes just a few clicks. Also, production,

development and test environments are all exactly the

same Windows Azure environment — unforeseen issues

that might arise because the development and test

environments were domain-attached servers (for

example) are eliminated. Finally, the organization only

pays for what it needs — instead of having to buy a new

server to support new development and test

environments needed for a busy period, it simply expands

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

The composite organization based on the interviewed with

six Windows Azure customers experienced several

quantified benefits enabled by Windows Azure integrated

with other cloud and on-premises business applications,

data, and processes:

› Increased revenue from better software scalability and

distribution.

› Increased revenue from faster time-to-market.

› Improved marketing management and reporting.

› Hardware and hosting costs avoidance.

› Reduced ongoing management costs.

› Higher developer productivity through faster test

environment procurement.

Increased Revenue With Better Software Scalability And

Distribution Enabled By Windows Azure

With Windows Azure, the organization improved its

application platform delivery, support, and distribution

platform, leading to a reported 33% more new customers for

its most popular software offering in the first year, plus an

estimated continued growth in subsequent years.

Previously, the application was distributed like a shrink-

wrapped product. Even though it was for a very specific

market and connected to a central database for data

storage and business logic, it did not include authentication.

So the organization couldn’t just post the application online

and allow subscribers to download it — that would make it

available to virtually anyone and provide access to the full

product. This resulted in a number of organizational and

customer difficulties as illustrated in Figure 4, including:

› The organization spent significant time and money

printing and shipping the client application via CD-ROM.

› It also spent significant time handling customer requests

for new and updated software — each request had to be

verified manually before shipping a CD-ROM.

› The organization would ship updates to all subscribers,

but there was no validation or reminders to ensure that

updates were installed.

› Since it was harder to get updates, remember to install

them, and/or request a replacement CD-ROM, new

customers were starting to choose alternative solutions,

and even existing customers were starting to move.

This, coupled with the fact that the application developed on

an older application platform, meant a flat, and even

shrinking, subscriber base. Windows Azure and a client

application re-development to .NET enabled subscriber

authentication and validation checks for the latest version.

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%

A4 Expected customer growth with Windows

Azure A1*A3 2,261 2,487 2,487

A5 Total revenue with Windows Azure (A5-A1)*A2 $434,775 $610,003 $610,003

A6 Profit margin (for revenue from software apps

on Windows Azure) 16%

At Increased revenue from more customers,

enabled by the Azure platform scalability A6*A7 $69,564 $97,600 $128,440


11

Azure for a full hybrid solution built on Windows Azure, the

client application, and back-end systems.

With the updated solution, the organization saw a return to

strong subscription sales (primarily from the reduced

customer barriers to test and subscribe), adding up to nearly

$70,000 in the first year, and expects nearly $100,000 in the

second year and $130,000 in the third year since moving to

Windows Azure.

“Prior to going to Azure, we had to

physically distribute our software,

including printing CDs, stuffing

envelopes, sending them out, and

such. With Windows Azure, we’re able

to put our software on the website

available for download.”


Customers are much more satisfied with the improved

reliability and ease of support (for example, simply

downloading the application to install it on a new or

upgraded PC), and the organization not only has seen

increased revenue but also is able to spend less time and

money on old-fashioned distribution processes, like burning

and shipping CDs.

Increased Revenue From Faster Time-To-Market

In addition to an increase in customers for the primary

consumer product, the composite organization is able to

generate additional revenue from faster development of it

and other consumer and internal applications. With

Windows Azure, the organization found it much quicker and

easier to set up development and test environments,

particularly:

› It avoided the process and logistics of ordering, waiting,

and setting up new hardware to support development and

test environments — which can take as much as eight

weeks or more. Additionally, this delay may also be an

issue for new applications sent to production — even

when planning ahead, there may be no avoiding a release

delay if data center expansions are required, such as

waiting for servers to be shipped, setting up and

integrating with the current infrastructure, and testing the

hardware to make sure it’s ready and correctly configured.

› Development and test environments may not quite match

production servers (e.g., a development environment may

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

on core application needs and not infrastructure changes.

› The development and test virtual server farm is used for a

number of application projects, and each project requires

some special setup or configuration. Instead of constantly

making configuration changes, uninstalling past work, and

reinstalling required resources like SQL Server, with

Windows Azure, setting up a new environment is very

FIGURE 4

Application Deployment Is Streamlined And Reduces Potential Customer Barriers To Entry


12

quick, and recreating past environments is complete in

just a few clicks of the mouse.

› Also, virtual development and test environments can be

shut down quickly with Windows Azure, so the

organization is not charged for it when not in use (and the

environment profile can be saved for quick recreation).

“Profits from improved and faster

application sales improve local

services and benefit taxpayers — a

great example of good government!”


The cost savings from quick setup, easier management,

and reduced infrastructure costs are all covered in the

license and management costs savings sections. However,

applications that provide consumers or internal users with

new capabilities can also help generate new direct or

indirect sales — for example, an update to the main

application should lead to more new sales than without the

update, or a new or updated internal sales tool can help

close more deals. In both cases, making those applications

available two months early can mean new revenue for a

significant number of new and updated products and

internal applications. The composite organization develops

an average of one new or upgraded application per year,

which both:

› Can generate new otherwise-unrealized revenue.

› Would have required new hardware for development/test

or production environments or was faster than past

development cycles due to the quick setup of saved

development/test environments with Windows Azure.

On average, the application development time is 7.5 weeks

faster with Windows Azure, leading to the generation of

about $20,000 to $35,000 in additional revenue per year, as

shown in Table 2.

“A lot of companies fail to realize: We

get our pick of the best developers

because they want to work in the

cloud, and turnover is less since

moving to Azure.”


TABLE 2

Non-Risk-Adjusted Increased Revenue From Faster Time-To-Market


B1 Average on-premises server procurement

cycle time (weeks) 8.0

B2 Percent improvement in resource allocation

time with Azure 93.75%

B3 Resource allocation time with Azure (weeks) 0.5

B4 Value of one week faster time-to-market $8,360 $11,730 $15,440

B5 Applications developed per year that could

generate increased revenue 2.0 2.0 2.0

B6 Profit margin (for revenue from software apps

on Windows Azure) 16% 16% 16%

Bt Increased revenue, due to faster

application time-to-market

(B1-B3)*B4*

B5*B6 $20,064 $28,152 $37,056


13

Avoided Costs From Better Marketing And Business

Responsiveness

In addition to software- and IT-related benefits, the

organization, as a global conglomerate with many different

business units, also included Windows Azure Service Bus in

its subscription, specifically for its product marketing teams

to implement a hybrid environment where data and

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

interviews with users of Windows Azure and discussions of

their experiences, the specific process modeled for the

composite organization is the distribution and redemption of

coupons distributed directly to consumers or through retail

channels.

With a variety of channels and distribution modes, the

organization had problems syncing information and sharing

accurate information with partners. For example, a one-use

coupon available for store or online purchase was not

properly validated, so coupons could be used multiple

times. Also, quick validation of coupons was not possible,

so coupons were distributed live, meaning that even with

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.

Furthermore, accurate coupon redemption data was hard to

come by, or come by within a reasonable time.

These and other issues meant that the organization was not

able to accurately measure the results of a coupon-based

marketing campaign. Coupons were redeemed and sales

were made, but it was very hard to tell whether the coupon

helped drive more sales; what days, weeks, or seasons

might be the most effective times for a campaign; and what

markets or consumer types would be the best targets.

“All our coupons had to be

individually activated; even with

some automation, it would take more

than a day, as many groups were

involved. With Service Bus,

information-sharing across groups is

automated, and activating a million

coupons takes less than an hour.”

~ Director of information technology at a large retailer

The organization identified benefits in areas such as: more

easily and quickly initiating a coupon marketing campaign,

more accurately tracking sales during coupon marketing

TABLE 3

Non-Risk-Adjusted Better Marketing And Business Responsiveness Cost Savings


C1 Coupon campaigns per year 15

C2

Average number of hours required to set up

and initialize a coupon campaign for

distribution before Windows Azure

80

C3

Average number of hours required to prepare

a marketing campaign report, collecting data

from multiple sources

16

C4 Percent improvement with Windows Azure

Service Bus 75%

C5 Average marketing full-time equivalent salary

(FTE) per hour $50

Ct Avoided costs from better marketing and

business responsiveness

C1*(C2+C3)

*C4*C5 $54,000 $54,000 $54,000


14

campaigns, more accurately setting coupon valid dates, and

reducing duplicate coupon use. In particular, the first two

areas were seen as the most measurably affected by

Windows Azure. The organization implemented Windows

Azure Service Bus, which provides a messaging channel for

connecting cloud applications to on-premises applications

as well as services and systems both inside and outside of

the organization. With Service Bus, the organization was

able to create a central data source where it could share

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

with other line-of-business systems to assess campaign

performance and drive improvement for future campaigns.

Table 3 shows that the organization estimates that it took 80

hours to set up and initialize the electronic coupon records

for a marketing campaign and 16 hours to pull together the

information and data afterwards for an average of 15

campaigns per year. Since subscribing to and implementing

Service Bus, it estimates saving 75% of the time it takes to

do these tasks, adding up to a savings of nearly $55,000

per year. The organization also expects to see significant

benefits in its return on marketing investment, and

increased revenue from marketing process and targeting

improvements enabled by Service Bus. However, it has not

been in use long enough to track that level of benefit.

“We started Windows Azure with four

instances. If we built our data center

on-premises, I would have requested

10 or 20 servers.”

~ Marketing manager at a multinational consumer- and

business-products manufacturer

Avoided Hardware And Other Costs

The composite organization realized a key benefit from

Windows Azure by avoiding a much greater hardware

investment for a similar on-premises solution. To meet the

scale and reliability needs with an on-premises

implementation, the organization would have had to:

› Purchase 20 additional servers.

› Upgrade 50 others.

This adds up to a total server count of more than the

equivalent size of the Windows Azure subscription, because

the on-premises solution needs to be ready for peak traffic

times. And Windows Azure provides the same or better

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


D1 Non-Azure estimated servers to purchase, to meet estimated peak need

20

D2 Estimated average per-server purchase cost $25,000

D3 Non-Azure estimated servers to upgrade, to meet estimated peak need

50

D4 Estimated average per-server upgrade cost $3,000

D5 Estimated average new server setup and configuration time (hours)

16

D6 IT FTE hourly salary $35

D7 Other scheduled or expected hardware, hosting, or other costs

$25,000

Dt Avoided server and implementation costs (D1*D2)+

(D3*D4)+(D1 *D5*D6) +D7

$686,200 $0 $0


15

encryption, and is continually tested and improved.

The organization was also able to avoid the purchase of a

new tape backup system estimated to cost about $25,000.

Total avoided costs added up to a one-time savings of

nearly $690,000 during the initial migration to Windows

Azure, as shown in Table 4.

Reduced Ongoing Management Costs

In addition to hardware and other avoided costs, the

composite organization saw a significant reduction in

ongoing server management costs following the Windows

Azure implementation. With Windows Azure Compute and

virtual machine subscriptions:

› Many server management tasks are included with

Windows Azure subscriptions (especially for PaaS

Compute services), such as operating system updates,

patches, security updates, etc.

› The organization was able to refocus its resources to

managing applications and data.

› Supporting a larger customer base was possible with

Windows Azure (because the application is easier to

distribute now that it is connected to resources installed

on Windows Azure and the SQL Server database on

Windows Azure — along with the updated client

application — is more reliable).

With the retirement or repurposing of nearly all of the 70

servers, the organization estimates that it will save nearly all

of the 80 hours per week previously spent on system

management and backup processes, adding up to more

than $130,000 per year in costs as shown in Table 5.

The organization also implemented Windows Azure Storage

Services and StorSimple, which meant it could retire its

difficult, error-prone, and time-intensive tape backup system

for the data stored in its on-premises SharePoint Server; the

estimates include savings from tape backup process and

management costs (including recovery fees from the third-

party tape storage provider) as well as overall easier

processes with StorSimple and SharePoint integration.

“We selected and implemented

StorSimple because it is integrated

with SharePoint. Everything has

worked great!”

~ Manager of core infrastructure services at a global

furniture manufacturer

Development And Test Environment Setup, Procurement,

And Management Cost Savings

Along with reduced hardware purchases that would have

been necessary, in part, for ongoing development and test

environment needs, the organization is able to save process

time and costs associated with setting up, configuring, and

retiring development/test physical or virtual servers. Also,

any delays in waiting for procurement, shipping, and

configuration are eliminated.

The composite organization, with multiple development

efforts happening throughout the year, was able to almost

completely eliminate the tasks associated with the setup

and management of development and test environments

TABLE 5

Non-Risk-Adjusted Avoided Management And Support Effort


E1 Average number of hours per week required to

support the solution before Azure 80

E2 Percent reduction of hours per week required

to support Windows Azure 90%

E3 IT FTE hourly salary $35

Et Avoided management and support effort E1*E2*E3*52 $131,040 $131,040 $131,040


16

with Windows Azure. Before, a new development and

testing process might require new hardware (which added

significant time while waiting for the procurement and data

center teams to complete their tasks) and nearly always

required some setup or configuration from the previous

setup — often back to the same or similar setup from a

previous version of the same application. Additionally, any

networking or configuration issues would have needed to be

handled with the appropriate IT teams.

With Windows Azure, nearly all of those steps are

eliminated, as virtual machine setup requires a few clicks of

the mouse — fewer when using saved configurations. As

few or as many virtual machines can be set up as needed

— to meet the number of environment configurations and/or

scale necessary. Also, these development and test

TABLE 6

Non-Risk-Adjusted Reduced Costs From Improved And Faster Development And Test Processes


F1 Time to set up/configure/take down a development/testing environment before Windows Azure (hours)

20.0

F2 Percent improvement in development/testing environment setup (etc.) time, with Windows Azure

97.50%

F3 Time to set up (etc.) development/testing environment with Windows Azure (hours)

F1*F2 0.5

F4 Development/test environments set up per month

2.0

F5 Development/test FTE salary $60

Ft Cost savings from improved dev/test processes

(F1-F2)*F4*F5*12

$28,080 $28,080 $28,080


TABLE 7

Total Benefits (Non-Risk-Adjusted)

Benefit Initial Year 1 Year 2 Year 3 Total

Present

value

Increased revenue from more customers,

enabled by the Azure platform scalability $0 $69,564 $97,600 $128,440 $295,605 $240,401

Increased revenue, due to faster

application time-to-market $0 $20,064 $28,152 $37,056 $85,272 $69,347

Avoided costs from better marketing and

business responsiveness $0 $54,000 $54,000 $54,000 $162,000 $134,290

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

processes $0 $28,080 $28,080 $28,080 $84,240 $69,831

Total benefits $0 $988,948 $338,872 $378,616 $1,706,437 $1,463,564


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.”


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

The composite organization experienced the following costs

associated with the Windows Azure solution:

› Annual Windows Azure subscription fees.

› Annual management costs.

› One-time implementation and migration costs.

These represent the mix of internal and external costs

experienced by the composite organization for initial and

ongoing resources associated with the solution.

“Once we explained Windows Azure’s

comprehensive security, our

executives were onboard.”

~ Manager of core infrastructure services at a global

furniture manufacturer

Windows Azure Implementation Costs

The organization’s implementation of Windows Azure,

shown in Table 8, included setting up the necessary

databases, server resources, and Service Bus; configuring

StorSimple and Windows Azure Storage Services and

migrating data, application pointers, and other necessary

changes. Application updates were not included, as they

were already deemed necessary and planned before the

move to Windows Azure. Training was also not included. As

for the most part, it was not necessary, except to review the

Windows Azure management interfaces for the couple of

people who would manage and monitor it on a regular

basis.

Windows Azure Resource Consumption Fees

Windows Azure fees are billed monthly based on actual

consumption of resources, measured to the nearest minute;

these are estimated as an average monthly cost and then

added up annually for this discussion. Microsoft provides an

online pricing tool that prospective customers can use to

estimate the cost of consuming Azure subscription-based

resources (or the cost of consuming other subscription

options), and that tool was used to calculate costs for the

composite organization.1 For the composite organization,

resource consumption options include:

› Compute:

• Four Windows Server medium virtual machines.

• Two SQL Enterprise Server medium instances.

• One Standard BizTalk Server medium instance.

• Bandwidth of 1,000 GB.

• Standard support.

› Storage/Data Management:

• Geo-redundant storage of 25,000 GB.

• Backup space of 2,000 GB.

• Included support.

Additionally, the composite organization expects a 10%

TABLE 8

Non-Risk-Adjusted Planning And Implementation Costs

Ref. Metric Calculation Initial Year 1 Year 2 Year 3

H1 Planning and implementation time (weeks)

12.0

H2 Planning and implementation FTE 4.0

H3 Estimated FTE hourly salary $35

H4 Other initial costs (e.g., training) $0

Ht Initial planning and implementation costs

H1*40*H2* H3+H4

$67,200 $0 $0 $0


19

annual growth in Windows Azure resource needs.

These add up to around $7,500 to $9,000 per month.

Because the composite organization signed a 12-month

commitment, a 22.5% discount can be applied, and the

updated total is about $6,000 to $7,000 per month.

(Discounts are available to organizations to subscription

commitments, pre-pay estimated subscription costs, and/or

include Windows Azure in their volume licensing agreement

such as an Enterprise Agreement.)2

Over a full three-year analysis, including discounts and

estimated growth, this adds up to about $70,000 to $85,000

per year, as shown in Table 9.

Annual Maintenance Cost

Windows Azure management is expected to be minimal,

given that Microsoft Windows Azure resources handled the

day-to-day management of Azure servers, which is included

in the subscription fees. Any remaining tasks that the

organization will need to continue are mainly related to

reviewing and adjusting scale options, setting up and

shutting off test and development servers, dealing with

backup retrieval support issues, and managing any changes

or updates to the Service Bus. The organization estimates

this to be one-fourth of an FTE’s time (one or more IT

resources with other responsibilities related to other server

and line-of-business systems that have remained on-

TABLE 9

Non-Risk-Adjusted Windows Azure Estimated Annual Consumption Fees


I1 Estimated Annual Growth Rate of Windows

Azure implementation 10%

I2 Estimated Azure VM Costs per month

(charged per minute; billed monthly) $5,000 $5,500 $6,050

I3 Other Azure Service Costs per month (charged

per minute; billed monthly) $2,500 $2,750 $3,025

I4 12-Month-Commitment Discount (based on

Azure resource consumption costs) 22.5% 22.5% 22.5%

I5 Other Annual Costs, including system

management $0 $0 $0

It Annual Azure Resource Consumption

Costs

(I2 + I3 + I5) *

12 $69,750 $76,725 $84,398


TABLE 10

Non-Risk-Adjusted Annual Organization Resource Maintenance Costs For Windows Azure


J1 Average management time per week (hours) 10 10 10

J2 Estimated Windows Azure Management FTE

hourly salary $35 $35 $35

Jt Annual organization resource costs for

Windows Azure management J1*52*J2 $18,200 $18,200 $18,200


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)

Benefit Initial Year 1 Year 2 Year 3 Total

Present

value

Initial planning and implementation costs ($67,200) $0 $0 $0 ($67,200) ($67,200)

Annual Azure resource consumption

costs $0 ($69,750) ($76,725) ($84,398) ($230,873) ($190,227)

Annual organization resource costs for

Windows Azure management $0 ($18,200) ($18,200) ($18,200) ($54,600) ($45,261)

Total costs ($67,200) ($87,950) ($94,925) ($102,598) ($352,673) ($302,688)


21

FLEXIBILITY

Flexibility, as defined by TEI, represents an investment in

additional capacity or capability that could be turned into

business benefit for some future additional investment. This

provides an organization with the right or the ability to

engage in future initiatives but not the obligation to do so.

There are multiple scenarios in which a customer might

choose to implement Windows Azure and later realize

additional uses and business opportunities. Flexibility would

also be quantified when evaluated as part of a specific

project (described in more detail in Appendix B).

Windows Azure provides a variety of options for future

expansion of cloud strategies and delivery of new cloud-

based services to employees, partners, and/or customers.

Two areas identified during customer interviews are

highlighted here:

› First, the two revenue-generating benefits, increased

software sales and improved time-to-market, are

examples of specific benefits that, with broader adoption,

could become new revenue and profit opportunities.

• If all costs were doubled to meet new resource

consumption and management task needs, it would

add up to about $300,000 (three-year cumulative

costs, undiscounted and not risk-adjusted).

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

added benefits over three years (again

undiscounted and cumulative over three years).

› Second, Windows Azure provides a platform that could

completely or nearly completely replace an organization’s

internal data center requirements. Daily management,

support, patching, security, and other primary tasks would

all be handled by Microsoft, and the organization could

reduce more costs related to hardware, support, help

desk, data center hosting, on-premises office rental,

HVAC and power, resources, and a variety of other costs.

Firms that use technology to enable their business can

focus on their core business.

RISK

Forrester defines two types of risk associated with this

analysis: implementation risk and impact risk.

Implementation risk is the risk that a proposed investment in

Windows Azure may deviate from the original or expected

requirements, resulting in higher costs than anticipated.

Impact risk refers to the risk that the business or technology

needs of the organization may not be met by the investment

in Windows Azure, resulting in lower overall total benefits.

The greater the uncertainty, the wider the potential range of

outcomes for cost and benefit estimates.

The TEI includes a focus on risk to quantitatively capture

potential investment and impact uncertainties by directly

adjusting the financial estimates to provide a more accurate

projection of the ROI analysis. In general, risks affect costs

by raising the original estimates, and they affect benefits by

reducing the original estimates. The risk-adjusted numbers

should be taken as realistic expectations since they

represent the expected values considering risk.

The following implementation risks that affect costs are

identified as part of this analysis:

› Windows Azure resource consumption costs. Since

these estimates are based on charges calculated to the

minute of future, actual consumption of services, any

TABLE 12

Cost And Benefit Risk Adjustments

Costs Risk adjustment

Windows Azure resource

consumption costs 5%

Windows Azure organization

management resource costs 10%

Benefits Risk adjustment

Increased revenue with better

software scalability and

distribution

10%

Increased revenue from faster

time-to-market 5%

Avoided costs from better

marketing and business

responsiveness

10%


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

The financial results calculated in the Costs and Benefits

sections can be used to determine the ROI and net present

value (NPV) for the organization’s investment in Windows

Azure. These are shown in Table 13.

Table 14 and Figure 2 show the risk-adjusted ROI, NPV,

and cumulative values. These are determined by applying

the risk-adjustments from Table 12 in the Risk section to the

benefit and cost totals in Tables 7 and 11.

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

from capital to operational expenses, which can now be

planned as a regular monthly expenses, like a utility.

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%


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%


FIGURE 5

Risk-Adjusted Annual And Cumulative Costs And Benefits (In Thousands)


($67) ($93) ($101) ($109)

$976

$322 $359

Initial Year 1 Year 2 Year 3

TotalCosts

TotalBenefits

RunningTotal

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.

http://www.windowsazure.com/

25

Appendix A: Composite Organization Description

For this TEI study, Forrester has created a composite

organization to illustrate the quantifiable costs and benefits

of implementing Windows Azure. The composite company

is intended to represent a US-based firm focused on

developing and selling consumer products but has

branched out into software development and services.

In purchasing Windows Azure, the composite company has

the following objectives:

› Reduced operations costs.

› Created new revenue opportunities for software products.

› Moved capex expenses to opex.

Based on the interviews, Forrester constructed a TEI

framework, a composite company, and an associated ROI

analysis that illustrates the areas financially affected. The

composite organization that Forrester synthesized from

these results represents an organization with the following

characteristics:

› A US-based firm that develops and sells products sold in

retail stores as well as some software.

› About 50,000 employees.

› About 1,700 customers of the primary software product

before Windows Azure implementation.

› Twenty to 30 servers supporting development, testing,

and operations for that group.

› On-site storage and tape backup solutions, along with off-

site services such as tape storage.

After an extensive RFP and business case process

evaluating multiple vendors, the composite organization

chose Microsoft Windows Azure and began deployment:

› Implementation started in Q3 of 2012.

› This phase included subscriptions for IaaS virtual

machine services as well as StorSimple and Service Bus.

› Further investigation and potential implementation of

additional Windows Azure services is planned.

FRAMEWORK ASSUMPTIONS

Table 15 provides the model assumptions that Forrester

used in this analysis.

The discount rate used in the present value (PV) and NPV

calculations is 10%, and the time horizon used for the

financial modeling is three years. Organizations typically

use discount rates between 8% and 16% based on their

current environment. Readers are urged to consult with their

respective company’s finance department to determine the

most appropriate discount rate to use within their own

organizations.

TABLE 15

Model Assumptions

Ref. Metric Value

A1 Hours per week 40

A2 Weeks per year 52

A3 Work hours per year (M-F, 9-5) 2,080

A4 Average IT hourly salary $35

A5 Average developer/tester hourly salary $60

A6 Average marketing professional hourly salary $50


26

Appendix B: Total Economic Impact™ Overview

Total Economic Impact is a methodology developed by

Forrester Research that enhances a company’s technology

decision-making processes and assists vendors in

communicating the value proposition of their products and

services to clients. The TEI methodology helps companies

demonstrate, justify, and realize the tangible value of IT

initiatives to both senior management and other key

business stakeholders.

The TEI methodology consists of four components to

evaluate investment value: benefits, costs, risks, and

flexibility.

BENEFITS

Benefits represent the value delivered to the user

organization — IT and/or business units — by the proposed

product or project. Often product or project justification

exercises focus just on IT cost and cost reduction, leaving

little room to analyze the effect of the technology on the

entire organization. The TEI methodology and the resulting

financial model place equal weight on the measure of

benefits and the measure of costs, allowing for a full

examination of the effect of the technology on the entire

organization. Calculation of benefit estimates involves a

clear dialogue with the user organization to understand the

specific value that is created. In addition, Forrester also

requires that there be a clear line of accountability

established between the measurement and justification of

benefit estimates after the project has been completed. This

ensures that benefit estimates tie back directly to the bottom

line.

COSTS

Costs represent the investment necessary to capture the

value, or benefits, of the proposed project. IT or the

business units may incur costs in the form of fully burdened

labor, subcontractors, or materials. Costs consider all the

investments and expenses necessary to deliver the

proposed value. In addition, the cost category within TEI

captures any incremental costs over the existing

environment for ongoing costs associated with the solution.

All costs must be tied to the benefits that are created.

RISK

Risk measures the uncertainty of benefit and cost estimates

contained within the investment. Uncertainty is measured in

two ways: 1) the likelihood that the cost and benefit

estimates will meet the original projections, and 2) the

likelihood that the estimates will be measured and tracked

over time. TEI applies a probability density function known

as “triangular distribution” to the values entered. At a

minimum, three values are calculated to estimate the

underlying range around each cost and benefit.

FLEXIBILITY

Within the TEI methodology, direct benefits represent one

part of the investment value. While direct benefits can

typically be the primary way to justify a project, Forrester

believes that organizations should be able to measure the

strategic value of an investment. Flexibility represents the

value that can be obtained for some future additional

investment building on top of the initial investment already

made. For instance, an investment in an enterprisewide

upgrade of an office productivity suite can potentially

increase standardization (to increase efficiency) and reduce

licensing costs. However, an embedded collaboration

feature may translate to greater worker productivity if

activated. The collaboration can only be used with additional

investment in training at some future point in time. However,

having the ability to capture that benefit has a PV that can

be estimated. The flexibility component of TEI captures that

value.

27

Appendix C: Glossary

Discount rate: The interest rate used in cash flow analysis

to take into account the time value of money. Although the

Federal Reserve Bank sets a discount rate, companies

often set a discount rate based on their business and

investment environment. Forrester assumes a yearly

discount rate of 10% for this analysis. Organizations

typically use discount rates between 8% and 16% based on

their current environment. Readers are urged to consult

their respective organization to determine the most

appropriate discount rate to use in their own environment.

Net present value (NPV): The present or current value of

(discounted) future net cash flows given an interest rate (the

discount rate). A positive project NPV normally indicates

that the investment should be made, unless other projects

have higher NPVs.

Present value (PV): The present or current value of

(discounted) cost and benefit estimates given at an interest

rate (the discount rate). The PV of costs and benefits feed

into the total NPV of cash flows.

Payback period: The breakeven point for an investment.

This is the point in time at which net benefits (benefits minus

costs) equal initial investment or cost.

Return on investment (ROI): A measure of a project’s

expected return in percentage terms. ROI is calculated by

dividing net benefits (benefits minus costs) by costs.

A NOTE ON CASH FLOW TABLES

The following is a note on the cash flow tables used in this

study (see the example table below). The initial investment

column contains costs incurred at “time 0” or at the

beginning of Year 1. Those costs are not discounted. All

other cash flows in Years 1 through 3 are discounted using

the discount rate (shown in Framework Assumptions

section) at the end of the year. PV calculations are

calculated for each total cost and benefit estimate. NPV

calculations are not calculated until the summary tables and

are the sum of the initial investment and the discounted

cash flows in each year.

Appendix D: Endnotes

1 Source: Microsoft Windows Azure Pricing Calculator

(http://www.windowsazure.com/en-us/pricing/calculator/).

2 Link to win azure discount page

TABLE [EXAMPLE]

Example Table



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