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The hidden costs of unified communications in the cloud

Many organizations expect to lower UC costs by adopting cloud communications, but that isn't always the case. Several factors influence costs when UC migrates to the cloud.

For many organizations considering unified communications in the cloud, the primary allure is a perceived opportunity to reduce UC costs by eliminating staffing, maintenance and support requirements for on-premises platforms. But unified communications as a service may not always result in lower costs, at least not at first.

Perceived cost savings is still a primary driver for moving toward unified communications in the cloud, according to Nemertes Research Group's 2018 study on UC total cost of ownership, based on data gathered from more than 600 companies in North America, Europe and Asia.

Survey participants said they expect that moving communications to the cloud will enable them to reduce both capital and operational costs and also shift staff from maintenance roles to strategic functions that allow them to realize greater benefits from their collaboration investments.

Can unified communications in the cloud cut costs?

The reality, though, is unified communications as a service (UCaaS) doesn't always provide the lowest costs, especially in larger organizations that are maintaining fully depreciated on-premises phone systems. For organizations with fewer than 50 employees, UCaaS operating costs typically run about $798 per license, per year versus about $696 for an on-premises system.

For organizations with 50 to 100 employees, the costs of UCaaS are nearly double that of on-premises systems. Nearly 36% of organizations that implemented UCaaS saw increased operational costs in the first year compared to 18% who saw a decrease.

Monthly licensing and staff training are the largest drivers of cost increases for UCaaS. Companies moving from an on-premises platform often find the per-user, per-month subscription pricing model for UCaaS results in higher UC costs than what they were spending on maintenance and staffing resources to support their on-premises system, especially if capital costs are already fully depreciated.

Staffing costs increase as a result of two factors: the need to train IT staff to support the new product and, often, the reassignment of IT staff to higher-value roles, such as application development or as business liaisons to drive application adoption and ensure that IT strategies are in line with business need.

How unified communications in the cloud affects UC costs

Eliminating equipment maintenance is the primary area of savings for companies implementing UCaaS. Other potential savings areas include reducing staff, eliminating managed services, reducing access costs for public switched telephone networks and eliminating PSTN trunks.

One area where UCaaS costs are significantly lower than on-premises UC costs is in the initial implementation. For organizations with fewer than 500 employees, on-premises UC typically runs about $149 per license compared to $93 for UCaaS. UCaaS costs can be even lower if phones are bundled into the monthly cost of the service rather than procured upfront.

While upfront UCaaS costs may often be higher than an on-premises system, most IT leaders expect to see declining cloud costs over time as training costs fall and they optimize their network configurations to support a cloud-based delivery model -- for example, using software-defined WAN to reduce wide area network costs.

After year one, 28% of organizations said they expect to see falling operating costs associated with their UCaaS implementation compared to 24% that said they expect to see costs increase beyond the first year. Expected changes in UC costs vary by organization size, with smaller organizations seeing a larger decrease in operating costs when moving to the cloud compared to larger companies.

Those evaluating UCaaS should spend time upfront to model expected changes in operating costs. This will ensure that they identify changes in costs early on in their project to place their unified communications in the cloud and offset higher initial costs by delivering improved collaboration and an improved end-user experience that many UCaaS providers deliver.

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