Examining the Cloudy Economics of the Hosted Contact Center

K. Landoline

K. Landoline

Summary Bullets:

  • A total cost of ownership (TCO) analysis of a hosted contact center solution versus an on-premise offering can show cost reductions of 40% or more over the first three years of its lifecycle.
  • A closer look at additional critical factors may show the trade-off between the two solutions as a toss-up for your company’s customer care environment. 

Hosted or cloud-based contact center offerings are now functionally and architecturally strong and have been proven effective at many customer sites over the past few years. Providers of hosted solutions and services include companies such as 8×8, Alcatel-Lucent, CosmoCom, Echopass, Five9, inContact, Interactive Intelligence, Noble Systems, Oracle, Siemens Enterprise Communications and Verizon. Enhanced rapid scalability, single server multi-tenancy capabilities and IP location-irrelevant connectivity make today’s solutions superior to those offered previously. In a hosted environment the costs of installation, maintenance and the technology “refresh” responsibilities are shifted from the enterprise to the hosting company. This can offer a very effective and attractive business case for companies setting up new contact centers or for established companies wishing to stabilize monthly expenditures and focus resources on their core business functions. Additionally, some organizations selecting a hosted contact center service can minimize, or even eliminate the cost of an IT and/or telecom support department.

With a hosted contact center the improved TCO business model – manifested primarily in enterprise hardware/software and technology “refresh” and maintenance savings – is a powerful incentive, driving decision makers to examine and consider this option. My experience in comparing the costs of hosted contact center services to comparable premise-based solutions illustrates the attractive economic performance offered by a hosted service in the short-term. The three-year TCO savings can be significant – approximately 30% in a relatively small center with 25 agents to 45% or more in a larger center with 400 plus agents. The larger the center is, the more impressive the potential TCO savings are, in both absolute dollars and percentage savings. In addition to the hardware/software purchase and technology refresh savings, other areas of cost-cutting include implementation, maintenance and IT staffing expenses.

Fair questions to be asked, but often overlooked, in the comparison of hosted versus premise-based solutions include:

  • “What happens to the economic comparison after year three or four?”
  • “Does the hosted solution lose much of its economic advantage in the long term?”
  • “If we tend to keep our solutions for a decade or more, should I even consider a hosted solution?”
  • “If the work moves offsite, will it be realistic to shrink headcount accordingly?”
  • “How willing are we to shift company and employee data to an offsite data store?”

The answers to these questions are important because they may easily turn the results of the short-term TCO analysis around in favor of the premise-based offering, depending on the technology purchase, usage and data profile of your company. After all, spreading the purchase and installation price of a premise-based solution and continuing the monthly “rental fee” of a hosted service for ten years will make the delta in overall costs much less significant in the longer term. On the other hand, experience has proven that technology does not stand still and eventually a “forklift upgrade” may be required to update the premise-based solution which can cost substantially more than the monthly fee of the hosted service solution, which typically includes on-going and immediate technology updates. In addition, if your company is concerned about system back-up and redundancy issues and business continuity during natural disasters or terrorist threats, the hosted solution may be worth the ongoing monthly fees throughout the longer lifecycle.

The bottom line is that there is no simple answer to the question of hosted or premise-based customer care solutions. However, the choice should not be based purely on short-term economics. While distributed enterprises that have accepted the hosted service model in other aspects of their business, as well as enterprises with a shortage of time, money and call center management skills are excellent candidates for the on-demand hosted contact center service model, there are other things to consider.  Your company’s profile in terms of typical length of its technology lifecycle, willingness to let company and customer information reside offsite and its ability to release IT human resources to benefit from a hosted solution, and other unique factors to your business, should all weigh heavily on the ultimate decision. You should not rush into a technology decision and a hosted solution decision is not an exception to that rule. Consider all the factors, plan accordingly and then move decisively.

About Ken Landoline
As Principal Analyst within the Current Analysis Business Technology and Software group Ken Landoline tracks the enterprise unified communications and contact center (UCCC) markets.

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