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Forrester Consulting: Benefits of Oracle-Verizon Cloud-Based Subscription Services

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This Forrester study reveals the financial benefits of pay-as-you-go Oracle on Verizon Cloud. Verizon customers quantify the benefits, including up to 90% reduction in associated hardware, software …

This Forrester study reveals the financial benefits of pay-as-you-go Oracle on Verizon Cloud. Verizon customers quantify the benefits, including up to 90% reduction in associated hardware, software and labor costs. Companies avoid having to pay unnecessary licensing, maintenance and support costs while using the most current technology. Learn more about this flexible, pay-as-you-go licensing, that allows you to access Oracle databases and middleware software without the long wait or hassle: http://cloud.verizon.com/cloud-portfolio/oracle-on-the-cloud

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  • 1. A Forrester Total Economic Impact™ Study Commissioned By Verizon Project Director: Liz Witherspoon August 2014 Total Cost Of Ownership Of Verizon And Oracle Database And Oracle WebLogic Server Subscription Services Cost Savings And Business Benefits Enabled By Verizon’s Pay-As-You-Go Model For Oracle Software
  • 2. Table Of Contents Executive Summary .................................................................................... 3 Disclosures .................................................................................................. 8 TEI Framework And Methodology ..........................................................10 Analysis ......................................................................................................11 Verizon And Oracle Database And Oracle WebLogic Server Subscription Services: Overview............................................................19 Appendix A: Total Economic Impact™ Overview.................................21 Appendix B: Supplemental Material .......................................................22 Appendix C: Endnotes..............................................................................22 ABOUT FORRESTER CONSULTING Forrester Consulting provides independent and objective research-based consulting to help leaders succeed in their organizations. Ranging in scope from a short strategy session to custom projects, Forrester’s Consulting services connect you directly with research analysts who apply expert insight to your specific business challenges. For more information, visit forrester.com/consulting. © 2014, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester® , Technographics® , Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to www.forrester.com.
  • 3. 3 Executive Summary Verizon commissioned Forrester Consulting to conduct a cost-based analysis, utilizing the Total Economic Impact™ (TEI) methodology, and examine the potential cost savings and reduction in total cost of ownership (TCO) that enterprises may realize by accessing Oracle software through the Verizon Terremark Enterprise Cloud. The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of accessing Oracle software on a subscription basis for their organizations. While the financial analysis of this study focuses on the cost savings around licensing and infrastructure, customers stated clearly that cost was not the primary driver for taking advantage of the subscription services. They cited significant business benefits that drove them to choose this licensing model, many of which are highlighted below. To better understand the benefits and costs associated with this licensing model, Forrester interviewed several customers who opted to use Verizon and Oracle Database subscription services. The pay-as-you-go model is a new offering that represents an expanded relationship between Verizon and Oracle. It serves as an alternative to purchasing Oracle perpetual licenses for short-term projects and was used by customers interviewed for this study on a temporary basis to set up testing and development environments for approximately six months. Most significantly, the subscription approach fits within the cloud strategy and frameworks established by the interviewed companies, making their purchase decision easy. Prior to taking advantage of this monthly subscription model, customers had to go through a lengthy and costly process to establish a development and testing environment for their application development teams. When they had Oracle licenses to spare, it took time and resources to set up the database and ensure that the current templates were in place. If the licenses needed to be procured, the acquisition process took weeks to months, involved a lot of red tape, and slowed down the development teams from getting their jobs done. Typically, the license purchase was over capacity since the testing and development environment was only used for a few months, leading to more up-front costs than needed and excess capacity. With Verizon’s subscription services for Oracle software, customers were able to “flip a switch” to activate their subscriptions and set up a new environment in hours rather than weeks. As a result, they could be more responsive to the business and aid the development team in delivering customer-facing applications more quickly. Said one senior manager for IT infrastructure, “We could enable the business in a quick way with minimal investment. Accessing software in this way helps us to be more nimble and a better partner to the business.” Although cost savings was a clear incentive for these customers to “rent” their Oracle licenses from Verizon, it wasn’t the primary reason for the switch. Customers interviewed for the study identified several business benefits of this subscription model: › Decreased time-to-market for building a customer-facing application. All Verizon customers interviewed were building customer-facing applications in response to business needs. To be nimble and responsive to their business stakeholders, they needed to provide their application development teams with a testing and development environment quickly. By accessing the Oracle software through Verizon, they were able to get started immediately. Said one enterprise infrastructure architect, “It was time-to-market for us to create an external application — there is an opportunity cost of not meeting a schedule to develop a customer-facing app. It would have upset other schedules in the program, and we all need to own customer experience.” › Increased speed and flexibility when setting up and taking down environments. The Verizon pay-as-you-go model was appealing to these organizations because they had temporary workloads. They needed to set up the environment and use it only a few months out of the year. Compared with a perpetual license, this new model enabled them to pay for only Using Verizon and Oracle Database and Oracle WebLogic Server Subscription Services, organizations can be more nimble and responsive to the business while saving costs. The subscription services:  Lower total cost of ownership for license and maintenance of Oracle Database Enterprise Edition for temporary use of a database (approximately six months) for test and development.  Increase speed and flexibility when setting up and taking down testing and development environments.  Improve visibility and accounting around IT costs related to specific projects.
  • 4. 4 what they needed. Said one senior manager for IT infrastructure, “We decided that if our development and test systems associated with large applications are only used part of the time, then it wasn’t very efficient to procure a whole environment for them.” › Improved visibility into and allocation around technology costs. The customers interviewed mentioned that the subscription model enabled them to draw clear lines to costs associated with specific projects. This has been very helpful when socializing and sharing technology costs with business stakeholders. In the past, the use of the license and associated labor and hardware costs would be ongoing regardless of what portion of the technology was used for a particular initiative. Now, IT can communicate easily with the business about what spend is related to a particular initiative. Said one senior manager, “Before, there were ownership and depreciation issues around a license. It gets us out of the financial gymnastics we used to do so we can allocate more cleanly who is really using the license.” › Freed up internal resources for less operational and more value-added work. The customers interviewed — all Verizon Enterprise Cloud subscribers — value the expertise that Verizon brings to their organizations as a tier one provider of cloud services. Each organization followed an IT strategy centered on outsourcing nonstrategic work to a partner within a portfolio of providers and moving capital expenditure to operating expenditure when possible. The customers used terms for their IT paradigms including “nimble IT,” “cloud first,” and “disposable infrastructure.” The subscription offering fit perfectly within the existing framework, enabling them to make the decision to access the licenses in this way a no-brainer. One customer commented, “If we can’t differentiate ourselves, we don’t have to do it or be the experts.” › Lower upfront cost and capital expenditure. Moving from a traditional perpetual license purchase to a subscription model lowers capital expenses. These Verizon customers were already leveraging the Enterprise Cloud for their infrastructure-as-a-service (IaaS) and categorizing it as operating expenses. They did not have to invest in additional servers, hardware, or associated labor costs, and they got immediate access and use of the Oracle Database. The pay-as- you-go model means that they are billed monthly, did not have to invest in capital equipment for their database, and have lower upfront costs. If they use the Oracle software on a temporary basis (approximately six months per year), they pay less for license, maintenance, and associated hardware costs. › Shortened procurement cycle — a switch flip versus a new request. Because the Verizon offering is available within existing Enterprise Cloud agreements, these customers breathed a collective sigh of relief knowing that they did not have to go through a traditional procurement process to set up a new Oracle Database. They described the process as lengthy and frustrating, sometimes taking up to six to eight weeks. Not only did the procurement cycle weigh on them, but they knew that their infrastructure and operations teams were already overtaxed and would not have time to set up a test/dev environment quickly given their other priorities. Through the Verizon subscription service, they could bypass the wait and get their teams working immediately. › Reduced over-provisioning and increased efficiency of technology used. Customers cited the subscription model as a means to reduce overprovisioning, in addition to shortening the procurement cycle. Enterprise architects, needing to plan for future capacity when making new infrastructure purchases, typically overbuy to plan for growth. But the infrastructure managers interviewed wanted to get rid of excess capacity and give it back when they’re finished with it. Now they can. Said one enterprise infrastructure manager, “Previously, when we went back and forth with the architecture team, they’d define an environment over spec to allow for growth; it was defined to exceed the requirements, and by definition, cost more than we expect to pay . . . now you do what you need for the load; once it’s taken care of you can get rid of the excess capacity.”
  • 5. 5 VERIZON PAY-AS-YOU-GO MODEL FOR ORACLE LICENSES GENERATES COST SAVINGS Our interviews with three existing customers and subsequent financial analysis found that a composite organization based on these interviewed organizations experienced the cost savings shown in Figure 1. FIGURE 1 Financial Summary Showing Cost Savings For A Temporary Workload (Six Months) TCO savings over one year: $84,378 Total cost for pay- as-you go licenses: $30,282 Total cost buying Oracle licenses: $114,660 Source: Forrester Research, Inc. › Savings — subscribing to the Oracle Database subscription service through Verizon. The composite organization experienced the following savings when accessing Oracle Database Enterprise Edition on a subscription basis: • Reduced license and maintenance costs. When Verizon customers used the Verizon and Oracle Database and Oracle WebLogic Server Subscription Services for a temporary workload — approximately six months or less — they realized immediate savings on license and maintenance costs. Maintenance is included in the subscription price. • Lower hardware and software costs associated with acquiring a database. Because the subscription service is offered as part of Verizon’s infrastructure-as-a-service, customers do not have to purchase hardware and software to support a database on their own infrastructure. • Reduced labor costs. Because the subscription services are accessible immediately and directly from Verizon’s Enterprise Cloud, customers do not have to use internal infrastructure and operations resources to get started. Furthermore, they do not have to go through a lengthy procurement process, which also ties up resources. • Faster time-to-deploy a new testing and development environment. Without the subscription services, development teams may have waited weeks or months to get access to an environment to develop and test code. Through Verizon’s offering, they can get started in days, keeping their critical, client-facing projects on schedule. › Costs — subscribing to the Oracle Database subscription service through Verizon. The composite organization experienced the following risk-adjusted costs when accessing Oracle Database Enterprise Edition on a subscription basis: • Software licensing fees of $4,719 per month. These are monthly recurring costs for subscribing to the Oracle Database Enterprise Edition service (four virtual processors). The subscription cost includes maintenance for that license. • Monthly maintenance. The ongoing maintenance costs for the license are included in the cost of the monthly subscription cost. • Monthly Verizon Enterprise Cloud infrastructure fees of $328 per month. This is a monthly recurring fee paid to Verizon for the Enterprise Cloud infrastructure on which the Verizon and Oracle Database and Oracle WebLogic Server Subscription Services run.
  • 6. 6 • Database provisioning and maintenance at a rate of $72 per hour. These labor costs involve about 40 hours of database administration time to install the DBMS software, configure it, install a database, and tune, optimize, and deploy it. The data administrator would then spend time weekly maintaining the database. Note: Because DBA and data administration work needs to be performed in both the hosted and on-premises scenarios, this labor cost was excluded from the calculation. However, there is a slight time savings for an organization to access Verizon’s preconfigured environment to be noted. › Costs — purchasing Oracle Database Enterprise Edition License for on-premises installation and use. The composite organization experienced the following risk-adjusted costs when purchasing perpetual Oracle licenses to use on-premises with its infrastructure: • Software license purchase price for Oracle Database Enterprise Edition of $76,000. This is a one-time purchase price for a perpetual Oracle Database Enterprise Edition license (four processors). It assumes two things: First, that the processor it runs on — in this scenario, an Intel processor — qualifies for a “core processor” discount of 0.5 the license price. Second, it includes a discount rate of 20% for the license price (Oracle license discounts range widely depending on the type of partnership and terms of the customer relationship, so a conservative estimate was used). Depending on the accounting approach of the organization and rules governing the country, an organization may choose to depreciate the license cost over three to five years or write it off as an expense in the first year. • Annual maintenance fee of $16,720. The annual maintenance fee for the perpetual license is calculated at a standard rate of 22% of the net license fee and recurs annually, likely with an annual price increase of about 4%. • Database provisioning and maintenance at a rate of $72 per hour. These labor costs involve about 40 hours of database administration time to install the DBMS software, configure it, install a database, and tune, optimize, and deploy it. The data administrator would then spend time weekly maintaining the database. Note: Because DBA and data administration work needs to be performed in both the hosted and on-premises scenarios, this labor cost was excluded from the calculation. However, there is a slight time savings for an organization to access Verizon’s preconfigured environment to be noted. • Server cost of $5,000. This is the cost of the server hardware on which the database will run. Its cost is depreciated over three years. • Server maintenance costs of $1,000 annually. This is the annual server maintenance cost that is estimated at 20% of the acquisition cost. • Operating system license cost of $1,000 annually. This operating system license cost, most likely Red Hat Enterprise Linux Server, is a recurring subscription license cost. • Storage cost of $8,000 annually. This is the cost of plugging into an existing tier two storage infrastructure that the composite organization is likely to have in place. • Data center overhead facilities cost of $4,620 annually. This is the cost to provide power, cooling, fire suppression, and security in a data center and the labor to oversee the facilities. • IT labor to maintain the server, storage, and network at $5,654 annually. This is the server/local area network, storage, and wide area network admin staff cost. CUSTOMERS’ VIEW ON THE COST SAVINGS The customers interviewed for this research and the composite organization chose the pay-as-you-go model instead of purchasing perpetual licenses because they needed to set up a testing and development environment on a temporary basis. Depending on the need — whether it be rapid prototyping, testing out a cluster, or quickly starting a new development project — they planned to use a nonproduction environment for as little as one month and for as many as six months. For the
  • 7. 7 purposes of this cost analysis, the time horizon modeled for using the subscription license for the composite organization is six months. The assumption is that after this point, the environment is no longer needed and can be taken down. The cost savings are shown for one year only because the customers “use and dispose” of the environment within that time. The cost comparison between the licensing options can be approached in two ways. Some organizations may already be Verizon Enterprise Cloud customers and wish to add the Oracle Database on top of the existing agreement. Others may be considering the TCO of moving to the cloud as an alternative to their using their existing infrastructure and internal resources. License-To-License Comparison Of Costs Because customers need to be existing Enterprise Cloud Verizon customers prior to accessing the Oracle Database, many who opt to use this service are already paying monthly, recurring fees to Verizon for their infrastructure. They might view the option to invest in the Oracle Database as simply an add-on to their existing monthly bill and would compare the monthly license fee from Verizon with the cost of a perpetual license from Oracle. Furthermore, because Verizon offers a “bring your own license” arrangement with Oracle, the customer may have already been leveraging the Verizon infrastructure to host their licenses in the past. For these customers, the license-to-license cost comparison may suffice. TABLE 1 Cost Savings — Verizon Subscription Price Compared With Oracle Purchase License And Maintenance Fees Ref. Cost Category Calculation Cost Year 1 (Oracle License Cost Depreciated Over Three Years) Year 1 (Oracle License Cost Accounted for Entirely In The First Year) A1 Verizon subscription price @ six months utilization $4,719 per month $28,314 $28,314 A2 Purchase price — Oracle Database Enterprise Edition license cost $76,000 (license fee = $190,000*“core multiplier” rate 0.5*20% license discount) $25,333 $76,000 A3 Purchase price — Oracle Database Enterprise Edition support and maintenance $16,720 (maintenance fee — 22% of net license fee) $16,720 $16,720 Art Total cost savings (A2+A3)-A1 $13,739 $64,406 Source: Forrester Research, Inc. Total Cost Of Ownership Of The License, Including The Associated Hardware, Software, And Labor Costs The composite organization developed for this study procured Oracle Database from Verizon on a monthly subscription basis, in part to avoid a lengthy and costly procurement process. Furthermore, having the development and testing environment on-premises would have required relying on infrastructure labor and assets that were already taxed. They viewed the cost savings as a significant reduction in capital expenditure and labor against the alternative option. The cost comparison is an “apples-to-apples” TCO comparison between accessing Oracle Database via Enterprise Cloud on a monthly subscription basis and purchasing perpetual Oracle Database licenses for on-premises use. The associated infrastructure and labor costs for both options are included in the calculation. Note: The database administration and maintenance costs are roughly the same in both scenarios, so they are excluded from calculation.
  • 8. 8 TABLE 2 TCO Cost Savings — Subscription Price (With Associated Costs) Compared With TCO Of On-Premises Purchase Price (With Associated Costs) Ref. Cost Category Calculation Cost Year 1 (Oracle License Cost Depreciated Over 3 Years) Year 1 (Oracle License Cost Accounted for Entirely in the First Year) Verizon subscription cost B1 Verizon subscription price @ six months utilization $4,719 per month (license) $28,314 $28,314 B2 Verizon Enterprise Cloud associated infrastructure costs @ six months $328 per month $1,968 $1,968 Purchase price — Oracle Database Enterprise Edition B3 Purchase price — Oracle Database Enterprise Edition license cost $76,000 (license fee = $190,000*“core multiplier” rate 0.5*20% license discount) $25,333 $76,000 B4 Purchase price — Oracle Database Enterprise Edition support and maintenance $16,720 (maintenance fee — 22% of net license fee) $16,720 $16,720 B5 Oracle Database Enterprise Edition associated hardware, software, and labor costs $21,940 (associated hardware, software, and labor costs) *See Costs section for more detail $21,940 $21,940 Brt Total cost savings (B3+B4+B5) -(B1+B2) $33,711 $84,378 Source: Forrester Research, Inc. Disclosures The reader should be aware of the following: › The study is commissioned by Verizon and delivered by Forrester Consulting. It is not meant to be used as a competitive analysis. › Forrester makes no assumptions as to the potential cost savings 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 Verizon’s subscription services for Oracle licenses.
  • 9. 9 › Verizon 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. › Verizon provided the customer names for the interviews but did not participate in the interviews.
  • 10. 10 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 purchasing Verizon’s Subscription Services for Oracle Database. 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 Verizon’s Subscription Services for Oracle Database can have on an organization (see Figure 2). Specifically, we: › Interviewed Verizon and Oracle marketing, sales, and product management personnel, along with Forrester analysts, to gather data relative to Verizon’s Subscription Services for Oracle Database. › Interviewed three organizations currently using Verizon’s Subscription Services for Oracle Database to obtain data with respect to costs, benefits, and risks. › Designed a composite organization based on characteristics of the interviewed organizations (see Analysis section). › Constructed a financial model representative of the interviews using the TEI methodology. The financial model is populated with the cost data obtained from the interviews as applied to the composite organization, as well as Forrester projections based on industry standards. › Risk-adjusted the financial model based on issues and concerns the interviewed organizations highlighted in interviews. Risk adjustment is a key part of the TEI methodology. While the interviewed organizations provided some of the cost estimates, some categories included a broad range of responses or had a number of outside forces that might have affected the results. Forrester employed four fundamental elements of TEI in modeling Verizon’s Subscription Services for Oracle Database: costs, benefits, flexibility, and risks. Given the increasing sophistication that enterprises have regarding ROI analyses related to IT investments, Forrester’s TEI methodology serves to provide a complete picture of the total economic impact of purchase decisions. Please see Appendix [A] for additional information on the TEI methodology. FIGURE 2 TEI Approach Source: Forrester Research, Inc. Perform due diligence Conduct customer interviews Design composite organization Construct financial model using TEI framework Write case study
  • 11. 11 Analysis COMPOSITE ORGANIZATION For this study, Forrester conducted a total of three interviews with representatives from the following companies, which are Verizon customers based in the United States and the United Kingdom: › Lexmark International is a global provider of printing and imaging products, software, solutions, and services headquartered in Lexington, Kentucky, with about $3.8 billion in revenue. Lexmark has a long history of research and development focused on connecting unstructured print and digital information across the enterprise with the processes, applications, and people that need it most. › JetBlue Airways is a New York-based airline with $6 billion in revenue that operates in 86 cities and 17 countries. JetBlue has 16,000 crew members and carries more than 30 million customers a year to 85 cities in the US, Caribbean, and Latin America, with an average of 850 daily flights. › datb, a privately-held, UK-based custom application development company, offers an alternative to off-the-shelf packages to develop large-scale, web-based enterprise applications. datb has developed applications for the utilities, government, and investment management industries. Based on the interviews, Forrester constructed a TEI framework, a composite company, and an associated cost analysis that illustrates the areas financially affected. The composite organization that Forrester synthesized from these results represents an organization with the following characteristics: › A global, Fortune 1000-sized enterprise with a strategic imperative within IT to move functions to the cloud and outsource areas of IT where it can save the company time and money. The organization partnered with Verizon as a tier one cloud provider because of its global presence, reliability, powerful network, and strong brand. The organization views Verizon as a partner and extension of its team and relies on Verizon’s infrastructure and expertise for mission-critical applications. › This organization supports internal business units’ application development projects and seeks the best method for supporting development projects. These new applications, ultimately, generate revenue for the organization through partners or directly. The organization seeks a more flexible and less expensive means to create testing and development environments for its teams for short-term use. › The organization selected Verizon for its breadth of offering, reliability, and expansive network of data centers in multiple global locations. The organization is already a customer of Verizon’s enterprise cloud and relies on Verizon for cloud services in advance of using the subscription services offering for Oracle Database. › The organization has access to existing Oracle Database licenses but seeks an alternative for specific use cases in support of business needs, for example, rapid prototyping and a development environment for a new application where the database is only used for a period of time and then taken down. The organization seeks to better quantify the usage and costs of business technology to attribute those costs to the business units. › The organization has a need to support a global customer base and must have reliable and fast network speed with a partner that is global. “When I think of Verizon, I think of partnership. We look to Verizon as an extension of our operations; they play an integral role in every part.” ~Eash Sundaram, CIO, JetBlue Airways
  • 12. 12 INTERVIEW HIGHLIGHTS — LEXMARK INTERNATIONAL — QUICKLY DEVELOP A RESELLER PARTNER APPLICATION Situation Lexmark has a network of reseller partners called “Lexmark Fleet Managers” who resell managed print services. Lexmark wanted to create a software-as-a-service (SaaS)-based application for its reseller partners to use with their end customers to manage print services in the same way that Lexmark does. Previously, the application had been on-premise and hosted by the partners, but the customers were demanding that they Web- enable it. The Oracle Database was part of the underlying architecture of the reseller application, so the timing was perfect for the development team to build the SaaS version on Verizon’s Enterprise Cloud infrastructure. Although it is initially intended for temporary use, Lexmark would consider using it as a production environment. Solution The senior manager of infrastructure, along with his cloud alliance manager, decided that the Verizon pay-as-you-go model would be ideal for developing this partner reseller application. They could begin development quickly, and it fit well within their “nimble IT” approach to technology investment. Their team has spent years building out Lexmark’s global cloud business infrastructure and looked for opportunities to take applications outside of their four walls and to the cloud. As much as possible, they try to move capital expenses to operating expenses. “It’s more about pay-as- you-go and not architecting for five years out in time. We’re going to procure an environment as we need it,” said the senior infrastructure manager. They also recognized that developing and testing an application would only use the environment part of the time and that it would be more efficient to tap into the Verizon service offering. Results The interview revealed that Verizon’s subscription services for Oracle licensing: › Enabled the IT organization to be a better partner with the business. Ultimately, Lexmark’s infrastructure team wanted to deliver value quickly to the development teams that are developing customer-facing applications in response to business needs. Procuring on-premises licenses to set up an environment would have hindered its progress and led to unnecessary capital expenditures. The process of ordering, receiving, and standing up the equipment adds time to the application delivery process, all before the build of the actual application. With Verizon’s subscription services, the team was able to give the business what it needed — an environment to develop the application — in less than a business day › Helped it maintain competitiveness within the market. Lexmark believes that to remain competitive, it needs to move service offerings to the cloud, including the partner reseller application. With a global customer base, it knows that a tier one cloud partner like Verizon is instrumental to providing the SaaS applications that perform to scale and that customers want to buy. A public model for cloud applications is key to its strategy because software hosting is not a core competency, and past efforts to host on-site did not provide the speed and performance demanded by its global customer and employee base. “Lexmark doesn’t need to be in the data center or infrastructure business; we have plenty of opportunity to procure from someone who is an expert. If we can’t differentiate ourselves, we don’t do it.” ~Michael Busseni, senior manager of IT Infrastructure Alliance and Support, Lexmark
  • 13. 13 › Improved its ability to allocate ownership costs of licenses to the business. The monthly operating expense model Verizon offers provides Lexmark with a cleaner, easier way to demonstrate the IT costs that relate to a particular business initiative. It can now bill back to the business when needed with a clear sight of the costs incurred. Said the senior infrastructure manager, “This offering takes our expense model and allows us to bill in different ways. Before there were ownership and depreciation issues around a license. It gets us out of the financial gymnastics we used to do so we can allocate more cleanly to who is really using the license. › Allowed it to flex with the changing business environment. The Lexmark IT team has been on the road to “nimble IT” for a long time — over 13 years. It refers to its current location on that path (tongue-in-cheek) as “Outsourcing 4.0.” Through this, it has seen times that it needs to scale back and times to scale up depending on the business cycle. Said the senior infrastructure manager, “The benefit of pay-as-we-go is that we can turn up and down the service as the business needs it instead of building something we will need in five years that depreciates. It helps align IT with the business better. In a good year we can build out, and in a lean year we can get smaller.” It helps align IT with the business better. In a good year we can build out, and in a lean year we can get smaller.” “The benefit of pay-as-we-go is that we can turn up and down the service as the business needs it instead of building something we will need in five years that depreciates. It helps align IT with the business better. In a good year we can build out, and in a lean year we can get smaller.” ~ Michael Busseni, senior manager of IT Infrastructure Alliance and Support, Lexmark
  • 14. 14 INTERVIEW HIGHLIGHTS — JETBLUE AIRLINES — BUILD A TESTING AND DEVELOPMENT ENVIRONMENT QUICKLY FOR A NEW CUSTOMER-FACING APPLICATION Situation JetBlue has a customer service focus and views technology as a critical differentiator. Said CIO Eash Sundaram recently in an interview with Verizon, “We’re a customer experience business that just happens to fly airplanes. Embracing cloud is critical for the next generation of our infrastructure. The cloud offering from Verizon gives us a superior platform for us to grow our business in the next couple of years.” JetBlue’s IT strategy is based around the concept of following a “disposable infrastructure model.” When possible, the infrastructure team has the goal of creating an environment and deleting it when finished. Verizon’s Enterprise Cloud platform enables JetBlue to use what it needs, when it needs it, for IT operations. In the case of a new customer-facing application that needed to be developed, the enterprise infrastructure manager viewed the pay-as-you-go model for JetBlue’s Oracle Database software as the ideal way to provide an environment to test out clustering for about a month and then delete it. Solution The enterprise infrastructure manager came to his role with application development challenges in mind. Previously, he managed that team and recognized the frustration and lost productivity when an environment wasn’t available for developing and testing a new application. Since customer experience is a top priority for JetBlue and technology underlies that (90% of JetBlue business is done online), he recognized the value of delivering this application more quickly. So, it was an easy, fast decision to access Oracle software through Verizon’s Enterprise Cloud. Results The interview revealed that Verizon’s subscription services for Oracle licensing: › Decreased time-to-market for a new application. The primary goal of using Verizon’s monthly subscription for Oracle licenses was to enable the development team to get a customer-facing application out quickly. In this sense, the purchase was a no-brainer because it allowed the project team to immediately leverage the subscription. The enterprise infrastructure manager realized that there would be an opportunity cost of not meeting the schedule. With Verizon’s subscription offering, the development team could continue building the application instead of having to stop and wait for the infrastructure team to procure Oracle licenses, stand up the hardware, and go through the data warehouse vendor. Said the enterprise infrastructure manager, “It cut away the red tape that slows projects down.” › Scaled out an environment rapidly and temporarily. In keeping with JetBlue’s “disposable infrastructure model,” the Verizon subscription service for Oracle software enabled the team to set up a new environment quickly for its development and QA teams and delete it when it is done. The team can give back the extra capacity that is not needed. It solves the “It was time-to-market for us to create an external application — the opportunity cost of not meeting a schedule to develop a customer-facing app. It would have upset other schedules in the program and we need to own customer experience.” ~Tyrone Paige, enterprise infrastructure manager, JetBlue Airways
  • 15. 15 issue of having an infrastructure that is underutilized after meeting a short-term goal. Said the enterprise infrastructure manager, “In our approach to infrastructure, everything is disposable. Some people compare it to a plastic fork — you use it temporarily or until it breaks.” › Eliminated a lengthy procurement process. Because the subscription services require no resources beyond initiating the license, the typical procurement process could be completely avoided. JetBlue has a strong partnership with Verizon and relies on Verizon for its IT needs, from managing its data centers to hosting its eCommerce platform. Because JetBlue is doing business with Verizon, it is easy for the enterprise infrastructure architect to leverage the subscription model for the Oracle software. › Pushed the application development team to think differently about development. With a reliable and state-of-the art cloud platform underlying the application development environment, the enterprise infrastructure manager sees an opportunity for the development team to design differently. New applications that are designed for a “disposable infrastructure” rather than a traditional client/server model yield better uptime and performance. In the past, if a virtual machine went down, the whole application may have gone with it. With the cloud infrastructure, applications can be designed for better uptime because there is likely to be fewer single points of failure. “We want to be able to stand up new environments on a temporary basis — create a new development environment for a month and test out a clustering and only pay for one month of licenses.” ~Tyrone Paige, enterprise infrastructure manager, JetBlue Airways
  • 16. 16 INTERVIEW HIGHLIGHTS — DATB — SCALE INFRASTRUCTURE QUICKLY FOR RAPID PROTOTYPING Situation datb develops custom applications for customers in the United Kingdom, primarily in the utilities, government, and investment management sectors. One of its key differentiators is that it can deploy custom software faster than its competitors. It does this through rapid Web-based prototyping and proof-of-concept exercises in collaboration with existing and prospective customers. It wins business and meets clients’ needs by proving that it can turn around new functionality in days. However, datb is a lean organization comprised of senior developers dedicated to high- value client work. The Verizon subscription services offering was the perfect solution for datb to provide an infrastructure with the reliability and scalability it needed to grow the business without having to invest heavily in resources upfront. Solution The founder of datb was looking for a solution that would enable his developers to create rapid prototypes during the sales process for existing and prospective customers. Prior to investing in the Verizon subscription offering, it had to direct high-value development resources toward infrastructure work — not a core competency for the business. Furthermore, keeping up with the changing technologies, updates, templates, and patches was taxing for the small company. By accessing Oracle on the Verizon Cloud, it can now quickly deploy bits of infrastructure — in most cases, they’re only deployed for about a month. Said the founder, “We can put up the prototype, demonstrate it, and take it back down. In the past this would have necessitated multiple, concurrent Oracle licenses. Now we can deploy a server quickly and get it running with very good confidence that it’s correctly installed and patched.” Results The interview revealed that Verizon’s subscription services for Oracle software: › Improved turnaround time to develop custom software for clients. datb’s development work is highly iterative and done in close contact with the expert users of its applications. Being able to build prototypes rapidly through the Verizon cloud has improved its turnaround time and responsiveness, which leads to more business. Furthermore, the organization works on-site with the clients to configure individual software to meet the customer’s unique needs. Being able to test the functionality on the Web through mobile devices while on-site is a temporary — but critical — step in the process. Having an Oracle Database ready for the developers with the reliability and scalability of the Verizon network helps them turnaround software faster. › Enabled datb to scale quickly for customers while preserving a lean team. datb needs to be ready to scale to meet customer needs at any time. Whether it is creating new applications, developing add-on functionality to existing customer applications, or rapidly prototyping for a prospective customer, it need servers and databases to scale at the flip of the switch. As a small company, it has little economy of scale around infrastructure investments, but with Verizon it can benefit “We have the confidence that we can scale when we need to, but with almost no notice. That means we can remain a fairly lean company in terms of staff and infrastructure.” ~Mark Bushman, founding and managing director, datb
  • 17. 17 from the extensive network in place. Said the managing director, “Being a small company we found ourselves in the situation of having to spend $20,000 just in case we suddenly get three clients at the same time. Now, we have the confidence that we can scale when we need to, but with almost no notice. That means we can remain a fairly lean company in terms of staff and infrastructure.” › Allowed it to keep prices low for its custom applications. Unlike larger organizations that make capital-heavy investments and distribute those costs across thousands of customers, datb wanted to avoid front-loading costs on every project and keep prices low. The flexibility of the Verizon licensing option meant that it would not have to pass off capital- heavy costs to the customer for what the customer only need to use for a brief period of time. “If we didn’t have that ability, then we’d have to have that technology and people available to support it upfront. That would have an impact on the cost to the customer.” › Ensured it was using the most current technology updates and patches. Prior to using Verizon’s subscription services, the datb team had to spend a lot of time configuring a virtual machine, ensuring that it had the proper templates and patches and keeping everything up-to-date. Because datb is a technology-based company, it wants to make sure it is using the most current, innovative technology to power its applications. It appreciates the expertise and “industrial scale” that Verizon offers. “We and hundreds of others get to use the templates. We have a higher level of confidence that it’s properly configured and it’s got the right patches.” › Maintained focus of development resources on client-facing work. As a custom or application development company, datb has a technology staff that is senior and expert in collecting business requirements. Because it is paid for that expertise, it’s important that it stays focused on revenue-generating activities so that the business model works. By accessing the Oracle Database through the Verizon Cloud, those resources can focus on what they’re paid to do. Said the founding manager, “We’re eliciting business requirements and turning them into an application. There’s no junior development work to be done. If we manage our own hardware that means taking them off of client work, which would be disruptive.” › Received support from Verizon that enabled its success. As an early adopter of the Verizon subscription services offering, datb relied on assistance from the Verizon team to get up and running. It received “free and extremely helpful support” and cited the phone and email support from Verizon as the key to its success configuring the Oracle Database for immediate use. “We can do a proof of concept to show a prospect that we can do this as quickly and as effectively as we say. When we tell them it will take a week and then turn it around in two days without having the infrastructural costs and set ups, it makes an impact.” ~ Mark Bushman, founding and managing director, datb
  • 18. 18 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 Verizon and Oracle Database and Oracle WebLogic Server Subscription Services 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 [A]). Organizations may benefit in the future from the subscription services in two ways: 1. Verizon plans to offer management services for the Oracle Database. In other words, it could outsource the DBA and data administration workload that typically falls within an organization. This model would be considered managed database-as-a-service and the associated workload setting up, fine-tuning, and managing the database would be performed by Verizon. 2. Customers that use the subscription services for Oracle software must be existing customers of Verizon’s Enterprise Cloud. The Enterprise Cloud offers solutions far beyond Oracle software on its infrastructure-as-a-service platform. Many organizations rely on Verizon to manage their data centers, eCommerce websites, etc. The Oracle Database and Oracle WebLogic Server Subscription Services may be the first point of entry for customers, providing them the baseline infrastructure on which they may layer additional services. These services may provide future benefits in terms of cost reduction and productivity gains. RISKS 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 Verizon and Oracle Database and Oracle WebLogic Server Subscription Services 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 Verizon and Oracle Database and Oracle WebLogic Server Subscription Services, resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefit estimates. The primary implementation risk is that the organization uses the subscription services for longer than six to eight months for a temporary workload. If the organization continues to pay monthly for the Oracle subscription services beyond the time horizon of most testing and development use cases, the cost savings would diminish. This includes using the subscription services for the production environment. In some case, the “rental” price would then exceed the “buy” price for the Oracle software. However, there are situations where the organization would offset that cost by passing it along to customers, especially if the database is supporting a customer-facing application.
  • 19. 19 Verizon And Oracle Database And Oracle WebLogic Server Subscription Services: Overview The following information is provided by Verizon. Forrester has not validated any claims and does not endorse Verizon or its offerings. Deploying Oracle software has traditionally required an upfront investment. As with any software being sold through a perpetual license model, organizations often end up with software licenses that are not fully utilized. This is particularly true when the software is being used only intermittently. Oracle and Verizon are changing that by partnering to provide flexible, pay-as-you-go access to Oracle software. Now, customers can bring existing licenses with them, or get pay-as-you-go access to the Oracle software when needed. This compelling new operational model enables customers to use Oracle Database and Oracle WebLogic Server software on Verizon Terremark Enterprise Cloud and Managed Hosting and pay for access on a monthly basis. Pay-as-you-go monthly subscriptions are also available on physical cores with the Managed Services offering for a limited time. It’s now easier to access Oracle Databases for development and testing of applications with more flexible options: • Rent licenses and access capacity quickly. Use elastic services to stand up and shut down environments quickly. • Control costs by reducing the amount of underused in-house resources and offering an alternative to perpetual licenses for short-term projects. • Accelerate time-to-market by bridging multiple Oracle environments for each phase of development. • Extend the value of licenses purchased prior to moving to the cloud. • Easily expand processing capacity to handle temporary, variable, or cyclical workloads. • Accelerate all stages of development cycles across multiple Oracle environments. • Make more accurate budget decisions, paying for what is needed, with no upfront fees or lengthy commitments. • Lower risk. Verizon delivers secure connectivity and publishes best practices for auditors. AVAILABLE APPLICATIONS AND PLATFORMS All editions of Oracle Database 11g and their associated options will be available across Verizon cloud platforms. Under Verizon Terremark Enterprise Cloud and Managed Hosting, customers will be billed on a monthly basis. Hourly subscriptions will be offered in the second half of 2014. Oracle WebLogic Server will be available in the second half of 2014. Database-as- a-service (DBaaS), support for Oracle Database 12c, and additional licenses will also be released later in 2014. For a limited time, you can leverage Oracle software licenses on dedicated physical servers under its Managed Hosting service. Verizon offers three levels of service: For Enterprise Cloud: • Subscription License only. No database monitoring or other managed hosting services. For Managed Hosting: • Subscription License plus Incident Management. Database monitoring, quarterly app patching, and tier one incident response. • Subscription License plus Fully Managed Hosting. Database monitoring, quarterly app patching, tier one to three problem resolution, and change management.
  • 20. 20 FRAMEWORK ASSUMPTIONS Table 3 provides the model assumptions that Forrester used in this analysis. The time horizon used for the financial modeling is one year. The depreciation rate for the Oracle Database licenses is three years, although some organizations may choose to depreciate over a longer time period. Readers are urged to consult with their respective company’s finance department to determine the most appropriate depreciation rates to use within their own organizations. TABLE 3 Model Assumptions — Oracle Database Purchase For On-Premises Use Ref. Metric Value C1 Oracle Database Enterprise Edition License purchase price — perpetual $190,000 for four processors ($47,500 per processor), before discounting C2 Maintenance costs for perpetual license $41,800 before discounting C3 Oracle — Oracle Processor Core Multiplier Rate 0.5 for Intel processor 1 C4 Oracle — discount rate — software license; software maintenance 20% C5 Average cost for a database server $5,000 C6 Annual server maintenance cost 20% annually of the acquisition cost C7 Network infrastructure cost Already in place; no additional cost C8 Storage cost $8,000 per year to plug into the existing tier two storage infrastructure 2 C9 Operating system license cost Average of $1,000 per year C10 Data center overhead facilities cost $4,620 per year 3 C11 IT labor needed to maintain the server, storage, and network $5,654 4 C12 Database provisioning and maintenance — labor 40 hours @ $72 per hour Source: Forrester Research, Inc.
  • 21. 21 Appendix A: 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, flexibility, and risks. 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. 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. However, having the ability to capture that benefit has a PV that can be estimated. The flexibility component of TEI captures that value. RISKS Risks measure 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 risk factors are based on a probability density function known as “triangular distribution” to the values entered. At a minimum, three values are calculated to estimate the risk factor around each cost and benefit.
  • 22. 22 Appendix B: Supplemental Material Related Forrester Research “Calculate The ROI Of Data Center Investments,” Forrester Research, Inc., August 26, 2013 “The Steadily Growing Database Market Is Increasing Enterprises’ Choices,” Forrester Research, Inc., June 7, 2013 “Understand The True Cost Of Cloud Services,” Forrester Research, Inc., June 20, 2012 “Take Advantage Of New Ways To Save Money On Database Costs,” Forrester Research, Inc., February 23, 2010 “The IT Infrastructure Playbook,” Forrester Research, Inc. Appendix C: Endnotes 1 Source: Oracle Processor Core Factor Table (http://www.oracle.com/us/corporate/contracts/processor-core-factor-table- 070634.pdf). 2 Source: “Understand The True Cost Of Cloud Services,” Forrester Research, Inc., June 20, 2012. 3 Source: “Calculate The ROI Of Data Center Investments,” Forrester Research, Inc., August 26, 2013. 4 Source: “Understand The True Cost Of Cloud Services,” Forrester Research, Inc., June 20, 2012.