How to compare the total cost of ownership of on-premises unified communications and unified communications as a service

While total cost of ownership (TCO) can be a useful metric when weighing on-premises UC options, it's not as relevant when evaluating cloud services. Comparing on-premises UC vs. UCaaS requires considering two factors.

Total cost of ownership (TCO) is an important factor in an organization's purchasing decision, but it is not the only metric for comparing on-premises and cloud-based unified communications.

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Any on-premises technology is inherently asset-based, typically capital expenditure (Capex), where the hardware is owned by the organization and its lifecycle is based on amortized cost. This creates a clearly defined and well-established set of metrics to determine total cost of ownership (TCO).

On the surface, TCO helps with accounting, but its real value is in comparing bids from vendors selling similar products. Sometimes, TCO is the main criterion for selecting the winning bidder, but it can also be a tie-breaker when other criteria are more or less the same across bidders.

Because the technology is subscription-based rather than asset-based, total cost of ownership (TCO) comparisons are irrelevant for UCaaS, which only owns a few relatively inexpensive IP phones and peripherals. Therefore, organizations must consider two key points:

1. Don’t use total cost of ownership (TCO) to compare on-premises UC vs. UC as a Service

Unified Communications (UC) is a capital expense, while Unified Communications as a Service (UCaaS) is an operating expense. Therefore, their value is based on different metrics and cost factors. Although these technologies have some common elements, there are not enough to make a meaningful comparison. Total cost of ownership (TCO) is a concept in the hardware world, which simply does not apply to software running in the cloud.

2. Comparison of competing unified communications as a service (UCaaS) products

Unified Communications as a Service (UCaaS) follows a consumption-based Software as a Service (SaaS) model. While both on-premises and cloud-based versions of UC offer comparable utility to end users, as IT teams increasingly move workloads to the cloud, UCaaS is part of that transformation. Once that transformation has taken place, there is no need to compare between the two forms.

For enterprises trying to determine which deployment model is best for UC, TCO will not provide the answer. If UCaaS is going to be the plan for the future of an organization, the more important metrics will be in UCaaS offerings where all cost factors can be compared on an easier like-for-like basis.