AUGUST 2023
Organizations looking to be future fit must leverage open, scalable, adaptive platforms to accelerate delivery and growth.1 Cloud-native technologies and methodologies, including containers, Kubernetes, and Functions, enable automation, scalability, and flexibility. They reduce the operational burden for developers and allow them to prioritize business and customer needs, driving innovation and growth.
Microsoft Azure provides a suite of products and tools to support cloud-native app development. Azure Kubernetes Service (AKS) and Azure Functions are core technologies within that suite, providing managed infrastructure, scalability, and flexibility that reduce overhead costs for developer teams and enable faster development, better stability, and business growth.
Microsoft Azure commissioned Forrester Consulting to conduct a Total Economic Impact™ (TEI) study and examine the potential return on investment (ROI) enterprises may realize by deploying cloud-native apps with AKS and Azure Functions.2 The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of cloud-native apps on Microsoft Azure on their organizations.
To better understand the benefits, costs, and risks associated with this investment, Forrester interviewed eight representatives at five organizations with experience using AKS and Functions for cloud-native apps. For the purposes of this study, Forrester aggregated the interviewees’ experiences and combined the results into a single composite organization .
These interviewees noted how, prior to using AKS and Functions for their cloud-native apps, their organizations typically had legacy on-premises data centers, monolithic apps, and disjointed development processes and teams. As a result, they struggled with slow, cumbersome development processes, had difficulty scaling, encountered instability, and faced high overhead costs. All this led to missed business opportunities and hindered their goals of growing and transforming their organizations.
After the investment in AKS and Functions for cloud-native apps, the interviewees’ organizations were able to centralize, streamline, and standardize development processes, reduce operational requirements, improve stability, and increase developer productivity and retention. Key results from the investment include reduced costs, productivity gains, increased revenue, and better business agility.
Consulting Team: Elizabeth Preston, Jonny Cook
ROI
BENEFITS PV
NPV
Quantified benefits. Three-year, risk-adjusted present value (PV) quantified benefits for the composite organization include:
Increased business growth, contributing 25% to revenue growth. Better stability and faster releases, coupled with developers’ ability to focus on product differentiation over maintenance, improves customer retention and attracts new customers, leading to increased revenue. This benefit is worth $29.3 million over three years.
Decreased operational overhead by 70%. The composite organization reduces the operational overhead required to manage infrastructure after moving to cloud-native with AKS and Functions. This allows the reallocation of resources to new, more strategic workstreams. This benefit is worth $5.1 million over three years.
Increased developer productivity by 50%. AKS and Functions provide managed services and automations. Teams develop standardized processes and tools, allowing them to focus on their product and deploy new code faster. This benefit is worth $9.6 million over three years.
Legacy environment cost savings of 70%. The retirement of legacy hardware and virtual environments after adopting AKS and Functions saves the composite organization $1.6 million over three years.
Improved stability by 65%. The cloud-native development model, with AKS and Functions, allows teams to decouple their work from each other. Releases are smaller, and testing is better, reducing the risk of causing an outage. Better scaling and self-healing capabilities further reduce outage risks. Standardized processes and systems enable faster resolution of issues. This benefit is worth $541,000 over three years.
Reduced developer churn by 30% and onboarding time by 65%. Developers find their work more engaging, reducing turnover, and new developers don’t need to wait for environments to be built or to train on organization-specific technologies, reducing ramp-up time. This benefit is worth $313,000 over three years.
Unquantified benefits. Benefits that provide value for the composite organization but are not quantified in this study include:
Improved ability to attract developers. The composite organization is better able to attract new developers by demonstrating their commitment to modern development practices and an engaging employee experience.
Security features and best practices. Azure provides additional layers of security, enables better testing, and automates security bug identification and patching.
Support and innovation from Microsoft. Microsoft partners with the organization to provide needed support, new features and functionality, and access to new technologies, including Azure OpenAI Service.
Costs. Three-year, risk-adjusted PV costs for the composite organization include:
Implementation and training. The composite organization implements AKS and Functions incrementally over 18 months, supported by an internal platform engineering team, for a total cost of $2.7 million.
License and support. Costs for AKS, Functions, and supporting application and data services are primarily based on consumption. The composite organization experiences a period of high growth, and its total license and support costs over three years total $10.3 million.
Ongoing management. A dedicated platform engineering team and operations engineers manage the platform and support development teams. Over three years, this totals $5.5 million.
The representative interviews and financial analysis found that a composite organization experiences benefits of $46.39 million over three years versus costs of $18.54 million, adding up to a net present value (NPV) of $27.85 million and an ROI of 150%.
From the information provided in the interviews, Forrester constructed a Total Economic Impact™ framework for those organizations considering an investment in Azure Kubernetes Service and Azure Functions for cloud-native apps.
The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that affect the investment decision. Forrester took a multistep approach to evaluate the impact that building and running cloud-native apps on Microsoft Azure can have on an organization.
Interviewed Microsoft Azure stakeholders and Forrester analysts to gather data relative to cloud-native apps.
Interviewed eight representatives at five organizations using Azure Kubernetes Service and Azure Functions for their cloud-native apps to obtain data with respect to costs, benefits, and risks.
Designed a composite organization based on characteristics of the interviewees’ organizations.
Constructed a financial model representative of the interviews using the TEI methodology and risk-adjusted the financial model based on issues and concerns of the interviewees.
Employed four fundamental elements of TEI in modeling the investment impact: benefits, costs, flexibility, and risks. Given the increasing sophistication of ROI analyses related to IT investments, Forrester’s TEI methodology provides a complete picture of the total economic impact of purchase decisions. Please see Appendix A for additional information on the TEI methodology.
Readers should be aware of the following:
This study is commissioned by Microsoft Azure and delivered by Forrester Consulting. It is not meant to be used as a competitive analysis.
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 study to determine the appropriateness of an investment in Microsoft Azure for cloud-native applications.
Microsoft Azure 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.
Microsoft Azure provided the customer names for the interviews but did not participate in the interviews.
Role | Industry | Region | Revenue |
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Artificial intelligence (AI) | South America | $1 million |
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Grocery retail | Oceania | $3.25 billion |
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Government | United Kingdom | $450 million |
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IT services | Multinational | $500 million |
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Professional sports | United States | $10 billion |
Interviewees’ organizations were often at a critical inflection point, facing a need for growth or major transformation that their legacy environments either could not support or actively hindered. The organizations represented different sizes and industries and started their cloud-native journeys from different points, but most had at least some on-premises data centers requiring physical infrastructure provisioning and management, and their development approach centered around legacy development processes and monolithic applications. They struggled with common challenges that prevented them from moving forward, including:
Slow, cumbersome development and deployment processes, hindering organizations’ progress. Interviewees noted that their legacy development and deployment processes were inefficient with many dependencies, slowing their velocity and inhibiting growth.
The head of technology for the grocery retail organization explained that they were planning to grow their business substantially, but their existing apps were “quite monolithic,” and they had “slow deployment times and cumbersome processes around how we would release new changes into those environments,” which would hamper their ability to grow.
Difficulty scaling, leading to missed business opportunities. Interviewees found that their organizations’ infrastructure lacked agility, and they were unable to scale up and down to meet demand, preventing them from taking advantage of business opportunities as they arose and limiting rapid growth.
The CEO of the AI solution company shared that their organization struggled with manual processes and scaling difficulties in their previous environment, leading to a significant number — up to 40% — of missed business opportunities.
The senior vice president for the professional sports organization noted that their previous on-premises environment had workload caps. This limited the number of games, live events, and concurrent feeds they could provide to their customers, impacting their ad revenue, their subscriber adoption or retention rates, and the overall number of customers they could support.
Instability and downtime, resulting in poor customer experiences, lost revenue, and reduced productivity. Previous environments were prone to outages — due to things like bugs, insufficient testing, dependencies, and scaling challenges — and the outages were time-consuming to troubleshoot and fix. This led to subpar customer experiences and impacted business financials.
The head of technology for the grocery retail company said that they experienced weekly outages during periods of high traffic with their legacy on-premises systems due to their inability to scale.
Significant overhead costs to manage legacy infrastructure. Legacy infrastructure required physical space and energy, on top of needing people to manage it. It also needed to be paid for whether it was in use or not.
The CTO of the government agency described the challenges of managing their legacy data centers, including the difficulties in finding equipment, the inability to “update anything from a security point of view,” and the “ever-increasing costs as the skill required to support these systems became even more difficult to fulfill.”
The senior vice president for the professional sports organization noted that their capacity requirements varied significantly over the course of a day, a week, and a season. Although the capacity they needed at peak times would sit idle the rest of the time, they still needed to pay for them.
The interviewees’ organizations searched for a solution that could:
After evaluating multiple vendors and solutions, the interviewees’ organizations chose Azure, and more specifically AKS and Functions, for their cloud-native development:
Based on the interviews, Forrester constructed a TEI framework, a composite company, and an ROI analysis that illustrates the areas financially affected. The composite organization is representative of the five interviewees, and it is used to present the aggregate financial analysis in the next section. The composite organization has the following characteristics:
Description of composite. The composite organization is a multinational organization with $1 billion in annual revenue. It is entering a period of aggressive growth, which is dependent upon its technology investments and app offerings.
Deployment characteristics. The composite organization’s move to cloud-native app development using AKS and Azure Functions happens slowly over 18 months. The organization begins by moving back-end and then front-end systems from the legacy on-prem environment to the cloud, running in parallel until they are ready to switch over to minimize downtime. After that, developer teams incrementally move applications over to AKS and Functions, rebuilding as needed, with the support of a platform engineering team. New development work is cloud-native.
Ref. | Benefit | Year 1 | Year 2 | Year 3 | Total | Present Value |
---|---|---|---|---|---|---|
Atr | Business growth | $9,000,000 | $11,700,000 | $15,210,000 | $35,910,000 | $29,278,738 |
Btr | Decreased operational overhead | $1,965,600 | $2,063,880 | $2,162,160 | $6,191,640 | $5,117,058 |
Ctr | Increased developer productivity | $3,510,000 | $3,861,000 | $4,247,100 | $11,618,100 | $9,572,727 |
Dtr | Legacy environment savings | $630,000 | $630,000 | $630,000 | $1,890,000 | $1,566,717 |
Etr | Improved stability | $167,544 | $216,216 | $278,928 | $662,688 | $540,566 |
Ftr | Reduced developer churn and onboarding time | $114,660 | $126,126 | $138,739 | $379,525 | $312,709 |
Total benefits (risk-adjusted) | $15,387,804 | $18,597,222 | $22,666,927 | $56,651,953 | $46,388,515 |
Evidence and data. Scaling limitations and stability challenges impacted the interviewees’ organizations’ ability to attract, retain, and grow customer bases and revenue. By moving to AKS and Functions and adopting cloud-native development practices, they were able to focus on improving app offerings and creating new ones. They could also scale rapidly to meet any demand. Interviewees reported significant growth in their organizations’ revenue tied to their new technologies and capabilities.
Modeling and assumptions. For the composite organization, Forrester assumes:
Risks. An organization’s realization of benefits related to business growth will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this benefit downward by 20%, yielding a three-year, risk-adjusted total PV of $29.3 million.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | ||
---|---|---|---|---|---|---|---|
A1 | Annual revenue | Composite | $1,000,000,000 | $1,300,000,000 | $1,690,000,000 | ||
A2 | Revenue growth | Composite | 30% | 30% | 30% | ||
A3 | Revenue growth attributed to cloud-native app development with Azure | Interviews | 25% | 25% | 25% | ||
A4 | Profit margin | Composite | 15% | 15% | 15% | ||
At | Business growth | A1*A2*A3*A4 | $11,250,000 | $14,625,000 | $19,012,500 | ||
Risk adjustment | ↓20% | ||||||
Atr | Business growth (risk-adjusted) | $9,000,000 | $11,700,000 | $15,210,000 | |||
Three-year total: $35,910,000 | Three-year present value: $29,278,738 | ||||||
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Evidence and data. Interviewees experienced significant labor costs associated with infrastructure management in their organizations’ previous environments. This included managing data centers, provisioning infrastructure, forecasting and planning for scaling, and other management and maintenance activities. After moving to a cloud-native approach with Azure, they could reallocate resources to other parts of the organization or other, more valuable work.
Modeling and assumptions. For the composite organization, Forrester assumes:
Risks. An organization’s realization of benefits related to operations labor savings will vary depending upon several factors, including:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $5.1 million.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | ||
---|---|---|---|---|---|---|---|
B1 | Engineers managing operational overhead and infrastructure | Composite | 20 | 21 | 22 | ||
B2 | Reduction in labor required | Interviews | 70% | 70% | 70% | ||
B3 | Average fully burdened labor cost per year | TEI standard | $156,000 | $156,000 | $156,000 | ||
Bt | Decreased operational overhead | B1*B2*B3 | $2,184,000 | $2,293,200 | $2,402,400 | ||
Risk adjustment | ↓10% | ||||||
Btr | Decreased operational overhead (risk-adjusted) | $1,965,600 | $2,063,880 | $2,162,160 | |||
Three-year total: $6,191,640 | Three-year present value: $5,117,058 | ||||||
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Evidence and data. Interviewees noted that their organizations previously faced inconsistent and cumbersome development processes, which slowed their development and deployment cycles. Moving to a cloud-native approach allowed them to move to a DevOps approach, as well as standardize and automate nonvalue-added work so developers could focus on smaller, faster releases.
Modeling and assumptions. For the composite organization, Forrester assumes:
Risks. An organization’s realization of benefits related to developer productivity will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $9.6 million.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | ||
---|---|---|---|---|---|---|---|
C1 | Developers in Azure ecosystem | Composite | 100 | 110 | 121 | ||
C2 | Percentage improvement in developer productivity | Interviews | 50% | 50% | 50% | ||
C3 | Average fully burdened labor cost per year | TEI standard | $156,000 | $156,000 | $156,000 | ||
C4 | Productivity recapture rate | TEI standard | 50% | 50% | 50% | ||
Ct | Increased developer productivity | C1*C2*C3*C4 | $3,900,000 | $4,290,000 | $4,719,000 | ||
Risk adjustment | ↓10% | ||||||
Ctr | Increased developer productivity (risk-adjusted) | $3,510,000 | $3,861,000 | $4,247,100 | |||
Three-year total: $11,618,100 | Three-year present value: $9,572,727 | ||||||
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Evidence and data. Interviewees’ organizations had different legacy environments, as well as varied types and scales of retired legacy costs. Those with on-prem environments saw savings related to physical hardware retirement as well as associated power, cooling, and space-related costs. Others migrated from alternate cloud development environments and saw savings from lower fees or more efficiencies with AKS and Functions versus previous environments.
Modeling and assumptions. For the composite organization, Forrester assumes:
Risks. An organization’s realization of benefits related to legacy environment savings will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $1.6 million.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | ||
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D1 | Annual legacy environment costs | Composite | $1,000,000 | $1,000,000 | $1,000,000 | ||
D2 | Percentage of legacy infrastructure retired | Interviews | 70% | 70% | 70% | ||
Dt | Legacy environment savings | D1*D2 | $700,000 | $700,000 | $700,000 | ||
Risk adjustment | ↓10% | ||||||
Dtr | Legacy environment savings (risk-adjusted) | $630,000 | $630,000 | $630,000 | |||
Three-year total: $1,890,000 | Three-year present value: $1,566,717 | ||||||
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Evidence and data. Stability and downtime in their legacy environments were common challenges cited by interviewees. Moving to cloud-native app development with AKS and Functions improved standardization, enabled more and better testing, decoupled services to reduce the risk of larger impacts, and provided AI, scaling, and self-healing capabilities. The overall impact was fewer outages that could be resolved faster than in previous environments, reducing impacts to customers and, ultimately, the organization’s financials.
Modeling and assumptions. For the composite organization, Forrester assumes:
Risks. An organization’s realization of benefits related to improved stability will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $539,000.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | ||
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E1 | Unplanned outages previously | Composite | 4 | 4 | 4 | ||
E2 | Downtime (hours) | Interviews | 4 | 4 | 4 | ||
E3 | Reduction in downtime | Interviews | 65% | 65% | 65% | ||
E4 | Business impact per hour of downtime | Composite | $17,900 | $23,100 | $29,800 | ||
Et | Improved stability | E1*E2*E3*E4 | $186,160 | $240,240 | $309,920 | ||
Risk adjustment | ↓10% | ||||||
Etr | Improved stability (risk-adjusted) | $167,544 | $216,216 | $278,928 | |||
Three-year total: $662,688 | Three-year present value: $540,566 | ||||||
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Evidence and data. With onerous legacy systems and company-specific technologies and processes, interviewees’ organizations found it challenging to retain talent and onboard new developers. By adopting AKS and Functions, as well as a cloud-native approach to app development, they could standardize environments and leverage well-known technologies and best practices, thus reducing developer turnover and helping new employees become productive much more quickly.
Modeling and assumptions. For the composite organization, Forrester assumes:
Risks. An organization’s realization of benefits related to developer onboarding savings will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $313,000.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | ||
---|---|---|---|---|---|---|---|
F1 | Developers | Composite | 100 | 110 | 121 | ||
F2 | Average turnover rate | Interviews | 20% | 20% | 20% | ||
F3 | Reduction in turnover rate | Interviews | 30% | 30% | 30% | ||
F4 | Months to onboard new developer in previous environment | Composite | 2 | 2 | 2 | ||
F5 | Percentage reduction in onboarding time | Interviews | 65% | 65% | 65% | ||
F6 | Average fully burdened labor cost per month | TEI standard | $13,000 | $13,000 | $13,000 | ||
Ft | Reduced developer churn and onboarding time | F1*F2*(1-F3)*F4*(1-F5)*F6 | $127,400 | $140,140 | $154,154 | ||
Risk adjustment | ↓10% | ||||||
Ftr | Reduced developer churn and onboarding time (risk-adjusted) | $114,660 | $126,126 | $138,739 | |||
Three-year total: $379,525 | Three-year present value: $312,709 | ||||||
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Interviewees mentioned the following additional benefits that their organizations experienced but were not able to quantify:
Improved ability to attract developers. Interviewees shared that previously, they struggled to attract talent when they needed to hire developers. By adopting AKS and Functions for cloud-native apps, they demonstrate their commitment to the latest technologies and innovations and find hiring developers much easier.
The head of technology for the grocery retail organization explained: “We had a lot of issues attracting and retaining staff previously because that level of flexibility and ability to respond and be involved in your environment was quite low. It was very much a hand-off to an operations team type of experience. The type of talent that we were trying to attract and keep in the business was a lot more dynamic, and we wanted to be able to regularly release and have much more involvement in the end-to-end experience of building and delivering software. Once we enabled our teams to do this, we were able to attract more talent by simply saying in our interviews or by demonstrating in user groups the way we work and what the experience is like for our developers.”
Security features and best practices. Interviewees noted that the Azure ecosystem provided security features and best practices that made it easier to secure and test their environment.
The chief data architect for the IT services organization said: “Being able to use stuff like MSI [managed service identity] for authentication and not have to worry about, ‘Hey, did employee X just leave? Do they have the secrets to be able to get into any services?’ That sort of stuff was really nice to be able to utilize, and it was one of the things I wasn’t expecting. … Some of those best practices and the extra security measures that Azure provides have been a nice thing that was not part of the decision-making process.”
The CTO for the AI solutions company explained, “AKS provides some security measures that we can use by just clicking some buttons, and other network stuff that we can build and do it in a safer way than we were [in our previous environment].”
The head of platform operations for the government agency explained that moving to Azure allowed them to consolidate and streamline their security perimeter, improve testing, and implement automations for security bug fixes, among other improvements.
Support and innovation from Microsoft. Microsoft was seen as a business partner that provided excellent support and resources, and also gave interviewees’ organizations access to innovative technology.
The head of technology for the grocery retail organization said, “We’ve had a lot of good experiences working with Microsoft on the base platform. We’ve had the opportunity to provide all the feedback around products and see a lot of that feedback be acted on. As a result, we’ve been able to even further streamline our processes or reduce our maintenance overhead on this infrastructure.”
The value of flexibility is unique to each customer. There are multiple scenarios in which a customer might implement cloud-native apps and later realize additional uses and business opportunities, including:
Greater business agility. Interviewees noted that moving to cloud-native with AKS and Functions enabled greater flexibility and agility, allowing them to innovate and adapt more easily to change.
The chief data architect for the IT services organization said, “If we want to spin up a new region, it’s so much easier than having to go out and get equipment, find a data center, [or] get bandwidth. … Setting up a region definitely used to take months, and now within weeks, we can have a region spun up for some of our products. It also makes it so that our investment for spinning up a new region is not nearly as much because we don’t have to worry about [whether] we have enough capacity there, so we can start off small and grow as demand grows. It makes it a lot less intimidating to go to a new region.”
The CEO for the AI solutions company shared, “Microsoft, because its partnership with OpenAI, gives more features; we can see the future of what we can do with natural language processing. This, for us, is really important because we need to move fast ... When you see everything that we can do with all the services, the features, the products that Microsoft can offer … this is our goal for a partner that we use to build our platform. After we moved to Microsoft, we changed a lot. … We changed something inside our team. … The way that we look at our roadmap, we can say that now, it's more possible than in the past.”
Flexibility would also be quantified when evaluated as part of a specific project (described in more detail in Appendix A).
Ref. | Cost | Initial | Year 1 | Year 2 | Year 3 | Total | Present Value |
---|---|---|---|---|---|---|---|
Gtr | Implementation and training | $2,702,700 | $0 | $0 | $0 | $2,702,700 | $2,702,700 |
Htr | License and support | $0 | $3,450,000 | $4,140,000 | $4,968,000 | $12,558,000 | $10,290,383 |
Itr | Ongoing management | $0 | $2,230,800 | $2,230,800 | $2,230,800 | $6,692,400 | $5,547,669 |
Total costs (risk-adjusted) | $2,702,700 | $5,680,800 | $6,370,800 | $7,198,800 | $21,953,100 | $18,540,752 |
Evidence and data. Interviewees’ organizations began with different legacy environments, and their implementation of AKS and Functions for cloud-native apps varied based on previous environments and business requirements. In general, they began by moving on-prem infrastructure to the cloud, before moving, rebuilding, and building new apps in AKS and Functions incrementally over the course of one to two years. They created new platform engineering teams to support this transition, including training teams and creating standard build and release processes.
Modeling and assumptions. For the composite organization, Forrester assumes:
Risks. An organization’s costs associated with implementation and training will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this cost upward by 10%, yielding a three-year, risk-adjusted total PV of $2.7 million.
Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|---|
G1 | Months needed for implementation | Interviews | 18 | 0 | 0 | 0 | |
G2 | Developers | Composite | 100 | 0 | 0 | 0 | |
G3 | Percentage of time dedicated | Interviews | 2.5% | 0% | 0% | 0% | |
G4 | Average fully burdened labor cost per month | TEI standard | $13,000 | $0 | $0 | $0 | |
G5 | Platform engineers | Composite | 8 | 0 | 0 | 0 | |
G6 | Percentage of time dedicated | Interviews | 100% | 0% | 0% | 0% | |
G7 | Average fully burdened labor cost per month | TEI standard | $13,000 | $0 | $0 | $0 | |
Gt | Implementation and training | G1*G2*G3*G4+G1*G5*G6*G7 | $2,457,000 | $0 | $0 | $0 | |
Risk adjustment | ↑10% | ||||||
Gtr | Implementation and training (risk-adjusted) | $2,702,700 | $0 | $0 | $0 | ||
Three-year total: $2,702,700 | Three-year present value: $2,702,700 | ||||||
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Evidence and data. Interviewees shared that AKS and Functions costs depended largely upon consumption. In general, they paid much more for AKS than Functions because of their specific use cases.
Modeling and assumptions. For the composite organization, Forrester assumes:
Risks. An organization’s costs to Microsoft will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this cost upward by 15%, yielding a three-year, risk-adjusted total PV of $10.3 million.
Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|---|
H1 | License and support costs | Composite | $0 | $3,000,000 | $3,600,000 | $4,320,000 | |
Ht | License and support | H1 | $0 | $3,000,000 | $3,600,000 | $4,320,000 | |
Risk adjustment | ↑15% | ||||||
Htr | License and support (risk-adjusted) | $0 | $3,450,000 | $4,140,000 | $4,968,000 | ||
Three-year total: $12,558,000 | Three-year present value: $10,290,383 | ||||||
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Evidence and data. Interviewees shared that their organizations created platform engineering teams to provide centralized support for their developers using AKS and Functions. This included providing training, a centralized platform and tooling, and standardized processes to ensure efficiency and consistency. Some interviewees also shared that they had additional operational support for their development teams.
Modeling and assumptions. For the composite organization, Forrester assumes:
Risks. An organization’s costs for ongoing management will depend upon a variety of factors, including:
Results. To account for these risks, Forrester adjusted this cost upward by 10%, yielding a three-year, risk-adjusted total PV of $5.6 million.
Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|---|
I1 | Dedicated platform engineers | Composite | 0 | 8 | 8 | 8 | |
I2 | Dedicated operations engineers | Composite | 0 | 5 | 5 | 5 | |
I3 | Average fully burdened labor cost per year | TEI standard | $0 | $156,000 | $156,000 | $156,000 | |
It | Ongoing management | (I1+I2)*I3 | $0 | $2,028,000 | $2,028,000 | $2,028,000 | |
Risk adjustment | ↑10% | ||||||
Itr | Ongoing management (risk-adjusted) | $0 | $2,230,800 | $2,230,800 | $2,230,800 | ||
Three-year total: $6,692,400 | Three-year present value: $5,547,669 | ||||||
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These risk-adjusted ROI and NPV values are determined by applying risk-adjustment factors to the unadjusted results in each Benefit and Cost section.
Initial | Year 1 | Year 2 | Year 3 | Total | Present Value | |
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Total Costs | ($2,702,700) | ($5,680,800) | ($6,370,800) | ($7,198,800) | ($21,953,100) | ($18,540,752) |
Total Benefits | $0 | $15,387,804 | $18,597,222 | $22,666,927 | $56,651,953 | $46,388,515 |
Net Benefits | ($2,702,700) | $9,707,004 | $12,226,422 | $15,468,127 | $34,698,853 | $27,847,763 |
ROI | 150% | |||||
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The financial results calculated in the Benefits and Costs sections can be used to determine the ROI, NPV, and payback period for the composite organization’s investment. Forrester assumes a yearly discount rate of 10% for this analysis.
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.
Benefits represent the value delivered to the business by the product. The TEI methodology places 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.
Costs consider all expenses necessary to deliver the proposed value, or benefits, of the product. The cost category within TEI captures incremental costs over the existing environment for ongoing costs associated with the solution.
Flexibility represents the strategic value that can be obtained for some future additional investment building on top of the initial investment already made. Having the ability to capture that benefit has a PV that can be estimated.
Risks measure the uncertainty of benefit and cost estimates given: 1) the likelihood that estimates will meet original projections and 2) the likelihood that estimates will be tracked over time. TEI risk factors are based on “triangular distribution.”
The initial investment column contains costs incurred at “time 0” or at the beginning of Year 1 that are not discounted. All other cash flows are discounted using the discount rate at the end of the year. PV calculations are calculated for each total cost and benefit estimate. NPV calculations in the summary tables are the sum of the initial investment and the discounted cash flows in each year. Sums and present value calculations of the Total Benefits, Total Costs, and Cash Flow tables may not exactly add up, as some rounding may occur.
Related Forrester Commissioned Studies
"The Total Economic Impact Of Microsoft Azure PaaS," a commissioned study conducted by Forrester Consulting on behalf of Microsoft, December 2022.
"The Total Economic Impact Of Microsoft Azure Arc For Security And Governance," a commissioned study conducted by Forrester Consulting on behalf of Microsoft, August 2022.
"The Total Economic Impact Of Microsoft Developer Tools And Cloud Services," a commissioned study conducted by Forrester Consulting on behalf of Microsoft, June 2021. This study includes analysis of Visual Studio, GitHub Enterprise, and Azure.
"The Total Economic Impact Of GitHub Enterprise Cloud And Advanced Security," a commissioned study conducted by Forrester Consulting on behalf of Azure, November 2022.
1 Source: "Embrace Modern Application Development Techniques,” Forrester Research, Inc., June 5, 2023; “Future Fit Organizations Leverage Open, Scalable, And Adaptive Platforms To Accelerate Value Delivery,” Forrester Research, Inc., September 23, 2022.
2 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.
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