Kah Motor drives down TCO with Office 365

[CASE STUDY] Car distributor says switching from on-premise e-mail client to a cloud-based service eliminates the hidden and costly burden of infrastructure maintenance and application support.
Written by Jamie Yap, Contributor

SINGAPORE--Automobile distributor Kah Motor said the total cost of ownership (TCO) for e-mail use in the company was reduced, after switching from an on-premise client to take a cloud-hosted service from Microsoft's Office 365. The real benefits, though, were more intangible, such as dealing with less hassle over maintenance and license management while the company is in the midst of transiting as much IT as possible onto an "as-a-service" delivery model.

Total cost of ownership is not simply monetary terms, noted Billy Cheng, group head of IT at Kah Motor. From a purely financial perspective, it is economical to buy software and use it forever, he said, referring to on-premise software and the perpetual licenses.

Case Study: Kah Motor

What: Kah Motor adopting Office 365's Exchange Online, E1 and E3 plans in increments, with eventual aim of migrating all users on E3 as the final stage.

Reason: To eliminate hassle of maintenance and license management concomitant with on-premise software, and make better use of same amount IT resources to delegate to innovation instead of maintenance upkeep.

Cost: Cheng did not give exact numbers, but said the monthly IT bill is approximately S$3,500 (US$2,802) including Office 365 subscription fees and other costs such as broadband fees.

Challenges: While getting the service to users is fast, time is needed--about 6 months--to train users on how to use the new capabilities once they upgrade to a higher subscription plan.

Results: Lower TCO, better alignment between IT and business, as well as 150 man-days in IT productivity, said Cheng, who declined to give the IT headcount.

But the argument does not stand once viewed from the perspective of running a business. From day-to-day operation to expansion, any company would be procuring more software along the way, and apart from regular support and maintenance, managing the accumulating licenses is another set of costly "chores" for the IT department, he explained.

There were also difficulties in forecasting, not helped by the fluctuating business climate around car sales in Singapore. "We need to look in the crystal ball to see how many users we would have over the next, say, three years, and forecast capex (capital expenditure) accordingly," Cheng said.

"But in a sector with very short business cycles like ours, we just had to move from perpetual licensing or we'd be buying software licenses for staff who [later] won't be around."

These were the hidden challenges and costs, which only emerge after procurement, and a major reason that prompted Kah Motor to change its e-mail app from on-premise to cloud-based.

E-mail, according to Cheng, is the no. 2 most critical application at Kah Motor, after ERP (enterprise resource planning). In 2011, the company replaced the Exchange 2003 e-mail system--used since 2004--with the hosted Exchange Online service from Microsoft's Office 365 catalog.

"If you buy perpetual license, you end up with multiple versions of software because the company buys them progressively [over the years], and then managing all these licenses becomes more expensive in the long run. The beauty of Office 365 is we're entitled to the latest version, so it becomes perpetual upgrade instead," Cheng said.

According to him, Kah Motor has a total headcount of 300 staff, out of which 200 use services from Office 365. The majority of the 200 continue to use Exchange Online, which costs US$4 per user per month. About 60 users since last year were upgraded to the Office 365 Enterprise E1 plan to have access to other capabilities such as Sharepoint. Among this group of 60, 10 recently went on to the E3 plan, which is the only enterprise SKU (stock keeping unit) that has full Office Professional included in the package. Monthly subscription for E1 is US$8 per user and US$20 per user for E3.

User migration for the upgrade of plans is done in batches, but the overall aim is to have all 200 users to have E3 subscriptions within the next few years, so that "most, if not all of IT in the company will be a managed service model", Cheng revealed. This will ultimately enable IT to be better aligned with the business, both in terms of capabilities and resources, and more than half of IT resources can go to innovation and projects and the remainder to "keeping the lights on", he added.

The decision to migrate users incrementally, rather than a "big bang, overnight switch" was because while "it's very fast to assign the license [with cloud], more time is needed to educate and train users to get the best capability with the new tools". For instance, new E1 users have to learn how to use Lync, the instant messaging and video conferencing tool, Cheng pointed out.

Cheng declined to give exact numbers, but said the monthly IT bill is approximately S$3,500 (US$2,802) including Office 365 subscription fees and other costs such as broadband fees.

He also pointed out Kah Motor had considered upgrading Exchange 2003 to Exchange 2010, if it had not adopted Office 365 in 2011. However, that was scrapped since the estimated TCO of running Exchange 2010 on-premise was more than S$200,000 (US$160,115) over a three-year period.

He added the company gained 150 man-days in IT productivity as a result from replacing the on-premise Exchange email and SharePoint portal servers with Office 365 services, where the IT team no longer need to manage and maintain the servers. There was no comparison number before the Office 365 adoption, he said.

Office 365 not a "protect" strategy
In a separate interview, Todd Cione, chief marketing and operations officer of Microsoft Asia-Pacific, said the push to promote cloud traction with Office 365 is about addressing the needs of the "contemporary workplace" today.

This is defined by characteristics such as mobile device proliferation in the workplace, ubiquitous access across multiple devices, the rise of sharing and social collaboration. At the same time, IT leaders have not changed their concerns which is maintain a stable and secure IT environment that safeguards the privacy of users and data, he explained.

According to Cione, adoption of Office 365 in Asia-Pacific increased 220 percent in 2012 from the year before, but did not disclose exact numbers.

Amid the rise of cloud adoption among enterprises, Office 365 is "not a protect strategy" meant to ensure moving the Office productivity software in a cloud delivery model is not threatened by the likes of Google Apps, Cione said.

"I wouldn't say we're brand new to the cloud," he said, pointing to Office 365's predecessor, Business Productivity Online Suite (BPOS). "We're working very hard to demonstrate our capabilities to customers. Ours is shifting business model. We're becoming a devices and cloud services company from a software company."

Mistakes inevitable
Andrew Milroy, vice president of ICT practice for Asia-Pacific at Frost & Sullivan, said Microsoft has "no choice at the end of the day", and needs to offer its Office software as cloud service, even this step could "cannibalize" the perpetual license software model which contributed much of its early success.

"It's in [Microsoft's] interest to make Office 365 as ubiquitous as the PCs; basically ensuring they are the preferred provider of cloud-based productivity software to remain relevant to their core market. That's the sensible strategy--keep people using Office [software] whether it's in the cloud or PC," he said in a separate phone interview.

Nonetheless, it will be a challenge for Microsoft to successfully and smoothly move to the new model of computing and licensing without missteps, the analyst noted. "It's easy to be hard on them as a big company. If you think about it, there's going to be a lot of trial and error. Working with the challenge of a completely different computing paradigm [from the PC era], of course they're going to make mistakes."

Most recently, Microsoft faced user uproar over a change in some of the license agreements for Office 2013 which is available as a cloud service. The user protest prompted Microsoft to allow users to transfer retail licenses between devices, after it previously said single user copy of Office 2013 would be licensed to only a single machine, not to a single user.

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