Castanet Benefits for the Extended Enterprise
Total Cost Of Ownership is Rising
How Castanet Reduces TCO for the Extended Enterprise
ROI Example: TCO Savings for Zyger Corp.
Conclusion
Castanet Benefits for Independent Software Vendors
How Castanet Saves ISVs Time and Money
ROI Example: ESD for RaddFast, Inc.
Conclusion
Appendix A: What are TCO and ROI?
Appendix B: Impact of Continuous Business Relationships
Appendix C: Recipients of Electronic Software Distribution
Like any powerful tool, the Internet offers both opportunities and challenges. As enterprises try to stay competitive by finding more ways to harness the Internet for business applications, and as independent software vendors try to determine how the increasing use of this global network will affect demand for their products, MarimbaTM, Inc. has developed a technology that can benefit both of these audiences.
The CastanetTM family of products from Marimba is a robust solution for distributing and maintaining software applications and content over intranets, extranets, and the Internet. Its self-updating client components work automatically with Castanet server applications (called Transmitters) to ensure that all users always have the most up-to-date software and information.
Because of its easy deployment and efficient performance, Castanet can provide significant total-cost-of-ownership (TCO) and return-on-investment (ROI) benefits to enterprises and ISVs alike. This white paper analyzes the latest research on Internet-based business applications to illustrate these benefits.
With the explosion of the Internet and open network technologies, today's businesses are changing at an accelerated pace. Businesses need better and more effective ways to share critical information and software. Users expect to get dynamic network applications that combine the power of legacy software with new rich media and network support. Moreover, users are no longer simply employees in an office, but rather a diverse grouping of employees, partners, and customers who may be in offices, at home, or on the road -- using a variety of different computing platforms. With the emergence of these trends, IT managers are discovering that old software distribution and management practices are both insufficient and costly.
Currently, whenever new systems are added or corporate reorganizations occur, desktop computer systems must be upgraded and client/server solutions must be architecturally re-evaluated. In a large organization, this constant change is a considerable burden (Cutting Costs with Integrated Network Management Tools, IDC, Computerworld Custom Publication, October 21, 1996, pg. 9). IT managers need to reduce this burden through careful planning and utilization of information technology tools to manage software distribution, management, and updating. With the right investment decisions, IT organizations can build a strong infrastructure that ultimately improves competitiveness for their business (Cutting Costs with Integrated Network Management Tools, IDC, Computerworld Custom Publication, October 21, 1996, pg. 10).
Moreover, businesses are looking for ways to deploy software and services to more than just end users on their corporate network. They want to reach out beyond their firewall to make important information and applications available to what, in many cases, is the fast-growing part of their extended enterprise which include mobile employees, suppliers, distributors, and customers. Few solutions exist today that allow IT managers to manage both intranet and extranet application software. Analysts believe many companies will take advantage of the extranet as a common utility to improve their bottom line, streamline business processes, and exchange business-critical information with key partners and customers. In fact, analysts predict in just five years, Internet-centric business-to-business commerce in the U.S. alone will total over $300 billion a year. Therefore, it is extremely important for IT managers to consider the management of both their enterprise and the extended enterprise when making IT investment decisions.
The success of any investment is viewed in terms of the cost versus the benefit. As IT managers request larger budgets for improving the management of various end points -- from employee desktops to users on their intranet and extranet -- they will be challenged to justify these investments. IT managers must therefore use metrics that measure and help everyone understand the gain or benefits of re-architecting software distribution and deployment.
Two metrics that are particularly valuable for IT analyses are total cost of ownership (TCO) and return on investment (ROI). (See Appendix A for detailed explanations of these terms.) Castanet software from Marimba offers enterprises benefits for both of these metrics.
Total Cost Of Ownership is Rising
In a 1995 study conducted by Forrester Research, the total cost of ownership
for personal computers was estimated at US$8,170 per year (see Figure 1). Of that total cost, 47 percent was attributed
to desktop management. According to the study, PC downtime varies depending
on end user actions such as deleting critical files, changing configuration
files, or installing incompatible software or multiple versions of software.
This causes IT administrators to spend hours maintaining individual desktops
-- not an effective use of their time.
Figure 1. The total cost of PC ownership.
Source: Forrester Research, Inc. Managing Unruly Desktops, January
1995.
In a similar study, the Gartner Group estimated that PC ownership costs $11,900 per desktop per year -- a tripling of the $4,000 cost just a decade ago.
IDC reported in 1996 that a typical company's IT staff spends an average of 190 hours a month on hardware and software deployment for each 100 users. Of this time, the largest block (50 percent) was for software installation and upgrades (see Figure 2). IDC notes, "The combination of hardware, operating system, and application suite changes at an individual's desktop may result in a need for software updates on a nearly daily basis" (Cutting Costs with Integrated Network Management Tools, IDC, Computerworld Custom Publication, October 21, 1996, pg. 18) -- exactly the problem that Castanet was designed to solve.
Figure 2. Hours per month expended per 100
users on various deployment tasks with system management tools.
Source: Cutting Costs with Integrated Network Management Tools, IDC, Computerworld Custom Publication, October 21, 1996, pg. 19.
An overwhelming 68 percent IT managers interviewed by Forrester Research believe that the cost of desktop management will continue to rise. While most of the IT managers do not track TCO specifically, they are sure that some solutions can help reduce computer ownership costs (Rethinking Desktop Support, Forrester Research, July 1997, pg. 3) (see Figure 3).
Figure 3. IT managers' opinions on how desktop computer support costs could be reduced.
Source: Forrester Research, Inc. 1997.
Furthermore, while businesses have been challenged to reduce the cost of ownership problem within their corporation, the problem is exacerbated when they factor in their needs to reach their business partners and customers. Alternatives until now have not been viable. Installing and updating software across servers and client machines has typically involved time-consuming manual installs with floppy disks and CD-ROMs. And Web downloads are inefficient, overly complicated, and need to be initiated by the user. Most businesses face one overriding IT challenge: how to easily implement a solution that allows all users, from employees to partners to consumers, to have the latest business data, application features, releases and bug fixes, all while keeping IT costs to a minimum.
How Castanet Reduces TCO for the Extended Enterprise
Forrester found that while IT managers are able to reduce some PC costs in the short term, their approaches to doing so are often out of sync with what users need and may be counter-productive in the long run (Rethinking Desktop Support, Forrester Research, July 1997, pg. 6). Specifically, the tendency of IT groups to mandate single desktop computer platforms and a limited range of applications risks wasting time and money because:
By contrast, Marimba's Castanet suite enables IT managers to save time and money while giving users the flexibility they need. With its Java language foundation, Castanet can run on a wide range of devices, so it is ideal for use in heterogeneous computing environments. Thus Castanet offers an alternative to standardizing on a single operating system in order to bring down PC costs.
And Castanet permits functional departments to develop, deploy, and manage whatever custom applications they need. IT managers no longer have to worry about tracking and supporting all the applications within the enterprise.
The bottom line: reduced cost of PC ownership, greater ability for employees to do their jobs, and more IT resources available for other projects.
In fact, Gartner Group estimates that corporations can reduce the average cost of owning PCs by 25 to 30 percent with efficient management of their software, hardware, and IT support systems. This can generate a cost savings of $2000 to $3500 per PC, given the TCO figures from Forrester and Gartner Group.
For example, IDC reports that IT staffers in large corporations typically distribute software manually, by taking diskettes to each desktop. However, using management software, IT staff could cut in half the number of hours required for software distribution. The survey revealed that the average annual cost savings per 100 users for companies using integrated software management approached $40,000 (see Figure 4). The highest gain was achieved in software installation and upgrades, which accounted for 46 percent of the total savings with the integrated solution. Marimba's Castanet family can enable IT organizations to achieve such savings and bring down the total cost of ownership.
Point Solution | Integrated Solution | |
Software Evaluation and Purchase | $300 | $5,500 |
System Setup and Configuration | $3,700 | $7,100 |
Software Installation and Upgrades | $400 | $16,600 |
Hardware and Software Asset Management | $200 | $6,700 |
Total Savings | $4,600 | $35,900 |
Figure 4. Annual reported cost savings per
100 users from using deployment tools.
Source: International Data Corp.
In addition, the Castanet system enables IT administrators to control the distribution and maintenance of applications to users on the corporate intranet and to suppliers, mobile users and customers over the extranet. Castanet makes the task of updating software very simple and seamless for their employees and their business partners. This capability allows the enterprise to not only gain competitive advantages with easy deployment and improved customer service, but also the ability to reduce the cost of ownership for their IT system.
ROI Example: TCO Savings for Zyger Corp.
Taking a middle figure within the range offered by the Gartner Group and
Forrester findings, one can assume that an integrated software management
system could provide savings of approximately $3,000 per user per year.
It is then easy to construct an ROI analysis to determine the savings over
a five-year period.
For example, suppose we consider a hypothetical company called "Zyger Corporation." Zyger employs 10,000 people worldwide, of whom half have personal computers. In addition, Zyger also distributes an inventory application to its network of distributors. In both cases, Zyger has had to manually install and update their applications via floppy disks, CD-ROMs and Web or FTP downloads. Zyger has been spending millions of dollars on personnel and travel costs to manage its global infrastructure. The company has been tracking the costs of managing each desktop internally and has found that its figures closely mirror those of the Gartner Group. In tracking the cost of managing the inventory application for distributors, Zyger has found it to be approximately $1,500 per user per year. Zyger is therefore very interested in reducing costs, especially for installing and upgrading software for the corporation. Zyger's IT executives specifically want to know what savings could be achieved using Marimba's Castanet technology as a global solution for managing desktop applications on their intranet and extranet.
Years | |||||||
Initial Investment |
1 | 2 | 3 | 4 | 5 | Total | |
Cash Flows | $3.50 | $18.38 | $18.38 | $18.38 | $18.38 | $18.38 | |
Discount Rates | 0.870 | 0.756 | 0.658 | 0.572 | 0.497 | ||
Present Values | $15.98 | $13.89 | $12.08 | $10.51 | $9.14 | $61.60 |
Figure 5. Projected ROI for Zyger Corporation.
(Calculations above exclude asset deprectiation effects, tax effects, recurring
costs, and variable yearly savings.)
Assumptions
Results (see figure 5)
Net Present Value (millions) | $58.10 |
Estimated 5-year ROI | 1,760% |
Estimated payback (years) | 0.22 |
ROI analysis summary
The bottom line is that Zyger Corp. would achieve an ROI of more than 1700 percent during a five-year period. This result is derived from a very conservative set of parameters. If the savings were reduced to half the stated assumption (which would be approximately $9.2 million per year), then Zyger would still achieve an ROI of 880 percent. In addition, the above example shows that the payback period would occur within three months of the initial investment.
In fact, this example showed not only how the company saved internally, but also externally to business partners on their extended enterprise. Castanet works well -- and securely -- both within and across enterprise firewalls.
This scenario is not unlike ones facing many companies in today's global marketplace. Across both horizontal and vertical industries, companies that use PCs to conduct business are looking for ways to bring down the total cost in distributing, managing, and updating desktop software. Marimba's Castanet technology answers that need.
Conclusion
With the total cost of ownership of today's desktop systems escalating out
of control, Marimba's Castanet product family offers a powerful way to control
these costs and permanently reduce them. According to both Gartner Group
and Forrester Research studies, companies can save as much as $3,500 per
user with the proper management of software on the desktop. Castanet can
provide the state-of-the-art software management that enterprises need to
achieve such savings.
The Internet may be creating exciting opportunities in the software industry, but it is also creating a considerable amount of mayhem (Internet Software Business, Forrester Research, Inc., January 1997, pg. 3). With the widespread acceptance of the Internet, many companies are integrating network software technologies with their business processes and practices. In turn, this convergence affects the way software is developed and deployed. This shift in business practices and culture is forcing independent software vendors to more closely evaluate the four key aspects of their own business: product, pricing, distribution, and support.
Ultimately, the adoption of the Internet will create dramatic positive changes in the way software companies operate both internally and with their customers. The Internet will become the substrate for a new form of business arrangement -- what Forrester calls a "continuous business relationship" -- in which innovation, value, and expertise flow naturally between vendors and users (see Appendix B).
Castanet offers the following advantages to ISVs:
With the rapid adoption of the Internet, network-based software distribution is making fast inroads. Forrester surveyed one thousand companies and found that in the next two years, more than 80 percent will receive some portion of their software electronically (Corporate Push, Forrester Research, Inc., May 1997). Today, about 4 percent of companies receive client software electronically; this figure is expected to grow to 38 percent by 1999. The same Forrester study provided similar findings for receiving server software electronically. See Appendix C for more details.
How Castanet Saves
ISVs Time and Money
As an industry leader in software to distribute and update applications,
Marimba is well positioned to offer solutions that meet the needs of ISVs.
With Marimba's Castanet technology, ISVs no longer have to deliver software
in shrink-wrapped boxes that occupy expensive retail shelf space, or on
CD-ROMS mailed in expensive protective envelopes.
In addition, Castanet helps software vendors get their products to market faster -- and produce applications that are more attractive to potential buyers. Uniquely with Castanet, developers can develop and deploy in parallel, hence shortening the time to market. New features can be deployed as soon as they're ready, instead of having to wait for a major release. This faster development cycle also enables developers to quickly integrate customer feedback, resulting in more marketable products.
As mentioned earlier, this more efficient release cycle will create what Forrester calls continuous business relationships (see Appendix B). Marimba's Castanet family makes such relationships possible, enhancing revenue opportunities for software vendors.
ROI Example: ESD for RaddFast, Inc.
Let's examine how an ISV that currently distributes software via CD-ROM
can benefit from using Castanet. The hypothetical company "RaddFast,
Inc." is an ISV that markets a powerful spreadsheet application. RaddFast
wants to accelerate its revenue generation and reduce its overall cost of
distributing software.
The company currently spends an average of $10 to send its software to each customer -- an amount comparable to many large vendors in the software industry. It is reasonable to estimate the cost of goods sold as $5 per package, with an additional $5 for overhead and other costs. RaddFast has a customer base of half a million users. How much would RaddFast gain by implementing electronic software distribution (ESD) based on Castanet technology?
Years | |||||||
Initial Investment |
1 | 2 | 3 | 4 | 5 | Total | |
Cash Flows | $1 | $5 | $5 | $5 | $5 | $5 | |
Discount Rates | 0.869565 | 0.756144 | 0.657516 | 0.571753 | 0.497177 | ||
Present Values | $4.35 | $3.78 | $3.29 | $2.86 | $2.49 | $16.76 |
Figure 6. Projected ROI for RaddFast, Inc.
(Calculations above exclude asset deprectiation effects, tax effects, recurring
costs, and variable yearly savings.)
Assumptions
Results (see figure 6)
Net Present Value (millions) | $15.76 |
Estimated 5-year ROI | 1,676% |
Estimated payback (years) | 0.23 |
ROI analysis summary
With a relatively small investment, RaddFast would recognize a savings of
$15.76 million in net present value and achieve payback of its initial investment
within three months. The cumulative ROI over five years should exceed 1,600
percent. This demonstrates the tremendous savings that can be achieved using
Castanet to deliver software.
In addition, other costs (such as personnel, inventory, and channel costs) have not even been factored into this calculation, and conservative figures were used. Nevertheless, this analysis shows that by distributing and updating its software with Castanet, RaddFast would speed its revenue generation and increase its profit margins.
Conclusion
Software delivery for independent software vendors is changing with the
explosion of the Internet. Simply by replacing CD-ROM distribution with
Castanet's automatic updating capabilities, a typical ISV's return on investment
could exceed 1,600 percent over a five-year period.
Marimba's Castanet technology offers the cost-of-ownership savings and return on investment that today's enterprises and ISVs require. The market for electronic software distribution and management is growing rapidly, and Marimba is already recognized as a leader in it.
Castanet enables businesses and software companies to lower the cost and complexity of distributing, managing, and updating applications across different computer platforms and networks. Castanet works automatically, eliminating the need for IT departments or software vendors to notify users of updates and then rely on the users remembering to order or download the updates. It works efficiently, enabling each new feature to be disseminated as soon as it is ready. And it works securely, both inside of and across firewalls. With Castanet, enterprises and ISVs can be sure that their users will always have the latest versions of every application.
For more information
To find out more about how Castanet products can benefit your enterprise or software business, call your local Marimba sales office or visit our Web site at www.marimba.com.
Total Cost of Ownership refers to the costs associated with an asset over its entire lifecycle. In the case of personal computers, these costs can be divided into direct and indirect IT expenses (TCO Defined,Interpose, http://www.interpose.com).
Direct IT costs are budgeted items such as hardware, software management labor, operations labor, development costs, and communication fees. Indirect (unbudgeted) costs are items such as end-user IT time and downtime. It is relatively simple to track direct costs through careful examination of IT budgets. However, indirect costs -- which are often not measured -- can multiply dramatically as IT budgets are slashed and resources are shifted to supporting end users.
Return on Investment is an attempt to quantify the benefit of making an investment. It is essentially the effective return that a purchaser receives from an investment. ROI can be expressed mathematically as:
While the concept of ROI is simple, the calculations can be complex, because it is difficult to express the costs and savings of investing in a project in terms of both cash flows and the time value of money. For example, it is not a simple task to estimate the productivity gains of reducing the learning curve for personnel. The value of dollars saved tomorrow needs to account for inflation, the cost of borrowing money, and market risk. The total benefit of a project is therefore the net present value of those future cash flows. Nevertheless, the real value of ROI comes about when corporations must decide among various projects or weigh the benefits of the project against the cost of borrowing money. In the business world, managers usually accept projects when the ROI is twice the amount of borrowing money.
"Many people confuse TCO and ROI. The truth is that they are different, but complementary. Analysts like to use ROI to discuss savings in present value over a period of time. TCO provides the total actual dollar costs revolving around the management an asset; any reduction in the costs is considered a saving. Taking those savings over a period of time using discounted cash flows results in an ROI figure. ROI is more widely used as a tool to measure and evaluate projects, not just a measurement for managing assets."
Appendix B: Impact of Continuous Business Relationships
The core technologies of software are in the process of being reinvented to support continuous business relationships. Software teams will leverage Internet computing -- with its on-demand delivery and dynamic components -- to create new design points, new architectures, and new development processes (see figure below).
Today's business business relationships | Continuous relationships | |
Product | Long build and test cycles produce monolithic programs that are out of sync with customer's needs | Companies produce timely enhancements that plug into application platform |
Pricing | Vendors price to recoup development costs early in product life cycle | Smooth payments lower barriers, amplify market penetration, and build a steady revenue flow |
Distribution | Resellers build value around exclusive access to suppliers and customers | Internet intermediaries offer a rich flow of code, content, and information |
Support | Expensive, limited-access support via telephone and on-site call | Built-in and on-line content from vendors and other users make software self-supporting |
Figure AB1: Impact of continuous relationships.
Source: Forrester Research, Inc.
Figure AB2: How long are your point release
cycles?
Source: Forrester Research, Inc.
Figure AC1: What fraction of your software
do you receive electronically? (Percent of 50 Fortune 1,000 companies interviewed.)
Source: Forrester Research, Inc.
Figure AC2: What types of software do you
receive electronically? (Percent of 50 Fortune 1,000 companies interviewed.)
Source: Forrester Research, Inc.
© Copyright 1997 Marimba, Inc. 440 Clyde Avenue, Mountain View, CA 94043, www.marimba.com. All rights reserved. Marimba and Castanet are registered trademarks of Marimba, Inc. Java is a trademark of Sun Microsystems, Inc. All other brand and product names are trademarks of their respective companies. All rights reserved.