Buy, Lease--or Move to Cloud Computing?
Your trusty old office computers are likely chugging along with the power of a 20-year-old Oldsmobile climbing Mt. Everest, gamely working hard to complete ever more complicated and varied tasks for your company's employees.
Your trusty old office computers are likely chugging along with the power of a 20-year-old Oldsmobile climbing Mt. Everest, gamely working hard to complete ever more complicated and varied tasks for your company's employees. But while it might be time to replace the outdated PCs, with today's credit crunch, you may be considering alternatives to simply buying new hardware as a way to save your business money.
So should you lease new hardware, forgoing boxed software? Or try the new cloud computing solutions that are being touted as the next big thing? We'll look into a variety of options for your business and let you know which ones will save you money, and which could potentially cost you big.
Leasing vs. Buying: Good Deal or Bad Idea?
According to a 2007 study by IDC, cutting your PC's life cycle to three years, versus five or six years, will save you on the overall cost of maintaining that system. As presented in the study, keeping two generations of leased desktop PCs (held for three years each) is 20.5 percent less expensive than buying and holding one machine for six years.
Lifecycle implications aside, there are other considerations to mull over before signing a hardware lease, such as end-of-lease costs and other fees that can accrue if not monitored, according to Joe Loiselle, Vice President of Global IT Advisory Services at IDC.
"Leasing is not a bad thing, if you manage it. Unmanaged, it will be a big liability. Most [leases] favor the lack of discipline a buyer has, and most favor a mobile device--it moves, breaks, and changes hands," he says. Unless you are going to send back the equipment on time and address end-of-lease issues, Loiselle believes that your organization is going to bleed cash. Most people don't pay attention to a lease once they sign it, he adds, and lease agreements aren't exactly designed to save you money in the long run.
"Companies are making a mass exodus from leasing," says Loiselle. Leasing "is a Venus flytrap: it's tough to get into and tougher to get out of." Of course, given today's credit crunch, it will be more difficult to get a lease or financing in the first place.
When it comes to servers, it can be even more difficult to return equipment, as data, applications, and network connections are all affected when you remove a server. Servers are not as easy thing to rip out of your network, and most small businesses don't have redundancies in place, according to Loiselle.
A final consideration before signing a lease: Businesses are often able to write off as much as $15,000 for new equipment, so it may make sense to buy the equipment outright. Be sure to check with your accountant or tax preparer before making a move to either option.
Cost Comparisons: Is Leasing Cost Effective?
We looked at lease deals on three computer manufacturers' sites, comparing pricing options for ten laptops. Overall, we found that leasing is the costlier option in the long run, even if it's cheaper at the outset.
At HP's site, we selected the option to purchase ten business notebooks at a cost of $15,590. HP lists the lease price for these same notebooks as $413 per month for a 48-month lease. That's $19,824 for a 48-month lease, or an additional $4824 to lease the machines, rather than buy them outright. (To find out about other lease lengths, pricing, or options, check HP's site.)
On Dell's site, the company lists finance options that include both fixed purchase options (FPO) and full market value (FMV) options for leasing with 24-, 30-, 36-, or 48-month financing. Both options require a $75 processing fee. Our total for ten similarly equipped laptops, sans shipping and tax, was $15,695.
Displayed right beside the total on Dell's site are links to the lease options. (Before you go through the process of getting qualified, you can estimate your payments based on your credit level--Excellent, Good, or Fair--and the total purchase amount.) The 48-month lease on $15,695 was $460.96 per month for FMV and $461.04 for $1 Buy-Out. That's $22,126.08 for FMV and $22,129.92 for $1 Buy Out over 48 months. You do the math: Purchasing equipment outright saves you at least $6500 here.
Next, we clicked over to Fujitsu's site, where the company offers lease purchase options of $1, 10 percent, or FMV, and provides a lease calculator to figure out your costs. Fujitsu doesn't offer a 48-month lease, but its 36-month lease on ten laptops totaling $15,000 was $473 on the FMV plan, $483 on 10 Percent Purchase, and $522 on $1 Buyout. So that was $17,028, $17,388, or $18,792, respectively on a $15,000 equipment purchase.
In the end, the ten laptops we researched on the three vendor sites on average cost $4000 more if you were to lease them for 48 months, as opposed to buying them outright. While leasing does mean you won't be strapped with a steep initial cost, buying saves a bunch of cash in the long run.
Buying also potentially saves more money down the line, as lease contracts can stipulate that a vendor can charge extra should you return your equipment late or without a clean hard drive.
Printer Leasing and Online Faxing: Panacea or Problematic?
If your office needs also include high-volume printing, collating, and all the bells and whistles of a big-budget printer, many companies offer equipment leases. HP and Xerox both offer lease options for high-end, high-volume models.
For example, the high-volume black-and-white HP LaserJet M5000 MFP series starts at $4000 retail, and the Color LaserJet CM6030 MFP series starts at $7000. But to lease, you'll have to pay $115 per month for the M5000, or $190 per month for the CM6030 for a 48-month lease. (That means you'll spend $5520 for the M5000, or $9120 for the CM6030, over the course of 48 months.)
Though high-volume printers don't have quite as short a lifecycle as a notebook or desktop, it pays to do your research to understand the lease options, what's expected at the end of the lease, and what your total cost will be over the life of the lease.
For expensive office equipment, such as a high-volume printer, you may find that the extra money spent over the course of a lease makes sense, as it's only one device that will remain in your office, and it's easier to track than a laptop. As with any lease, make sure you understand the terms and whether you'll be stuck shipping a giant printer back to the vendor once the lease is up.
Your needs may include less printing and more faxing, however. These days, a new fax machine ranges in price from less than $100 to $350, depending on feature set. But if you don't send faxes often enough to justify a machine or a separate phone line, many free and low-cost online services let you send faxes online. These "virtual fax machine" services let you send faxes via e-mail and receive them; some offer a free local landline number.
Do a Google search for "online fax" and you'll find that there are literally thousands of Internet faxing services available, with a range of prices and features. Some are free, some let you send faxes only, and others let you both send and receive--all without a physical fax machine.
One popular service, Myfax, offers plans that start at $10 per month or $110 a year to send 100 pages and receive 200 per month. The service also includes one year of online storage and either a local or a toll-free fax number.
Efax is another Internet fax provider. It offers free, Plus, and Pro plans. The paid plans run around $20 per month, and you can receive faxes free. You can send 30 pages per month, and additional pages run 10 cents each. To read or create faxes, you'll need the service's free eMessenger application. The site does not offer storage, and larger faxes may take up a large chunk of your inbox.
Overall, online faxes are a great deal if you don't want to pay a monthly fee for a phone line, buy the equipment, or lack a permanent office space. Online faxes can also be more secure than a fax that sits out in a public area. But if you want the dependability of a landline and a permanent fax number, online faxes may not be the best option.
Reach for the Clouds: Storage, Servers, and Services
You may decide to simply forgo new equipment and software in favor of cloud computing, which has been gaining in popularity and hype in recent months. Companies like Google, Dell, HP, Oracle, Amazon, Salesforce.com, and even Microsoft are providing applications, Web space, and computing power via the Web. But does this mean that your traditional software applications and servers will be unnecessary?
Gartner believes that 80 percent of Fortune 1000 companies will be using some form of cloud computing services by 2012. Cloud computing lets large companies spend more money on infrastructure and less money on the actual hardware, but as cloud computing gains in popularity, some industry experts argue that costs will increase as adoption takes hold.
"Windows isn't going away, but more and more services will be offered from the cloud, rather than installed and managed on specific on-premises platforms," says Thomas Bittman, a Gartner analyst, on his blog. "Not to say that Amazon, Salesforce or Google have all the kinks worked out--but they sure have lowered the barrier to entry for a developer looking to build a global-class application on the cheap."
You don't need to buy hardware or software, but you will often have to pay for space and the use of cloud computing applications. (You may need a consultant to set up some of these, however.)
Some examples of cloud computing offerings include Salesforce.com, a customizable online customer-relationship management database service that offers tools to track contacts and sales leads, run campaigns, generate reports, and track revenue. You can also store files online. Its AppExchange lets you browse and install applications from partners and third-party developers. The company offers a 30-day trial, and pricing varies depending on your needs and the number of users. Check the Salesforce site for specific pricing.
Amazon's recently launched EC2 (Elastic Compute Cloud) service lets you forgo buying Web servers and rent instead. The term "elastic" means you can rent what you need on demand and pay for the bandwidth and server processes you use. Storage via Amazon's S3 (Simple Storage Service) lets you store and retrieve any amount of data, starting at 15 cents per gigabyte per month. Amazon's EC2 pricing model is based on a number of factors, including data transfer--but there is no minimum fee or activation.
And Microsoft is getting into the act with its Windows Azure, a cloud-computing platform that allows developers to build and host their services on Microsoft infrastructure. Azure is not available yet, but it will reportedly eliminate the need to update your desktop applications.
Of course, when it comes to cloud computing, Google Docs has been the long-standing application king. Google offers free word processing, calendaring, e-mail, spreadsheets, and collaboration tools as well as paid services that include e-mail archiving, the ability to disable ads, and support. On its site, Google lists side-by-side benefits of both free and paid plans.
Though every cloud has a silver lining, these cloud services aren't all dreamy. For one, you are at the mercy of the provider, and if they suffer an outage, so do you. Google's recent Gmail outage left customers stranded without e-mail and their online applications for days. Security is also up to the provider, so make sure to check out whether its security level meets your needs.
Whether you go the traditional route of buying your software in a box, renting server space online, buying hardware outright, or leasing, it pays to do your research, and to understand the risks. And remember, if something sounds too good to be true, it almost always is.