A Forrester Total Economic ImpactTM Study Commissioned By Microsoft, December 2023
As the software landscape becomes more complex, organizations face a growing need to simplify software purchasing while maintaining strong security, corporate, and governance policies and balancing costs. With a variety of solutions available, organizations require a streamlined platform to efficiently purchase and manage their software assets. The Microsoft commercial marketplace provides a single hub for organizations to access a wide range of vetted solutions, simplify sourcing processes, and meet their software needs to successfully drive business outcomes.
The Microsoft commercial marketplace is a centralized platform that offers a diverse catalog of software solutions for organizations to procure and implement. Through the Microsoft commercial marketplace, businesses can find, try, buy, and deploy various software offerings, ranging from productivity and infrastructure to AI tools and industry-specific applications.
Forrester research shows that cloud marketplaces play a crucial role in balancing speed and agility while minimizing the challenges of SaaS sprawl.1 Marketplaces provide businesses with a trusted platform to research and explore applications, which ultimately reduces costs and mitigates risk. Forrester research has found that cloud marketplace users have realized significant cost savings by leveraging bundled offerings or meeting minimum spend requirements.
Microsoft commissioned Forrester Consulting to conduct a Total Economic Impact™ (TEI) study and examine the potential return on investment (ROI) organizations may realize by using the Microsoft commercial marketplace.2 The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of adopting the Microsoft commercial marketplace for their organizations.
To better understand associated benefits, costs, and risks, Forrester interviewed 10 customers with experience using the Microsoft commercial marketplace. For the purposes of this study, Forrester aggregated the interviewees’ experiences and combined the results into a single composite organization that is a global organization with 5,000 employees and annual revenue of $4 billion. The composite organization has a Microsoft Azure Consumption Commitment (MACC) agreement, which commits it to a certain level of Azure cloud usage in exchange for discounted pricing. While this impacts benefits around preserving discounted pricing, it does not impact other financial benefits described in the study.
Interviewees mentioned that prior to using the Microsoft commercial marketplace, their organizations struggled to efficiently identify and implement new software solutions. Their legacy procurement processes were slow, labor-intensive, and required several months of effort to vet, onboard, and integrate new applications. Some interviewees shared that their teams purchased tools from resellers and suppliers on an ad hoc basis, which sometimes resulted in departments purchasing redundant applications or risks to security and compliance.
After adopting the Microsoft commercial marketplace, the interviewees’ organizations saved money on their overall Azure spends, improved their procurement processes, reduced proof of concept fees, and enhanced vendor onboarding efficiencies. This led to cost savings, streamlined operations, and increased agility in software acquisition and integration.
Quantified benefits. Three-year, risk-adjusted present value (PV) quantified benefits for the composite organization include:
Unquantified benefits. Benefits that provide value for the composite organization but are not quantified for this study include:
Costs. While there are no direct costs to the composite organization for adopting the Microsoft commercial marketplace, it does incur labor costs for implementation and management. Three-year, risk-adjusted PV costs for the composite organization include:
The representative interviews and financial analysis found that a composite organization experiences benefits of $4.98 million over three years versus costs of $726,000, adding up to a net present value (NPV) of $4.26 million and an ROI of 587%. The organization’s payback period is less than six months.
Return on investment (ROI):
Benefits PV:
Net present value (NPV):
Payback:
From the information provided in the interviews, Forrester constructed a Total Economic Impact™ framework for those organizations considering adopting the Microsoft commercial marketplace.
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 the Microsoft commercial marketplace can have on an organization.
Interviewed Microsoft stakeholders and Forrester analysts to gather data relative to the Microsoft commercial marketplace.
Interviewed 10 representatives at organizations using the Microsoft commercial marketplace to obtain data about 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 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 adopting the Microsoft commercial marketplace.
Microsoft 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 provided the customer names for the interviews but did not participate in the interviews.
Consulting Team:
Sam Sexton
Matt Dunham
Role | Industry | Region | Employees |
---|---|---|---|
Executive director | Government | EMEA | 2,500 |
IT sourcing specialist | Manufacturing | Global | 100,000 |
Director of information security | Food distribution | Global | 130,000 |
Director of IT | Financial services | Global | 7,000 |
Consultant | Software sales | EMEA | 200 |
Principal engineer | Chip manufacturing | US | 800 |
Director of global supply chain | Telecommunications | Global | 100,000 |
Machine learning engineer | Education | Global | 2,000 |
CIO | Industrial lighting | North America | 12,000 |
VP of information services | Energy services | North America | 2,000 |
Before adopting the Microsoft commercial marketplace, the interviewees’ organizations struggled to efficiently identify, vet, and source new software products. Different departments or teams within the organizations often purchased solutions directly from suppliers on an ad hoc basis, or they relied on individual employees to research and recommend solutions and lead negotiations with vendors.
The interviewees noted how their organizations struggled with common challenges, including:
Inconsistent approaches to procurement. Interviewees shared that without the Microsoft commercial marketplace, their organizations lacked a uniform approach to purchasing and implementing software solutions, which resulted in fragmented purchasing decisions and inconsistent practices. Different departments or teams within the organizations often purchased solutions as needed, and that made it difficult to assess overall spend and identify cost-saving opportunities.
The IT sourcing specialist at a manufacturing firm described their organization’s previous approach to procurement: “It was ad hoc. There was nothing that was planned for it, and departments really weren’t going through the proper sourcing and legal process.”
Security and compliance challenges. Without a third-party marketplace, the interviewees’ organizations faced significant security and compliance pain points. Some struggled to vet the security measures implemented by individual vendors, which increased the risk of data breaches and vulnerabilities. Additionally, verifying compliance with industry regulations became challenging, and some organizations had to manually assess each vendor’s adherence to specific standards.
The machine learning engineer at an education firm described the security challenges from their organization’s previous procurement approach: “When you’re going directly to a supplier, since they are building a solution for you, it’s not really certified. It doesn’t have all these compliances you might be looking for. In our case, we were looking for software compliance, and the supplier didn’t have it, so we needed to seek a consultant to evaluate the compliance of their solution.”
Administrative burden of managing software purchases. Previously, managing, tracking, and approving software purchases involved significant administrative overhead. The organizations had to navigate through multiple vendors, manage disparate agreements and invoices, and track numerous software purchases. This fragmented approach required significant time and resources, which led to administrative inefficiencies and increased costs.
The director of IT at a financial services organization described how the time-consuming procurement practices drove their firm to consider a third-party marketplace: “[Our previous approach] required more resources to go in and manage everything. … I thought, instead of me dealing with 100 or 200 different providers, why can’t I get a central place for doing that administration?”
The interviewees’ organizations searched for a solution that could:
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 10 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 global organization with approximately 5,000 employees and annual revenue of $4 billion. The composite has a MACC agreement with Microsoft that commits it to a specific Azure cloud spend. The organization uses the Microsoft commercial marketplace for an increasing share of its software purchases over time.
Ref. | Benefit | Year 1 | Year 2 | Year 3 | Total | Present Value |
---|---|---|---|---|---|---|
Atr | Savings in procurement process | $573,750 | $803,250 | $1,147,500 | $2,524,500 | $2,047,568 |
Btr | Azure discount retained | $600,000 | $840,000 | $1,200,000 | $2,640,000 | $2,141,247 |
Ctr | Time savings for payments and finance purchasing team | $229,500 | $229,500 | $229,500 | $688,500 | $570,733 |
Dtr | Reduced proof of concept fees | $36,000 | $72,000 | $108,000 | $216,000 | $173,373 |
Etr | Vendor onboarding efficiencies | $14,250 | $19,950 | $28,500 | $62,700 | $50,855 |
Total benefits (risk-adjusted) | $1,453,500 | $1,964,700 | $2,713,500 | $6,131,700 | $4,983,776 |
Evidence and data. Interviewees shared that using the Microsoft commercial marketplace helped their organizations make informed procurement decisions without having to devote significant employee time to researching, evaluating, and selecting a vendor.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could affect the impact of this benefit for organizations include the following:
Results. To account for these risks, Forrester adjusted this benefit downward by 15%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $2.0 million.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|
A1 | Procurement engagements impacted by the Microsoft commercial marketplace | Composite | 5 | 7 | 10 | |
A2 | Average fully loaded hourly salary of a procurement employee | TEI standard | $45 | $45 | $45 | |
A3 | Employees involved in procurement process per engagement before using the Microsoft commercial marketplace | Interviews | 30 | 30 | 30 | |
A4 | Time required per engagement before using the Microsoft commercial marketplace (hours) | Interviews | 120 | 120 | 120 | |
A5 | Subtotal: Total cost of process for engagements prior to using the Microsoft commercial marketplace | A1*A2*A3*A4 | $810,000 | $1,134,000 | $1,620,000 | |
A6 | Employees involved in procurement process per engagement with the Microsoft commercial marketplace | Interviews | 15 | 15 | 15 | |
A7 | Time required per engagement with the Microsoft commercial marketplace (hours) | Interviews | 40 | 40 | 40 | |
A8 | Subtotal: Total cost of procurement processes with the Microsoft commercial marketplace | A1*A2*A6*A7 | $135,000 | $189,000 | $270,000 | |
At | Savings in procurement process | A5-A8 | $675,000 | $945,000 | $1,350,000 | |
Risk adjustment | ↓15% | |||||
Atr | Savings in procurement process (risk-adjusted) | $573,750 | $803,250 | $1,147,500 | ||
Three-year total: $2,524,500 | Three-year present value: $2,047,568 |
Evidence and data. Many of the interviewees’ organizations have MACC agreements that commit them to a certain level of Azure consumption in exchange for discounted rates. The interviewees reported that 100% of their organizations’ spending on eligible solutions through the Microsoft commercial marketplace counted toward their MACC agreements, which helped them unlock Azure discounts that they otherwise stood to lose.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could affect the impact of this benefit for organizations include the following:
Results. To account for these risks, Forrester adjusted this benefit downward by 20%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $2.1 million.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|
B1 | Microsoft Azure discounts at risk | Composite | $3,000,000 | $3,000,000 | $3,000,000 | |
B2 | Discount recapture attributed to the Microsoft commercial marketplace spending to meet MACC | Interviews | 25% | 35% | 50% | |
Bt | Azure discount retained | B1*B2 | $750,000 | $1,050,000 | $1,500,000 | |
Risk adjustment | ↓20% | |||||
Btr | Azure discount retained (risk-adjusted) | $600,000 | $840,000 | $1,200,000 | ||
Three-year total: $2,640,000 | Three-year present value: $2,141,247 |
Evidence and data. Interviewees reported that by leveraging features of the Microsoft commercial marketplace such as automated invoicing and billing systems, their organizations’ finance teams reduced manual data entry, eliminated billing errors, and expedited their overall invoice processing and billing cycles, which resulted in significant time savings.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could affect the impact of this benefit for organizations include the following:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $570,700.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|
C1 | Payments and finance team members associated with software purchases | Composite | 10 | 10 | 10 | |
C2 | Percent of time saved due to the Microsoft commercial marketplace consolidating invoicing and enabling faster work with procurement | Interviews | 30% | 30% | 30% | |
C3 | Fully loaded annual salary of a payment and finance team member | TEI standard | $85,000 | $85,000 | $85,000 | |
Ct | Time savings for payments and finance purchasing team | C1*C2*C3 | $255,000 | $255,000 | $255,000 | |
Risk adjustment | ↓10% | |||||
Ctr | Time savings for payments and finance purchasing team (risk-adjusted) | $229,500 | $229,500 | $229,500 | ||
Three-year total: $688,500 | Three-year present value: $570,733 |
Evidence and data. Before using the Microsoft commercial marketplace, interviewees’ organizations often had to pay up-front fees for proofs of concept to evaluate new software solutions. However, interviewees said their organizations were able to more easily access trial options through the Microsoft commercial marketplace, which resulted in cost savings on proof-of-concept expenses. The machine learning engineer at an education firm described how this benefits software buyers: “When you go to the Microsoft commercial marketplace, there are different trial options; they have test-drive options. This is great because usually people want to try things out. They don’t necessarily trust what the description is saying. They want to verify on their own that this solution actually works.”
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could affect the impact of this benefit for organizations include the following:
Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $173,400.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|
D1 | Engagements that require a PoC per year purchased via the Microsoft commercial marketplace | Composite | 2 | 4 | 6 | |
D2 | Fees for PoC per engagement in prior state | Interviews | $20,000 | $20,000 | $20,000 | |
Dt | Reduced proof of concept fees | D1*D2 | $40,000 | $80,000 | $120,000 | |
Risk adjustment | ↓10% | |||||
Dtr | Reduced proof of concept fees (risk-adjusted) | $36,000 | $72,000 | $108,000 | ||
Three-year total: $216,000 | Three-year present value: $173,373 |
Evidence and data. Interviewees noted that using the Microsoft commercial marketplace makes vendor onboarding easier by simplifying the process of reviewing paperwork and explaining processes to new vendors. They said that instead of manually handling these tasks, the Microsoft commercial marketplace provides a single platform on which vendors can submit required documentation and access necessary information. This streamlines the onboarding process and reduces the administrative burden.
Modeling and assumptions. Based on the interviews, Forrester assumes the following about the composite organization:
Risks. Factors that could affect the impact of this benefit for organizations include the following:
Results. To account for these risks, Forrester adjusted this benefit downward by 5%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $50,900.
Ref. | Metric | Source | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|
E1 | Employees required for vendor onboarding prior to using the Microsoft commercial marketplace | Interviews | 10 | 10 | 10 | |
E2 | Time spent onboarding vendors in legacy state (hours) | Interviews | 8 | 8 | 8 | |
E3 | Instances of vendor onboarding | A1 | 5 | 7 | 10 | |
E4 | Fully loaded hourly salary of an employee involved with vendor onboarding | TEI standard | $50 | $50 | $50 | |
E5 | Cost of vendor onboarding prior to using the Microsoft commercial marketplace | E1*E2*E3*E4 | $20,000 | $28,000 | $40,000 | |
E6 | Reduction in effort to onboard new vendors with the Microsoft commercial marketplace | Interviews | 75% | 75% | 75% | |
Et | Vendor onboarding efficiencies | E5*E6 | $15,000 | $21,000 | $30,000 | |
Risk adjustment | ↓5% | |||||
Etr | Vendor onboarding efficiencies (risk-adjusted) | $14,250 | $19,950 | $28,500 | ||
Three-year total: $62,700 | Three-year present value: $50,855 |
Interviewees mentioned the following additional benefits that their organizations experienced but were not able to quantify:
Ref. | Cost | Initial | Year 1 | Year 2 | Year 3 | Total | Present Value |
---|---|---|---|---|---|---|---|
Ftr | Implementation and training time | $69,046 | $0 | $0 | $0 | $69,046 | $69,046 |
Gtr | Ongoing management costs | $0 | $264,000 | $264,000 | $264,000 | $792,000 | $656,529 |
Total costs (risk-adjusted) | $69,046 | $264,000 | $264,000 | $264,000 | $861,046 | $725,575 |
Evidence and data. Interviewees reported that while there are no hard costs for adopting the Microsoft commercial marketplace, their organizations incurred internal labor costs related to the implementation. They noted that employees required varying levels of training to use the Microsoft commercial marketplace depending on their role.
Modeling and assumptions. Based on the interviewees’ experiences, Forrester assumes the following about the composite organization:
Risks. Factors that could affect the impact of this cost for organizations include the following:
Results. To account for these risks, Forrester adjusted this cost upward by 15%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $69,000.
Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|---|
F1 | Employees involved in Microsoft commercial marketplace planning and change management tasks | Interviews | 3 | ||||
F2 | Time spent performing implementation and change management tasks (hours) | Interviews | 160 | ||||
F3 | Blended hourly salary of involved employees | TEI standard | $58 | ||||
F4 | Subtotal: Change management costs | F1*F2*F3 | $27,840 | ||||
F5 | Procurement team members who require training | A3 | 30 | ||||
F6 | Time spent in training (hours) | Interviews | 16 | ||||
F7 | Fully loaded hourly salary of a procurement team member | TEI standard | $45 | ||||
F8 | Subtotal: Training costs for procurement team | F5*F6*F7 | $21,600 | ||||
F9 | General business users who require training | Interviews | 200 | ||||
F10 | Time spent in training (hours) | Interviews | 1 | ||||
F11 | Fully loaded hourly salary of a general business user | TEI standard | $53 | ||||
F12 | Subtotal: Training costs for general business users | F9*F10*F11 | $10,600 | ||||
Ft | Implementation and training time | F4+F8+F12 | $60,040 | $0 | $0 | $0 | |
Risk adjustment | ↑15% | ||||||
Ftr | Implementation and training time (risk-adjusted) | $69,046 | $0 | $0 | $0 | ||
Three-year total: $69,046 | Three-year present value: $69,046 |
Evidence and data. Interviewees reported that their organizations dedicated small internal teams to manage usage of the Microsoft commercial marketplace on an ongoing basis.
Modeling and assumptions. Based on the interviewees’ experiences, Forrester assumes the following about the composite organization:
Risks. Factors that could affect the impact of this cost for organizations include the following:
Results. To account for these risks, Forrester adjusted this cost upward by 20%, yielding a three-year, risk-adjusted total PV (discounted at 10%) of $656,500.
Ref. | Metric | Source | Initial | Year 1 | Year 2 | Year 3 | |
---|---|---|---|---|---|---|---|
G1 | IT FTEs who manage data ingestion for the Microsoft commercial marketplace | Interviews | 0.5 | 0.5 | 0.5 | ||
G2 | Fully loaded annual salary of an IT FTE who manages data ingestion for the Microsoft commercial marketplace | TEI standard | $200,000 | $200,000 | $200,000 | ||
G3 | FTEs who manage usage and policies of the Microsoft commercial marketplace | Interviews | 1 | 1 | 1 | ||
G4 | Fully loaded annual salary of an FTE who manages usage and policies of the Microsoft commercial marketplace | TEI standard | $120,000 | $120,000 | $120,000 | ||
Gt | Ongoing management costs | (G1*G2)+(G3*G4) | $0 | $220,000 | $220,000 | $220,000 | |
Risk adjustment | ↑20% | ||||||
Gtr | Ongoing management costs (risk-adjusted) | $0 | $264,000 | $264,000 | $264,000 | ||
Three-year total: $792,000 | Three-year present value: $656,529 |
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.
These risk-adjusted ROI, NPV, and payback period 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 | |
---|---|---|---|---|---|---|
Total costs | ($69,046) | ($264,000) | ($264,000) | ($264,000) | ($861,046) | ($725,575) |
Total benefits | $0 | $1,453,500 | $1,964,700 | $2,713,500 | $6,131,700 | $4,983,776 |
Net benefits | ($69,046) | $1,189,500 | $1,700,700 | $2,449,500 | $5,270,654 | $4,258,201 |
ROI | 587% | |||||
Payback | <6 months |
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.
1 Source: “The SaaS Marketplaces Landscape, Q2 2023,” Forrester Research, Inc., June 27, 2023.
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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