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ISSUE PAPER

HOW TO KEEP UCC COSTS DOWN AS COMPLEXITY GROWS Compare vendors and assess your Total Cost of Operation

By Robin Gareiss President, Nemertes Research

©NemertesResearch2016!www.nemertes.com!888-241-2685!DN5348

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HowtoKeepUCCCostsDownasComplexityGrowsNowisthetimetocomparevendorsandassessyourTotalCostofOperation

ByRobinGareissPresident,NemertesResearch

Compass Direction Points:

± Mostdeploymentsremainon-premises,butmovementistowardcloudandhybridIPT/UCCdeployments.Researchshows52.4%ofIPtelephonyand48.1%ofUCCdeploymentsareon-premises.Anevaluationofallarchitecturesiscrucialtogainthemostbenefitfromyoursolution.

± Conductathoroughcostassessment.Totalcostofoperationhasincreasedinthepastyear,soit’stimetore-examinewhatyou’respending.

± ShoreTelTCOislowest.InNemertes’2016TCOresearch,ShoreTel

customersspendtheleastontheirIPTandUCCsolutions.

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Executive Summary

WiththegrowingadoptionandcomplexityofUnifiedCommunicationsandCollaboration,ITleadersmustconductathoroughassessmentofarchitecture,providers,featuresandoperationalcosts.Evaluatingthosecostsisnotastraightforwardinitiative,notonlybecauseofmulti-vendorenvironments,butalsobecausecompaniesareshiftingarchitecturestohybridorcloud.Nemerteshasconductedresearchtoanalyzereal-worldcostdata,includingcapital,implementation,andoperationalcosts.Theresearchhelpscompaniescomparehowoverallcostschangebasedontheproviderselected.Mostimportant,itincludesongoingoperationalcosts,whicharehardtofactorintoabusinesscaseuntiltheITstaffactuallymustmanagetheproviderinquestion.ThispaperdocumentsthosecostsandprovidesthethreedifferentsampleoutputsfromacostmodeldevelopedbyNemertes,populatedwiththeresearchdata.Weenteredinthecostmodelactualdatafromcompanieswith100employees,750employees,and1,500employees.Ineachofthesecases,whethercloudoron-premises,ShoreTelistheleastexpensivesolutionoverafive-yearassessment.

The Issue

IPtelephonyandUCCtechnologiesarerisingtothetopofmanyITprioritylists,drivenbytheneedtoimprovecommunicationsinternallyandtobolstercustomerexperience.What’smore,thenumberofapplicationsincludedaspartofUCCaregrowing,asaretheintegrationrequirementsbetweencommunicationsandenterpriseapps.GiventheexpandingscopeofUCC,itisnotsurprisingthatcoststoimplementandoperatetheappsareincreasing.Asaresult,it’simperativeforITleaderstobuildsolidbusinesscases,examiningtotalcostofoperationsamongproviderstoensurethebestpossibledecision.Forexample,initialacquisitioncosts(licensingandassociatedcapital)maybeveryappealing,buttheunknownimplementationandongoingoperationalcostscanrapidlyeraseanycostbenefitassociatedwiththoselowerinitialcosts.Forexample,initialacquisitioncostsforMicrosoftoftenarelowerthanAvaya,Cisco,orShoreTel.ButongoingoperationalcostsarelowerwithShoreTelthananyoftheproviders,makingthetotalcostofoperationsovertimemuchless.


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TotalCostof“Ownership”isn’tasrelevantasitoncewas,particularlywithemergingcloudandhybridarchitectures.Now,weanalyzeTotalCostof“Operations,”whichbetterreflectstheimportanceofongoingoperationalcosts.Uncoveringthosetrue,real-worldoperationalcostscanbeachallenge,ifnotimpossiblewithoutresearchorsubstantialexperienceatpreviousorganizations.For11years,Nemerteshasconductedresearchtosubstantiatethecostsbyinterviewingandsurveyinghundredsofcompanies.Thisyear’sstudyincludesinputfromabout300companiesthatareusingvariouscombinationsofIPtelephonyandUCC,architectedinthecloud,on-premises,orboth.Thisreportprovidesinsightintotheoveralladoptiontrends,themovementtocloudandhybridenvironments,andallassociatedcosts.Italsoprovidesexamplesofcostcomparisonsbetweenproviders.ThoughIPtelephonyoftenisapartofUCC,weseparatedthetwoforthisstudy.IPtelephonysimplyincludesvoicecommunications,whileUCCincludesinstantmessaging,presence,audio/video/webconferencing,andunifiedmessaging—typicallyinanintegratedsuite.

IPT/UCC Adoption Trends

On-premisesarchitecturescontinuetobethemostprevalentacrossbothIPtelephonyandUCC,butthat’schanging.Asofthe2016research,almosthalfoforganizationshaveadoptedsomeIPtelephonycloudservices,comparedto29%in2015.ForUCC,morethanhalfofcompanieshaveadoptedcloudservices,comparedto26%in2015.MostorganizationsalsousemorethanoneproviderforIPtelephonyandUCcapabilities.DuringdiscussionswithITleaders,themajoritysaytheywouldliketoconsolidateonasinglevendorforallapps,buttherealityisthatitisnothappeningwiththeexceptionofsmallandthelow-endofmidsizecompanies.Amongcompanieswithfewerthan1,000endpoints,41.1%usethesameproviderforIPtelephonyandUCsuite.It’sworthnotingthatanother11.3%onlyhaveIPtelephonyanduseasingleprovider,comparedtoonly28.6%ofthosewith1,000ormoreendpoints.

Move to Hybrid, Cloud

Weexpectthemarkettosegmentinafewwayswhenitcomestoarchitecturedecisions.Thedriverstowardthosedecisions—aswellasthebenefitsorfallout—varybycompany.Figure1describesthearchitecture“camps”thatarepossible.Single-vendor,single-architectureenvironmentstypicallyarethemostefficienttomanage.ITstaffsonlyneedexpertiseinoneprovider’stechnology.Whenon-prem,theyonlymanageoneproviderandonlyhavetotrainemployeestouseoneuserinterface.Wheninthecloud,theyonlymanageonepartnerandfocusonuseradoptionofoneservice.


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Inmovingtoahybriddeployment,ITleadersshouldpayparticularlycloseattentiontointegrationoffeaturesetsandcallcontrol.Lookforaproviderthatoffersacommonplatformforitscloudoron-premisessolutions,ultimatelydeliveringthesameuserexperienceregardlessoftheplatform.FromanITmanagementstandpoint,thismeanscallcontrol,features,anduserinterfacearebasedonthesameunderlyingtechnology.AlthoughITstaffsstillmustmanagethetechnologyandthepartnerrelationship,theintegrationchallengeswithacommonplatformaregreatlyminimized.Architecture Providers TypicalCompany Benefit/Concern

Allon-premises

Single Small Singlesystemiseasytomanage/Responsibleforday-to-daymanagementwhenitcouldbeoffloadedtocloudprovider

Multiple Large,oftenbecauseofmergers

Best-of-breedfeatures;depreciatewhat’sinstalledandavoidcostofupgradetosinglevendor/Requiresknowledgeofmultiplesystems,increasingcoststomanageandintegrate

Allcloud

Single Allsizes,heavilyweightedtowardsmallandmidsize

Consistentservicesoeasyforusertraining/Lossofsomecontrol,potentiallymorestafftomanageservice

Multiple Fewusetoday,butwillapplytoanysizecompanythatneedsspecificfeature

Willenablebest-of-breedphilosophytoaddcapabilityprimarycloudproviderdoesnotoffer/Cloud-to-cloudintegrationwillbeachallenge

Hybrid

Single Primarilysmallandmidsize

Gradualmigrationfromon-premtocloud,usingsingleprovider(andpotentiallysameplatform)easesmanagement,orplannedhybridarchitecturemoreseamlesswithsinglevendor/Easier,lesscostlytoadopteithercloudoron-prem

Multiple Large,usuallyinthemidstofmigration

Fewbenefitstothisarchitecture;usuallynottheendgoal/Significantchallengestomanagingandintegratingmultiplevendorsacrosson-premandcloud

Figure1:ArchitecturalDifferences


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A Look at Costs

Asstated,NemerteshasgathereddetailedcostsforIPtelephonyandUCCforseveralyears.Wegatherdataoncapital,implementation,andoperationalcosts,eachofwhichincludessub-components.(PleaseseeAddendumfordetailsonthecosts.)Costshavebeendroppingsince2011,butinthepastyear,on-premisescostsgenerallyhaveincreasedamongallprovidersinbothIPtelephonyandUCC.(PleaseseeFigure2.)

Figure2:On-PremisesCostChangesCapitalCapitalcostsareincreasingslightlywithIPtelephonyanddecreasingwithUCC.InIPtelephony,costsincreased7%yearoveryear,drivenprimarilybycompaniesbuyingnewdevices,suchasheadsetsandvideophones,alongwithcapital,suchasSBCs.WedonotfindprovidersincreasingtheirpricesforIPtelephonycapital.ForUCC,capitalcostsdroppedyearoveryearby25%.Thedecreaseisnotsurprising,giventhecompetitivelandscapeandprovidersbattlingforcustomeracquisition.ImplementationYear-over-yearimplementationcostsnearlytripledwithforIPtelephony,andtheyroseby60%forUCC.Inbothcases,theincreaseisdrivenbyadditionaltimespentplanningandengineering.Additionally,companiesaredevotingmoreresourcesduringtheimplementationphasetointegrationofIPtelephonywithadditionalfunctions(contactcenter,mobileenablement,collaborationapps),andintegrationofUCwithenterpriseapps(ERP,CRM,analytics).Andinbothcases,companiesareusingmorethird-partyprofessionalservicesandsystemsintegrators,whichaddtoimplementationcosts.OperationalForbothIPtelephonyandUCC,ongoingoperationalcostsareincreasing(32%and21%,respectively).ITstaffsarenotgrowing,whiledemandsfrombusinessunitsare.Therefore,moreareusingmanagedservices.Inaddition,theyarespendingmoreontrainingoftheITstafftopreparefornewintegrationsandservicedeliveryarchitecturechanges.Andfinally,equipmentmaintenancecostsareincreasing.

$275

$188

$140

$102 $127

$204

$577

$206 $250

$-

$100

$200

$300

$400

$500

$600

$700

2014 2015 2016

UC Costs, 2014-2016 Capital Implementation Operational

$540 $500

$341 $364

$61 $82 $108

$310

$704

$353

$275

$366

$-

$100

$200

$300

$400

$500

$600

$700

$800

2013 2014 2015 2016

IPT Cost Changes 2013-2016

Capital Implementation Operational


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HistoricalCostsInevaluatingon-premisescostsfromrecentyears,ShoreTelmostfrequentlyhadthelowestandMicrosoftthehighestfirst-yearcosts—acombinationofcapital,implementation,andthefirstyearofoperationalcosts,notedabove.(PleaseseeFigure3.)

Figure3:IPTFirst-YearCosts,AllSizes

Figure4:IPTFirst-YearCosts,RolloutsWith<1,000Endpoints

Whenevaluatingfirst-yearcostsforspecificsizesofrollouts,moreprovidersemerge.Forexample,amongcompanieswithfewerthan1,000endpoints,ShoreTel,again,has

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2013 2014 2015 2016

IP Telephony First-Year Costs, All Sizes of Rollouts

ShoreTel Cisco Avaya Microsoft OVERALL MEDIAN

$882

$670

$870

$1,379

$1,008

$1,176

$1,017

$995

$1,322

$1,670

$1,267 $1,383

$1,234

$951

$1,480 $1,408

$785

$1,519

$1,872

$999

$1,520

$500

$700

$900

$1,100

$1,300

$1,500

$1,700

$1,900

$2,100

2014 2015 2016

IP Telephony First-Year Costs (<1,000 Endpoints)

ShoreTel Alcatel Lucent Avaya Microsoft Mitel NEC Cisco


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thelowestfirst-yearcostsperendpoint,andeitherNECorCiscohasthehighestperendpoint.ThoughShoreTel’scapitalcostsaregreaterthanmedian,itsimplementationandoperationalcostsarethelowestofallproviders.NEC’shighimplementationcostsandCisco’shighoperationalcostscontributedmosttotheirhighestcosts.(PleaseseeFigure4.)

Cost Model Tool

NemerteshastakenthedatacompiledinitsUCTCOresearch,andpopulateditinacostmodeltool.The2016projectincludedinterviewswith25ITleaders,andpre-qualified,electronicsurveysofanother274companieswithmorethan100employees.Toaugmenttheresearchwithadditionaldatafromsmallercompanies,weconductedanothersurveyfocusingon341companieswithfewerthan100employees.Weanalyzedthedatabysizeoforganizationandbyprovider,normalizingcloudcostsbynumberoflicensesandon-premisescostsbynumberofendpoints.Wethenpopulatedthetoolwithdefaultdatafromourresearch,alongwithdataentrythatITprofessionalscanentertocustomizetheoutputtotheirownuniqueconfigurations.

Cost Model Examples

Weevaluatedthreescenarios:Companieswith100,750,and1,500employees.Ineachfigurethatfollows,readerscanseeactualoutputfromthetool,populatedwithour2016data.Ineachscenario,ShoreTeldemonstratesthegreatestcostsavingsandlowestoverallcostoverafive-yearperiod,whencomparedtotheindustryaverageandvariousprovidersforbothon-premisesandcloud.(Thetoolcanruncalculationsforseveralvendors;wesimplyselectedvendorsrandomlyforillustrativepurposes.)Weassumeeachcompanystartswithanon-premisesdeployment(andassociatednumbersforstaffing,ITbudget,equipmentmaintenance,managedservices,etc.)ofwidelyusedvendors–Cisco(100-employeeexample),Avaya(750-employeeexample),andMicrosoft(1,500-employeeexample).Wethencomparewithaselectionofproviderstheongoingoperationalcostsofrunningthoseenvironmentswithacompletechangetoanewon-premisesrolloutorcloudservice.Forcloudservices,wefactorininitialimplementationoftheservice,monthlysubscription,andongoingoperationalcostsforstaffingandmanagedservices.Thecloudanalysisincludesanoptiontorenthandsets.Inthescenariosweran,weoptedtonotincludehandsetsintheanalysis(eitherrentedorpurchases)becauseactual


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pricesafternegotiationsareconsistentforlike-for-likehandsets,regardlessofvendors.Notethatourresearchgenerallyshowsstaffingactuallygoesupduringatleastthefirsttwoyearsofaclouddeployment,socostsavingsdonotalwayshappen.Inevaluatingthecloudscenariosfor750and1,500employees,thelackofcostsavingsisdrivenbythestaffingoperationalcoststomanagethesolutionandthepartner,theinitialimplementationcosts,andthemonthlysubscriptioncosts.Thereal-worldcostsforeachofthosecomponentsvariesbyproviderandisreflectedonthecostmodeloutput.Theon-premiseschartsillustrateannualizedsavingsovertheexistingsolution.Wecalculatethecostoverthefive-yearterm,andannualizeittoshowtherelativecostsavingsamongvendors.Wethenshowwhattherelativeannualcostsareforeachsolution—thefirstyearbeingthehighestbecauseitincorporatescapitalandimplementationcosts.Inscenarioswherecompaniesspreadoutthedeploymentbeyondthefirstyear,thecapital,implementation,andadditionaloperationalcostswouldfollowfromtheyearofinstallation.Thecloudchartsalsoshowannualizedcostsavingsovertheexistingsolution.Asourresearchdemonstrates,costsdropforsmallrolloutsmovingtothecloud.However,astherolloutsizesincrease,thesavingsovertheexistingsolutionsarenotascommon.InShoreTel’scase,thesavingsaresizable,insomecases.WefoundthatShoreTel’simplementationcostsareaboutthesameormorethancompetitors,butresearchparticipantswhousedShoreTeldevotedfewerITstaffmemberstomanagingthesolutionandrelationshipthandidthoseusingcompetitors.Additionally,ShoreTel’sactualsubscriptioncostswerelowerthancompetitors.Sooverafive-yearperiod,thesavingsaddsup.ShoreTel’soperationalcostshavebeenthelowestornearlythelowestsinceNemertesstartedtheresearch11yearsago.


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Scenario1:100-EmployeeFinancial-ServicesFirm,On-Premises

$56,681

$71,296

$52,116

$98,400

5

$491,999 with ShoreTel0.39%

8%

On-Prem Cost Analysis The Nemertes Cost Analysis Tools has calculated the following results for your organization. This section provides an overview of the cost benefits of this technology.

TCO Overview for IP Telephony/UC On-Premises Prepared for: Mary Smith Acme Corp IPT/UC ANALYSIS

Your annual savings with Industry Average:

Your annual IPT/UC savings with Mitel:

Years for cost analysis:

Best 5-year financial gain

Your annual IPT/UC savings with Avaya:

Your annual savings with ShoreTel:

Percentage of annual IT budget savedPercentage of annual revenue saved

$0##

$50,000##

$100,000##

$150,000##

$200,000##

Year#1# Year#2# Year#3# #Year#4## #Year#5##

Annual Costs

#Industry#Average## Mitel# Avaya# ShoreTel#

#$?####

#$20,000##

#$40,000##

#$60,000##

#$80,000##

#$100,000##

#$120,000##

Industry#Average# #Mitel## Avaya# ShoreTel#

Annualized Cost Savings Over Current Solution


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Scenario1a:100-EmployeeFinancial-ServicesFirm,Cloud

$41,079

$38,125

$21,808

$67,916

5

$339,579 with ShoreTel0.27%

5%

TCO Overview for IP Telephony/UC CloudPrepared for: Mary Smith Acme Corp IPT/UC ANALYSIS

Cloud Cost Analysis The Nemertes Cost Analysis Tools has calculated the following results for your organization, comparing costs for your current solution with cloud offerings. This section provides an overview of the cost benefits of this technology.

Your annual savings with 8x8:

Your annual savings with Vonage:


5-year financial gain

Your annual savings with Mitel:


Percentage of revenue savedPercentage of IT budget saved

!$#!!!!

!$20,000!!

!$40,000!!

!$60,000!!

!$80,000!!

8x8! !Vonage!! Mitel! ShoreTel!

Annualized*Cost*Savings*

!$#!!

!$20,000!!

!$40,000!!

!$60,000!!

!$80,000!!

!$100,000!!

!$120,000!!

Year!1! Year!2! Year!3! !Year!4!! !Year!5!!

Annual*Cost*Comparison*

!8x8!! !Vonage!! !Mitel!! !ShoreTel!!


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Scenario2:750-EmployeeManufacturingCompany,On-Premises

$281,840

$229,158

$207,372

$514,524

5

$2,572,618 with ShoreTel0.30%11%

On-Prem Cost Analysis The Nemertes Cost Analysis Tools has calculated the following results for your organization, comparing costs for your current solution with ShoreTel's new Cloud and On-Site offerings. This section provides an overview of the cost benefits of this technology.



Your annual IPT/UC savings with Cisco:



Your annual IPT/UC savings with Microsoft:



$0##

$200,000##

$400,000##

$600,000##

$800,000##

$1,000,000##


Annual Costs

#Industry#Average## Cisco# Microso?# ShoreTel#

#$D####

#$100,000##

#$200,000##

#$300,000##

#$400,000##

#$500,000##

#$600,000##

Industry#Average# #Cisco## Microso?# ShoreTel#



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Scenario2a:750-EmployeeManufacturingCompany,Cloud

$32,031

($12,841)

($111,962)

$281,912

5

$1,409,560 with ShoreTel0.17%

6%










!$(200,000)!

!$(100,000)!

!$)!!!!

!$100,000!!

!$200,000!!

!$300,000!!

!$400,000!!



!$)!!!$100,000!!!$200,000!!!$300,000!!!$400,000!!!$500,000!!!$600,000!!!$700,000!!!$800,000!!!$900,000!!





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Scenario3a:1,500-EmployeeHealthcareCompany,On-Premises

$280,521

$163,154

$293,277

$709,058

5


9%

Your annual IPT/UC savings with Avaya:




Your annual IPT/UC savings with Cisco:



On-Prem Cost Analysis The Nemertes Cost Analysis Tools has calculated the following results for your organization. This section provides an overview of the cost benefits of this technology.


$0##

$500,000##

$1,000,000##

$1,500,000##

$2,000,000##

$2,500,000##


Annual Costs

#Industry#Average## Cisco# Avaya# ShoreTel#

#$@#####$100,000###$200,000###$300,000###$400,000###$500,000###$600,000###$700,000###$800,000##

Industry#Average# #Cisco## Avaya# ShoreTel#



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Scenario3b:1,500-EmployeeHealthcareCompany,Cloud

($305,408)

($354,457)

($653,432)

$325,123

5


4%










!$(800,000)!

!$(600,000)!

!$(400,000)!

!$(200,000)!

!$+!!!!

!$200,000!!

!$400,000!!



!$+!!!$200,000!!!$400,000!!!$600,000!!!$800,000!!

!$1,000,000!!!$1,200,000!!!$1,400,000!!!$1,600,000!!!$1,800,000!!





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Conclusion and Recommendations

IPtelephonyandUCCdeploymentsareincreasinglybroadandcomplex.MoreappsareincludedintheintegrationforanoverallUnifiedCommunicationsstrategy.AndalthoughITleaderswouldliketocentralizeonasingleproviderandasinglearchitecture,thatdoesnothappenfrequentlyenough.Providersarerapidlyimprovingtheiron-premises,cloud,andhybridsolutions.Inparticular,theyareawarethatmanyorganizationswanthybridarchitectures,eithertemporarilyastheytransitionfromon-premisestocloud,orpermanentlyforvariousbusinessreasons.Selectingaproviderwithacommonarchitectureiscrucialtosuccessintechnology,vendor,andendusermanagement.AlongwithanincreasedfocusonhowUCCsolutionscanmakethecompanymoreeffectiveandproductive,ITleadersmustre-examinecosts.Movingtocloudmaydowondersforagility,butorganizationsoftendonotsavemoney.Soifcost-savingsistheprimarydriver,besuretoevaluateallcostsanddeterminewhichvendorwillachievethatgoal.Regardlessofwhicharchitectureultimatelywins,selectingaproviderwithanaffordableoperationalcostisthemostimportantTCOcomponent(vs.capitalorimplementation).Operationalcostfiguresextendmuchlongerthantheone-timecapitalorimplementationcosts.


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Addendum

Nemertesgatherscostdatainthefollowingareas:Measurement Includes FormulaOn-Prem FormulaCloudCapital PBX,endpoint

devicesandlicenses,servers,otherhardware.Insomecases,bundledlicensesincludecertainUCapps

=(stafftime*loadedhourlyrate)+3rdpartycosts/numberofendpoints

=totalcapitalcosts/numberoflicenses

Implementation Stafftimeandthird-partyconsultantsandintegrators

=(stafftime*loadedhourlyrate)+3rdpartycosts/numberofendpoints

=(stafftime*loadedhourlyrate)+3rdpartycosts/numberoflicense

Operational Stafftime,equipmentmaintenance,3rdpartymanagedservices,trainingandcertification.MonthlyserviceforCloudservices

=((numberofFTEs*averageannualloadedsalary)+(equipmentmaintenance+managedservices+training/certification))/numberofendpoints

=((numberofFTEs*averageannualloadedsalary)+(equipmentmaintenance+managedservices+training/certification))/numberoflicenses

AboutNemertesResearch:NemertesResearchisaresearch-advisoryandstrategic-consultingfirmthatspecializesinanalyzingandquantifyingthebusinessvalueofemergingtechnologies.YoucanlearnmoreaboutNemertesResearchatourWebsite,www.nemertes.com,[email protected].

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