After a couple of month blogging hiatus, I’ve made it my New Year’s resolution (okay, one of my numerous New Year’s resolutions) to get back onto the blogging wagon.  To kick off the New Year I thought I’d touch on a topic that has been on my mind the last couple of months – the difference between total cost of ownership (TCO) and return on investment (ROI).

I’ve seen a number of competitors and industry analysts recently talk about total cost of ownership as a metric for why one solution is better than another and for justifying why a customer should select a given solution.  This metric is used a lot in the conversations around analog versus IP cameras and managed versus traditional video solutions.

While I understand why it is used and recognize that it is useful in some contexts, I would argue that if you are talking TCO for your product and your competitor is talking ROI you are in trouble.

Let’s start with the definitions.  Total cost of ownership is the total cost that one would expect to incur for a given solution over a defined period of time (e.g., annual, 5 years, lifetime).  A precise TCO analysis includes not only the discreet upfront costs, but also the ongoing direct costs (e.g., maintenance, replacement parts, subscription fees) and other indirect costs (e.g., allocated cost of IT person required to support the effort).  Companies often use a TCO analysis to decide between competing solutions that would both effectively meet a requirement that they have already justified.

The problem with TCO is that it is only half the equation – it assumes that both solutions being compared create the exact same value.  If you’ve decided you need a printer and are comparing models with similar functionality where one is a less expensive printer with more expensive ink and the other is a more expensive printer with less expensive ink, then TCO is for you.  You know what you are getting from each printer, you won’t perceive any difference once you make the decision – so it really is all about the costs and what you assume you’ll pay all in for each solution.  If, however, one solution creates more value than the other, then TCO is not the right metric.

If you are trying to sell IP cameras or MVaaS or hosted video on TCO alone, you’ll win some and you’ll lose some.  It will depend on the customer’s specific needs, your relative pricing and the assumptions that they use in their TCO analysis.  By focusing on TCO, you will have thrown in the towel by acknowledging that you are providing a comparable service and all that matters is cost.  You will also be relegated to customers that have already concluded that they needed a solution in the first place as some will not be interested no matter what the cost as they haven’t yet been convinced of the benefit.

Return on Investment (ROI), on the other hand, is a very powerful metric that accounts for both the benefit of an investment along with its cost.   We use ROI exclusively when we work with customers as we are focused on the value we can create for them above and beyond what they could deliver with traditional video solutions.  Our metrics include the incremental profit we create for our customers as it relates to the total investment that they must make in our service.  We win business not only because customers determine that we are a more cost effective video solution, but also and primarily because we enable them to improve their profitability in ways that traditional video solutions have been unable to deliver.

By using ROI as the key metric, and by demonstrating it in practice with our customers not just modeling it, we are able to sit down with CFOs and make compelling arguments as to why they should invest in our service.  It hasn’t mattered whether they have a video project in their budget or were planning to invest in other projects when the ROI is compelling enough.

Envysion’s MVaaS enables customers to use video more broadly and more effectively than they have before, which helps them to increase their profitability and to earn a compelling return on their investment.  A lot more powerful than saying one has the cheapest TCO solution to an existing problem…