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Prepared for Adobe and Limelight Networks January 2009

Measuring the Total Economic Impact of Content Delivery Using Adobe Flash Media Server
A Multi Company ROI Analysis
Project Director: Jon Erickson

Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

TABLE OF CONTENTS
Executive Summary ............................................................................................................................... 3 Purpose .............................................................................................................................................. 3 Methodology....................................................................................................................................... 3 Approach ............................................................................................................................................ 5 Key Findings ...................................................................................................................................... 5 Disclosures......................................................................................................................................... 6 Adobe Flash Media Server and Limelight Networks: Overview ........................................................... 6 Analysis .............................................................................................................................................. 7 Interview Highlights............................................................................................................................ 7 TEI Framework .................................................................................................................................. 9 Costs .................................................................................................................................................. 9 Benefits ............................................................................................................................................13 Risk...................................................................................................................................................17 TEI Framework: Summary...............................................................................................................18 Study Conclusions................................................................................................................................20 Appendix A: Total Economic Impact Overview ...............................................................................21 Benefits ............................................................................................................................................21 Costs ................................................................................................................................................21 Risk...................................................................................................................................................21 Flexibility...........................................................................................................................................21 Appendix B: Glossary...........................................................................................................................22

2008, Forrester Research, Inc. All rights reserved. Forrester, Forrester Wave, RoleView, Technographics, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. Forrester clients may make one attributed copy or slide of each figure contained herein. Additional reproduction is strictly prohibited. For additional reproduction rights and usage information, go to www.forrester.com. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

Executive Summary
In September 2008, Adobe commissioned Forrester Consulting to examine the total economic impact and potential return on investment (ROI) that enterprises may realize by increasing their investment in streaming media using Adobe Flash Media Server The difference between a streaming media and progressive download is the server software and corresponding network protocol used to transmit the media file. For organizations utilizing only a web server, distributing a media file using progressive download can often be the simpler option because it utilizes existing infrastructure. Progressive download allows users to watch or listen to media as it is being downloaded from a standard web server to their hard drive. This method works best for short-form media where file size is limited. Progressive download ensures high-quality playback regardless of users' Internet connection speed, although users with slower connections will wait longer before media starts to play. While progressive download is widely used, streaming offers several advantages, including better content protection and the option for encrypted streaming; live video support; greater network efficiencies; logging of usage; a richer playback experience with instant-on, rapid seek to any point in the video; and bandwidth and player detection for more reliable playback. Adobe Flash Media Server provides a secure and affordable alternative to progressive downloading of content and can be used directly by the content provider or indirectly through a content distribution network (CDN) providing streaming services to their customers. All customers interviewed for this study were also customers of Limelight Networks. Investments in streaming content can play a part in improving the efficiency and effectiveness of content delivery within an organizations online presence. In conducting in-depth interviews with seven existing Limelight customers using Adobe to deliver their media experience, Forrester found that an increase in investment around streaming content resulted in increases in the ability of customers to provide secure, dynamic content to their users and customers at potentially greater cost efficiencies compared with progressive download.

Purpose
The purpose of this study is to provide readers with a framework to evaluate the potential financial impact of investment in streaming media Forresters aim is to clearly show all calculations and assumptions used in the analysis. Readers should use this study to better understand and communicate a business case for increasing their investment in customer engagement.

Methodology
Adobe selected Forrester for this project because of its industry expertise in measuring the impact of content delivery and Forresters Total Economic Impact (TEI) methodology. TEI not only measures costs and cost reduction (areas that are typically accounted for within IT) but also weighs the enabling value of a technology in increasing the effectiveness of overall business processes. For this study, Forrester employed four fundamental elements of TEI in modeling the impact of streaming content delivery: 1. Costs and cost reduction. 2. Benefits to the entire organization.

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

3. Flexibility. 4. Risk. Given the increasing sophistication that enterprises have regarding cost analyses related to IT investments, Forresters TEI methodology serves an extremely useful purpose by providing a complete picture of the total economic impact of purchase decisions. Please see Appendix A for additional information on the TEI methodology.

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

Approach
Forrester used a six-step approach for this study: 1. Forrester gathered data from existing Forrester research relative to content delivery and streaming media. 2. Forrester interviewed Adobe and Limelight Networks marketing and sales personnel to fully understand the impact Adobe solutions provide in the value proposition of increasing customer engagement. 3. Forrester conducted a series of in-depth interviews with seven Limelight Networks customers currently using Adobe Flash Media Server solutions as part of their overall streaming of content delivery. 4. Forrester constructed a financial model representative of the interviews. This model can be found in the TEI Framework section below. 5. Forrester created a representative organization based on the interviews and populated the framework using data from the interviews as applied to the composite organization.

Key Findings
Forresters study yielded three key findings: ROI. Based on the interviews with the seven customers, Forrester constructed a TEI framework for a representative organization), and the associated ROI analysis illustrating the financial impact areas. As seen in Table 1, the ROI for our composite company is 96% with a breakeven point (payback period) of less than 12 months after deployment. Benefits. Forrester found an increase in investment streaming content resulted in improvements in the ability to provide dynamic, secure content to customers improving the efficiency and effectiveness of content delivery. This translates into reduced cost of unauthorized content, improved user experience of downloaded content on multiple user devices, and improved bandwidth efficiency of content delivery. Costs. Incremental costs of increasing the level of streaming content include the additional cost of conversion of content, incremental fees paid to the content delivery provider for Adobe Server licenses, developer training, and ensuring sound transmissions between the customer, content provider, and ISP.

Table 1 illustrates the risk-adjusted cash flow for the representative organization, based on data and characteristics obtained during the interview process. Forrester risk-adjusts these values to take into account the potential uncertainty that exists in estimating the costs and benefits of a technology investment. The risk-adjusted value is meant to provide a conservative estimation, incorporating any potential risk factors that may later impact the original cost and benefit estimates. For a more in-depth explanation of risk and risk adjustments used in this study, please see the Risk section.

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

Table 1: Composite Company ROI, Risk-Adjusted


Total benefits Total costs Total benefits Total Return on investment Payback period $(8,000) 96% 12 months Initial $8,000 Year 1 $30,254 $61,258 $31,005 Year 2 $30,254 $87,512 $57,258 Year 3 $30,254 $87,512 $57,258 Total $98,761 $236,282 $137,521 NPV $83,237 $193,762 $110,526

Source: Forrester Research, Inc.

Forrester found that the individual ROI did vary on a customer-by-customer basis. Key factors that ultimately drove the ROI for each customer included the price premium paid by the CDN to the customer for streaming content, the amount of content shifted from progressive to streaming content delivery, as well as the characteristics of the content delivered. Readers are urged to apply their own estimates to this analysis to determine the actual ROI for their unique circumstance.

Disclosures
The reader should be aware of the following: The study is commissioned by Adobe and Limelight Networks and delivered by the Forrester Consulting group. Adobe 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 Forresters findings or obscure the meaning of the study. The customer names for the interviews were provided by Adobe and Limelight Networks. Forrester makes no assumptions as to the potential return on investment that other organizations will receive. Forrester strongly advises that readers should use their own estimates within the framework provided in the report to determine the appropriateness of an investment in streaming content delivery. This study is not meant to be used as a competitive product analysis.

Adobe Flash Media Server and Limelight Networks: Overview


According to Adobe, The Adobe Flash Media Server family of products has become the industry-leading solution for streaming media and real-time communication. The ubiquity of the Adobe Flash Platform provides a rich viewing experience across virtually all operating systems and

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

screens through integration with the Adobe Flash Player runtime, adopted on 98% of computer screens worldwide. Adobe Flash Media Interactive Server 3.5 software offers a unique combination of powerful streaming with a flexible environment for creating and delivering rich, interactive, multiway social media experiences to the broadest possible audience. You'll find a superior media experience, with new features such as Dynamic Streaming, DVR functionality, HTTP delivery support, and H.264 enhancements. According to Limelight, Limelight Networks is a content delivery partner enabling the next wave of Internet business and entertainment. More than 1,300 Internet, entertainment, software, and technology brands trust its robust, scalable platform to monetize their digital assets by delivering a brilliant online experience to their global audience. Limelight architecture bypasses the busy public Internet, using a dedicated optical network that interconnects thousands of servers and delivers massive files at the speed of light directly to the access networks that consumers use every day. Our proven network and passion for service provides to our customers the confidence that every object in their library will be delivered to every user, every time.

Analysis
As stated in the Executive Summary, Forrester took a multistep approach to evaluate the impact that investing in improving online customer engagement can have on an organization: Interviews with Adobe and Limelight Networks marketing and sales personnel. In-depth interviews of seven organizations which have increased their investment in customer engagement. Construction of a common financial framework for the implementation of increasing an organizations investment in customer engagement. Construction of a composite organization based on characteristics of the interviewed organizations.

Interview Highlights
A total of seven interviews were conducted for this study, involving representatives from the following organizations: 1. A North American non-profit organization providing archival content as part of its online exhibitions to the public. 2. A global organization providing an online video platform media that serves companies, businesses, and organizations worldwide to publish and distribute video on the Web. 3. A North American media and entertainment company that provides streaming and progressive content through multiple branded sites for both free and paid for content. 4. A global entertainment organization providing free and subscription-based content through progressive and streaming media.

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

5. A global provider of media and entertainment services that provides its users both ondemand and downloaded entertainment applications, allowing the organization to promote and advertise third-party content and products. 6. A North American news and media organization providing timely news content through its Web channel. 7. A North American provider of interactive virtual worlds. The seven in-depth interviews uncovered several key common challenges and themes that drove their investment in streaming content delivery. These included: Need for secure content delivery. For many of the organizations interviewed, the need to provide secure, protected content was the key reason for choosing streaming download. Ability to better control the customer experience. Organizations also saw the ability of streaming content delivery to dynamically provide consistent content delivery to a variety of user devices. Need to maximize bandwidth efficiency and delivery. Several organizations saw the potential for using streaming content to ensure that they are charged for bandwidth on content that is viewed as opposed to just downloaded.

The composite organization created from the results of the customer interviews represents a North American-based media and entertainment organization with online presence in both North America and Europe. The organization uses both streaming and progressive downloads as a way of delivering free and subscription content to users by means of a CDN. The organization delivers, on average, 12 million file views per month with a monthly TB commitment of 150TB (153,600 GB)., consisting of both high-definition (Bit Rate of 1-3 Mbps and standard-definition files (Bit Rate of 300500Kbps). Prior to increasing its investment in streaming, the organization delivered roughly 80% of all files via progressive download. With the investment in streaming, the number of files delivered via progressive download decreases to 20% moving on average 92,160 GB per month to streaming. Table 2 illustrates the current download characteristics of for the composite organization. Table 2: Representative Organization Characteristics
Delivery Characteristic Standard-def (Bit Rate) 300500Kbps 50% 40% 50%

Total monthly Views % Streaming pre-investment % Progressive Download pre-investment % Streaming post-investment % Progressive Download postinvestment

12,000,000 20% 80% 80% 2,400,000 9,600,000 9,600,000

High-def (Bit Rate) 1-3 Mbps 50% 60% 50%

20%

2,400,000

60%

40%

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

Downloads moved to streaming Number Downloads moved to streaming Total GB Downloads moved to streaming Percentage Monthly TB commitment Source: Forrester Research, Inc. 150

7,200,000 92,160

60%

TEI Framework
Introduction
From the information provided in the in-depth interviews, Forrester has constructed a TEI framework for those organizations considering increasing their investment in streaming content. The objective of the framework is to identify the cost, benefit, flexibility, and risk factors that impact the investment decision.

Composite Organization
Based on the interviews with the seven existing customers provided by Adobe and Limelight, Forrester constructed a TEI framework, a composite company, and an associated ROI analysis that illustrates the areas impacted financially. The composite organization that Forrester synthesized from these results represents a North American media and entertainment organization.

Framework Assumptions
Table 3 lists the discount rate used in the PV and NPV calculations and time horizon used for the financial modeling. Table 3: General Assumptions
Ref. General assumptions Discount rate Length of analysis Source: Forrester Research, Inc. 10% Three years Value

Interviewed organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult with their finance department to determine the most appropriate discount rate to use within their own organizations.

Costs
Costs of increasing an organizations use of streaming content will vary by organization. However, the customer interviews and broader survey results do provide a snapshot as to the types of costs

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that organizations are encountering as a result of increasing their level of streaming content delivery through a CDN. A couple of common themes resulted from the customer interviews. Incremental costs around increasing the level of streaming content include a combination of internal costs to switch existing content over to streaming format as well as directly billable costs to the CDN. The incremental costs billed to the CDN varied considerably between customers. In some cases, the cost difference between streaming and progressive download was minimal due to (in part) to the volume of content delivered. Organizations that had a smaller delivery requirement could expect to pay a higher price premium to stream content. Investing in increasing the number of media delivered through streaming also required the interviewed organizations to take into account costs that were considered both direct and indirect to maximize the success of their investment. For example, indirect investment in training is incorporated with direct investments in hardware, software, and development, to measure the full impact of the investment.

As part of this analysis, the model includes incremental server costs for development, development costs to convert the existing progressive file to streaming, the cost of content delivery billed to the CDN, and the cost of development training.

File Conversion and Testing


For those organizations that moved from progressive downloading without Flash to Flash with Streaming, the cost of file conversion to Flash was considered minimal among the interviewed organizations. However, organizations considering increasing their streaming footprint should consider these costs as a part of the overall investment. For the purpose of this analysis, these costs include the cost of server resources, the cost of internal development, and the cost to train developers on the file conversion. To calculate these costs, the model assumes the organization purchases one development server to test and encode the files moved to streaming format at a cost of $8,000. In addition, the organization incurs an annual recurring cost of $1,440 in support and maintenance, or 18% of total server cost. Table 4 illustrates the calculations used. Table 4: Cost Of Server Infrastructure
Ref A1 A2 A3 Metric Number of servers purchased Cost per server Annual operations cost as a % of total Initial cost Annual recurring cost A1*A2 A3*A4 Calculation 1 $8,000 18% Value

A4 A5

$8,000 $1,440

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Source: Forrester Research, Inc.

In addition to incremental hardware costs, the cost of development time required for file conversion of files to Flash format. Development costs will vary depending on the amount of content converted by the organization and include upfront testing as well as ongoing development. To calculate these costs, the model assumes the organization will need to incur roughly 120 hours yearly in development time annually for testing and file conversion. Assuming a blended development cost of $80 per hour, the total annual cost of development equates to $9,600. Table 5 illustrates the calculation used. Table 5: Conversion Cost
Ref B1 B2 B3 B4 Metric Development hours per month Number of months Development cost per hour Annual development cost B1*B2*B3 Calculation 10 12 $80 $9,600 Value

Source: Forrester Research, Inc.

The cost of training represents another cost category considered as part of the analysis. This included the cost of training related to testing and converting the files over into streaming format. Interviewed organizations noted the cost of any incremental training was minimal compared to the overall cost of streaming. To calculate these costs, the model assumes three developers trained for a period of 20 hours at an hourly cost of $80, yielding an annual training cost of $4,800. Table 6 illustrates the calculation used. Table 6: Internal Training
Ref C1 C2 C3 C4 Metric Number of developers Number of hours trained annually Cost per hour Annual cost C1*C2*C3 Calculation 3 20 $80 $4,800 Value

Source: Forrester Research, Inc.

Hosting And Professional Services Costs


As part of this model, we assume the organization will invest in external resources to build and host several specific campaign initiatives. This fee is separate from internal development work

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completed for the companys core Web presence. While the actual monthly costs may vary depending on the size and scope of the initiative, the model assumes an average monthly cost based in part on the data from the interviewed customers. Table 7 illustrates the equation used. Table 7: Hosting And Professional Services Costs
Ref D1 Metric Monthly billable cost delivery (price per TB) Number of TB delivered TB shifted to streaming Estimated price premium streaming Incremental cost streaming D1*D2*D3*D4*12 Calculation $174.08 Value

D2 D3 D4

150 90 5%

D5

$9,400

Source: Forrester Research, Inc.

ISP Testing Costs


Several of the organizations an external ISP for the purpose of delivering HTML content to their CDN. As part of the movement to streaming format, the role of the ISP was a key part in ensuring the quality of the user experience. As a result, several of the organizations interviewed noted the cost of reviewing and testing their ISP technology to ensure a smooth delivery of content. Table 8 illustrates the calculations used. Table 8: ISP Testing Costs
Ref D5 Metric Annual cost delivery Transmission charge % of delivery Annual cost transmission charge D5*E1 $1,410 Calculation $9,400 Value

E1

15%

E2

Source: Forrester Research, Inc.

Total Costs
Table 9 illustrates the total cost components for the representative organization, including both upfront and recurring costs. Table 9: Total Costs Non Risk-Adjusted
Cost category Initial Year 1 Year 2 Year 3 Total PV

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

Hardware Development costs Hosting incremental cost of streaming ISP transmission charge Training Total cost

$8,000

$1,440 $9,600

$1,440 $9,600

$1,440 $9,600

$12,320 $28,800

$11,581 $23,874

$9,400

$9,400

$9,400

$28,201

$23,377

$1,410 $4,800 $8,000 $26,650

$1,410 $4,800 $26,650

$1,410 $4,800 $26,650

$4,230 $14,400 $87,951

$3,507 $11,937 $74,276

Source: Forrester Research, Inc.

Benefits
Benefits are the positive impacts the representative organization receives from its investment in increasing their streaming footprint. As with costs, while the benefits of streaming content delivery will vary by organization, the interviews provide a snapshot of the key drivers in measuring the financial return. A couple of common themes resulted from the customer interviews: Among the organizations interviewed, common incremental benefits included improved protection of delivered content, greater user engagement of delivered content, and improved bandwidth efficiency. For the most of the interviewed customers, providing secure, protected content was the key benefit in increasing their streaming footprint. Several of the organizations interviewed were delivering content produced by third-party organizations, mandating strict content protection of delivered content. Cost avoidance was a key metric included as part of the justification. However, several of the organizations did note that the improved capabilities of streaming content did provide a way to improve their organizations top line revenue. This occurred in cases where improving the user experience allowed the organization to attract and retain paid subscribers of subscription-based content or improve usage of free content where accompanied by advertisements.

Improved Content Protection


Improved content protection was a key benefit for increasing an organizations streaming footprint. Organizations saw the need to protect their content compared with progressive download. The impact of not protecting content was for some organizations not an option. Several organizations noted the cost of having to find and recover breeched content was a significant factor in choosing to stream content. Of the organizations interviewed, a common approach to measuring an increase in protected content was to look at the potential cost of investigating and recovering the content. To calculate this benefit, the model assumes the organization has roughly 144 million annual downloads with an
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estimated 7.2 million away from progressive toward streaming download. Based on customer interviews, of those downloads, roughly .001% are compromised resulting in 14 annual downloads that have been misappropriated. For the organization, the cost of discovery and investigation of the compromised download is estimated at $300 while the cost of recovery of the file is estimated at $2,000 resulting in a total cost per compromised download of $2,300. As a result, the organization estimated it could avoid an annual savings of $32,000 of costs associated with the discovery and recovery of compromised content. Table 10 illustrates the calculation used. Table 10: Improved Content Protection
Ref A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 Metric Number of annual views Number of downloads moved to streaming Number of unique user downloads Likelihood of potential compromise Number of compromised files Average cost of discovery/investigation Annual cost of discovery/investigation Average cost of recovery Annual cost of recovery Total savings 144,000,000 7,200,000 1,440,000 0.001% 14 300 $4,200 $2,000 $28,000 $32,200 Value

Source: Forrester Research, Inc.

Improved User Impact


In addition to enhancing the user experience for existing customers, a key part in the strategy of the interviewed organizations was to attract and keep users retuning to the site and using its content. All organizations saw the ability to improve user experience as a way of increasing retention of their user base, leading (in certain cases) to potentially higher ad revenue through increased ad clickthroughs. In addition to improving usability of free content, several of the organizations that provided subscribed content saw the direct relationship of improving user experience and increasing subscription retention of premium content. To measure the impact of increasing an organizations streaming footprint on ad revenue, the representative organization assumes roughly 20 third-party ads associated with the delivery of its free content. Of the total user base, the organization receives an average of roughly 5,000 monthly click throughs with revenue per 10,000 click-throughs of $3,000. Through the use of dynamic streaming and the ability to provide users with greater control over downloaded content, the organization assumes it can drive more users to streaming content, increasing the potential of higher click-throughs of third-party content. Based on these metrics, the projected revenue increase resulting from advertising equates to $18,000 per year. Table 11 illustrates the calculation used.

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Table 11: Improved End User Impact Increased Ad Revenue


Ref B1 B2 B3 B4 B5 Metric Number of third-party ads Monthly click throughs Revenue per 10,000 click throughs % increase in monthly click throughs Incremental revenue increase B1*B2(B3/10,000)*B4*12 Calculation 20 5,000 $3,000 5% $18,000 Value

Source: Forrester Research, Inc.

In addition to increased ad revenue, the representative organization also saw through the ability to provide more dynamic content delivery and the ability to increase retention of its subscriber content, thus increasing subscription revenue. The representative organization currently has 12,000 paid subscribers for premium content on its site. The model conservatively estimates that as a result of the move to more dynamic content delivery, the organization can retain and increase its subscriber base by 10% per year. Assuming the annualized value of subscribers is $120 and a cost margin of 20%, we can calculate the annual revenue gain is $28,800. Table 12 illustrates the calculation used. Table 12: Improved End User Impact Increased Subscription Retention
Ref C1 C2 Metric Number of subscribers Average annualized value subscribers Cost margin % increase in subscribers Incremental revenue increase C1*C2*C3*C4 Calculation 12,000 120 Value

C3 C4 C5

20% 10% $28,800

Source: Forrester Research, Inc.

Greater Bandwidth Efficiency


Being able to improve the bandwidth efficiency of delivered content was another area of potential savings noted by several of the interviewed organizations. One organization noted in particular, with traditional progressive download, users download the entire file even though in some cases they may not watch the entire content. With streamlining, users download only what they consume, allowing for the organization to pay only for bandwidth that is being consumed While organizations noted the potential for increasing their bandwidth efficiency, it should be noted the ultimate value gained is dependent in part on type and length of content streamed. Content that is fresh and relevant, for example, may increase the chance of engaging the reader regardless of

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the type of delivery method. For this analysis, we assume the representative organization is delivering timely and relevant content to its users. To measure this impact on the representative organization, the model assumes with an average download file size of 800MB, roughly 10% of those downloads are not fully completed. Of those downloads that are not fully viewed, we estimate roughly 30% of file was delivered but not consumed if those files were delivered progressively. Assuming the average cost per TB equates to $174, we can calculate the total estimated savings in this case to be $29,376. Table 13 illustrates the calculation used. Table 13: Greater Bandwidth Efficiency
Ref D1 D2 D3 D4 D5 D6 D7 D8 Metric Number of full downloads Downloads moved to streaming Average download size (Mb) % of downloads not completed Average unutilized Number of MB per TB Cost per TB Total savings ((D1*D2*D3*D4*D5)/D6)*D7 Calculation 144,000,000 7,200,000 800 10% 30% 1024000 $174 $29,376 Value

Source: Forrester Research, Inc.

Total Benefits
Table 14 illustrates the total benefits from an investment in streaming content delivery. Benefits are reduced by 30% in Year 1 to take into account the time to implement and begin receiving benefits from deployment.

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

Table 14: Total Benefits Non Risk-Adjusted


Benefit category Improved security of content Improved ad revenue Improved subscription revenue Improved bandwidth efficiency Total benefits Source: Forrester Research, Inc. Year 1 $22,540 $12,600 $20,160 $20,563 $75,863 Year 2 $32,200 $18,000 $28,800 $29,376 $108,376 Year 3 $32,200 $18,000 $28,800 $29,376 $108,376 Total $86,940 $48,600 $77,760 $79,315 $292,615 PV $71,295 $39,854 $63,767 $65,042 $239,958

Risk
Forrester defines two types of investment risk associated with this analysis: implementation risk and impact risk. Implementation risk is the risk that a proposed technology investment may deviate from the original resource requirements needed to implement and integrate the investment resulting in higher costs than anticipated. Impact risk refers to the risk that the business or technology needs of the organization may not be met by the technology investment, resulting in lower overall total benefits. The greater the uncertainty, the wider the potential range of outcomes for cost and benefit estimates. Quantitatively capturing investment risk by directly adjusting the financial estimates results in more meaningful and accurate estimates and a more accurate projection of the return on an investment. The following implementation risks are identified as part of this analysis: The cost of required software and hardware resources are greater than anticipated. Internal development cost can be higher and may take longer than originally planned. The incremental cost charged to the CDN for streaming may be higher than originally anticipated.

The following impact risks are identified as part of the analysis: New customer conversion may be lower due to changing market conditions. Ad and channel partner revenue may be lower than originally expected due to lower customer adoption of the Web channel. Bandwidth efficiency may be lower than originally anticipated. The number of security breeches that are processed may be lower than originally anticipated, leading to lower cost avoidance.

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Steps For Measuring Investment Risk


Risk factors are used in TEI to widen the possible outcomes of the costs and benefits (and resulting savings) associated with a project. TEI applies a probability density function known as triangular distribution to the values entered. At a minimum, three values are calculated to estimate the underlying range around each cost and benefit estimate. The expected value the mean of the distribution is used as the risk-adjusted cost or benefit number. The risk-adjusted costs and benefits are then summed to yield a complete risk-adjusted summary and ROI. In this study, incremental improvements in customer engagement is a relatively low-risk endeavor, as expressed by the interviewed organizations, and is applied a risk factor of 103% to the costs and 98% to the benefits to arrive at a risk-adjusted number. Table 15 provides a risk-adjusted breakdown of the costs received. Table 16 provides a risk-adjusted breakdown of the benefits received. Table 15: Total Costs Risk-Adjusted
Cost category Hardware Development costs Hosting incremental cost of streaming ISP transmission charge Training Total cost Source: Forrester Research, Inc. $8,000 Initial $8,000 Year 1 $1,440 $9,600 $12,534 Year 2 $1,440 $9,600 $12,534 Year 3 $1,440 $9,600 $12,534 Total $12,320 $28,800 $37,601 PV $11,581 $23,874 $31,170

$1,880 $4,800 $30,254

$1,880 $4,800 $30,254

$1,880 $4,800 $30,254

$5,640 $14,400 $98,761

$4,675 $11,937 $83,237

Table 16: Total Benefits Risk-Adjusted


Benefit category Improved security of content Improved ad revenue Improved subscription revenue Improved bandwidth efficiency Total benefits Source: Forrester Research, Inc. Year 1 $16,100 $10,080 $16,800 $18,278 $61,258 Year 2 $23,000 $14,400 $24,000 $26,112 $87,512 Year 3 $23,000 $14,400 $24,000 $26,112 $87,512 Total $62,100 $38,880 $64,800 $70,502 $236,282 PV $50,925 $31,883 $53,139 $57,815 $193,762

TEI Framework: Summary


Considering the financial framework constructed above, the results of the costs, benefits, and risk sections using the representative numbers can be used to determine a return on investment, net

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present value, and payback period. Table 17 shows the consolidation of the numbers for the composite organization. Table 17: Composite Company ROI, Risk-Adjusted
Ref. H1 L1 P2 P3 P4 Total benefits Total costs Total benefits Total Return on investment Payback period $(8,000) 96% Less than 12 months Initial $8,000 Year 1 $30,254 $61,258 $31,005 Year 2 $30,254 $87,512 $57,258 Year 3 $30,254 $87,512 $57,258 Total $98,761 $236,282 $137,521 NPV $83,237 $193,762 $110,526

Source: Forrester Research, Inc.

It is important to note that values used throughout the TEI Framework are based on in-depth interviews with seven organizations and the resulting composite organization built by Forrester. Forrester makes no assumptions as to the potential return that other organizations will receive within their own environment. Forrester strongly advises that readers use their own estimates within the framework provided in this study to determine the expected financial impact of investing in customer engagement.

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

Study Conclusions
Forresters in-depth interviews with organizations, which had made tangible improvements in customer engagement, yielded two important observations: Based on information collected in interviews with current Adobe and Limelight customers, Forrester found that organizations can realize benefits in the form of increases in the ability of organizations to provide secure, dynamic content to their users and customers. Of the customers interviewed, several factors contributed to the difference in ROIs. Factors contributing to higher returns included the price premium paid by the CDN to the customer for streaming content, the amount of content shifted from progressive to streaming content delivery, and the characteristics of the content delivered. Readers are urged to apply their own estimates to this analysis to determine the actual ROI for their unique circumstances.

The financial analysis provided in this study illustrates the potential way an organization can evaluate the financial impact of increasing customer engagement. Based on information collected in six in-depth customer interviews, Forrester calculated a three-year risk-adjusted ROI of 96% for the composite organization with a payback period of 12 months. All final estimates are risk-adjusted to incorporate potential uncertainty in the calculation of costs and benefits. Based on these findings, companies looking to increase customer engagement can see benefits in terms of customer effectiveness and efficiency. Using this TEI framework, many companies may find the potential for a compelling business case to make such an investment.

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

Appendix A: Total Economic Impact Overview


Total Economic Impact is a methodology developed by Forrester Research that enhances a companys 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. The TEI methodology consists of four components to evaluate investment value: benefits, costs, risks, and flexibility. For the purpose of this analysis, the impact of flexibility was not quantified.

Benefits
Benefits represent the value delivered to the user organization IT and/or business units by the proposed product or project. Often product or project justification exercises focus just on IT cost and cost reduction, leaving little room to analyze the effect of the technology on the entire organization. The TEI methodology and the resulting financial model place 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. Calculation of benefit estimates involves a clear dialogue with the user organization to understand the specific value that is created. In addition, Forrester also requires that there be a clear line of accountability established between the measurement and justification of benefit estimates after the project has been completed. This ensures that benefit estimates tie back directly to the bottom line.

Costs
Costs represent the investment necessary to capture the value, or benefits, of the proposed project. IT or the business units may incur costs in the forms of fully burdened labor, subcontractors, or materials. Costs consider all the investments and expenses necessary to deliver the proposed value. In addition, the cost category within TEI captures any incremental costs over the existing environment for ongoing costs associated with the solution. All costs must be tied to the benefits that are created.

Risk
Risk measures the uncertainty of benefit and cost estimates contained within the investment. Uncertainty is measured in two ways: the likelihood that the cost and benefit estimates will meet the original projections and the likelihood that the estimates will be measured and tracked over time. TEI applies a probability density function known as triangular distribution to the values entered. At a minimum, three values are calculated to estimate the underlying range around each cost and benefit.

Flexibility
Within the TEI methodology, direct benefits represent one part of the investment value. While direct benefits can typically be the primary way to justify a project, Forrester believes that organizations should be able to measure the strategic value of an investment. Flexibility represents the value that can be obtained for some future additional investment building on top of the initial investment already made. For instance, an investment in an enterprisewide upgrade of an office productivity suite can potentially increase standardization (to increase efficiency) and reduce licensing costs. However, an embedded collaboration feature may translate to greater worker productivity if activated. The collaboration can only be used with additional investment in training at some future point in time. However, having the ability to capture that benefit has a present value that can be estimated. The flexibility component of TEI captures that value.

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Measuring The Total Economic Impact Of Content Delivery Using Adobe Flash Media Server

Appendix B: Glossary
Discount rate: The interest rate used in cash flow analysis to take into account the time value of money. Although the Federal Reserve Bank sets a discount rate, companies often set a discount rate based on their business and investment environment. Forrester assumes a yearly discount rate of 10% for this analysis. Organizations typically use discount rates between 8% and 16% based on their current environment. Readers are urged to consult their organization to determine the most appropriate discount rate to use in their own environment. Net present value (NPV): The present or current value of (discounted) future net cash flows given an interest rate (the discount rate). A positive project NPV normally indicates that the investment should be made, unless other projects have higher NPVs. Present value (PV): The present or current value of (discounted) cost and benefit estimates given at an interest rate (the discount rate). The PV of costs and benefits feed into the total net present value of cash flows. Payback period: The breakeven point for an investment, or the point in time at which net benefits (benefits minus costs) equal initial investment or cost. Return on investment (ROI): A measure of a projects expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs.

A Note On Cash Flow Tables


The following is a note on the cash flow tables used in this study (see the Example Table below). The initial investment column contains costs incurred at time 0 or at the beginning of Year 1. Those costs are not discounted. All other cash flows in Years 1 through 3 are discounted using the discount rate shown in at the end of the year. Present value (PV) calculations are calculated for each total cost and benefit estimate. Net present value (NPV) calculations are not calculated until the summary tables and are the sum of the initial investment and the discounted cash flows in each year. Example Table Ref. Category Calculation Initial cost Year 1 Year 2 Year 3 Total

Source: Forrester Research, Inc.

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