Measuring the Cost

Effectiveness of Confluent Cloud

White Paper
Overview

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Demonstrating cost effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Confluent’s approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Customer example: Anonymized TCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Key Takeaways and FAQs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

About Confluent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

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1. Demonstrating cost effectiveness

Introduction
At Confluent, we believe the event streaming platform will be the single most strategic data platform in every modern
company. To help make this happen, we built Confluent Cloud - the industry’s only fully managed, cloud-native event
streaming platform powered by Apache Kafka. In order to demonstrate the business value of this solution and event
streaming in general, we offer a free-of-charge analysis of your costs of running Apache Kafka® and the potential ROI of
utilizing a fully-managed service. Customers using Confluent Cloud have seen up to a 60% reduction in the TCO of Apache
Kafka - and we’ll show you how in this whitepaper.

Many vendors make claims around their software reducing total cost of ownership (TCO), or improving ROI. But how are
these claims formulated? What’s the process of measuring them? What are the assumptions? How robust are the estimates?

This white paper provides answers to these questions by outlining the business value assessment model we use, our approach,
and a customer example and shares lessons learned along the way. Our intention is to be as open and transparent as
possible in our discovery, the information we use, and the assumptions we make. We strive to gain consensus with our
customers when calculating business value because a wildly exaggerated and groundless TCO or ROI is pointless for all
involved. Or worse, it can dangerously set flawed expectations

The intended audience for this white paper includes all the stakeholders involved in making decisions around implementing
and operating Kafka in an organization. This broadly includes the following three groups:

Hands-on technology teams – This group is often tasked with creating a business case and includes DevOps, data
engineers, architects, and InfoSec

Business-tech teams – This group involves the economic buyer, including enterprise architects, VP of Engineering, BU
heads, CTO, and CIO

Pure business teams – This group typically reviews business cases and ensures appropriate prioritization and includes
LOB heads, product owners, business decision-makers, buyers, procurement, and potentially the broader C-suite

A focus on TCO, ROI, and overall cost effectiveness is particularly important in the current climate amidst COVID-19. The
global public safety measures and economic downturn have simultaneously increased the importance of focusing on the
digital side of the business while increasing pressure on the budgets available to deliver those digital services..

Our model TCO and ROI

A TCO exercise offers insight into business value by focusing on all the costs involved in developing and operating a solution.
The focus is on cost take-out across two or more options. This is slightly different from ROI, which models a financial return.
At Confluent, we use a mix of TCO and ROI. Why? A TCO model alone is often so heavily focused on cost take-out that it fails
to measure the true business value of a fully managed service.

As an example, a TCO might outline reduced setup and operating costs of a fully managed service. Whilst this presents
business value, many organizations choose a fully managed service for reasons beyond cost take-out alone. Additional
reasons can include, for example, accelerated time to market, increased developer velocity, increased business agility and
reduced overall risk, and perhaps most importantly, it frees key resources from the operational burden of implementing and
managing a solution.

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Deploying Kafka presents challenges that aren’t the core problem most companies are trying to solve. It’s not where they
want their best people focused. With a fully managed service the customer can shift key resources to higher value tasks. This
refocus results in opportunity optimization and isn’t captured in TCO alone.

In order to capture the full business value of Confluent Cloud, we look at three value buckets:

Increse speed Reduce total cost Maximize return

to market of ownership on investment

Deploy Kafka at scale Operate more efficiently with Deliver higher returns with your
within one week of lower infra cost, maintenance, project by launching faster and
starting with Confluent and downtime risk reducing operational burden

1. Increase speed to market by up to 75%

Confluent Cloud:
• Increases developer productivity and agility
• Reduces the time it takes to bring something to market

2. Reduce total cost of ownership by up to 60%

Confluent Cloud helps you operate more efficiently with lower costs across infrastructure, maintenance, and risk.
This is broken down into two segments:
• Ongoing operating expenses – This includes infrastructure bills (compute, storage, and network), maintenance
and development costs, and other services you might consume to keep your Kafka cluster running
• Risk and indirect costs – This includes things like the cost of downtime, performance degradations, and security risks

3. Maximize return on investment

The above categories adds up to a higher return on investment for your projects – especially when you consider the following:
• Reducing the operational burden allows engineers to focus on higher value work related to the business use case.
• The business use case which the Kafka project underpins
• Confluent Cloud helps avoid the pain and complexity of integrating your growing engineering environment by serving
as the universal streaming platform that democratizes data access across different engineering teams

2. Our approach
Our approach to measuring business value includes a discovery exercise in which we ask questions around each of the value
buckets above. For example:

Speed to market
• How long would it take to develop the self-managed platform (including hiring / ramping resources)?
• What is the financial benefit of getting to market sooner?

Total cost of ownership

• What’s the number of developers / operations required?
• What is the fully loaded cost of a developer / operator?
• What is the estimated effort involved, including ongoing bug fixes, improvement, feature enhancements, scaling up and
down, etc.?
• What are the planned infrastructure costs (compute, storage, and network)?

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• What are the planned management costs such as systems integrators, training, or other services?
• What are the indirect costs such as downtime, performance degradations, and security risks?

Return on investment
• What are the details around the business use case which the Kafka project underpins?

We often get asked to list discovery questions in advance, but this approach can skirt key value areas. While many details
above are straightforward, some areas are more nebulous, or have an indirect line to value. Calculating value requires
discussion and sometimes debate. Good discovery is a skill. It requires being inquisitive, asking the right questions, drilling into
relevant areas, backing out of others, and gaining overall consensus.

In our approach we aim to be as empirical as possible. In a sense, comparing Confluent Cloud, a fully managed service, with
a self-managed service or other option is similar to a scientific thought experiment, one that is imagined as a sequence of
events, then constructed and explained through narrative form.

1. The self-managed (baseline) represents the “control group.”

2. The target state (Confluent Cloud) represents the “experimental group,” which includes the “dependent variable” –
Confluent Cloud. We want to compare the two scenarios (baseline versus target), like-for-like, except for
the single variable.

3. We assess value as the difference between the baseline and target state in terms of the three value buckets listed above
– these are our hypotheses.

4. We also assess soft, or intangible, benefits – i.e., elements of value which can be difficult to quantify. We also model
various scenarios, sensitivities, and risks which might impact the overall business case.

5. Finally, we aim to use proof points to support the value assessment assumptions and estimates. In scientific terms,
we aim to corroborate our findings with further evidence.

Of course, our overall approach cannot be fully scientific. This is an exercise in forecasting, which relies on assumptions and
estimates. There will be many potentially confounding factors outside of our control in real-world scenarios. We’re using
inductive, not deductive logic, which means we need to accept a business case for what it is – a bit of guesswork, until we
can prove the case post-implementation.

Because of this, we insist the customer own the business case, and we establish this ground rule early on in any engagement.
We can help build and execute the model, © 2014–2020 Confluent, Inc. | 5 and provide guidance and advice, but ultimately
all cost categories, estimates, and assumptions should be provided by, or ratified by, the customer.

In the next section, we provide a real-world example of how this plays out.

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3. Example of a cost effective assessment

This section walks through an example exercise to measure the cost effectiveness of Confluent Cloud. We start by looking at
the increase in speed to market.

Increse speed Reduce total cost Maximize return

to market of ownership on investment

Deploy Kafka at scale Operate more efficiently with Deliver higher returns with your
within one week of lower infra cost, maintenance, project by launching faster and
starting with Confluent and downtime risk reducing operational burden

Increase speed to market

Reducing the time it takes to bring something to market. With self-managed Kafka, you need to do the manual sizing,
provisioning, expansion, and maintenance of a Kafka cluster. With Confluent Cloud, we do all the work for you. Clusters
are provisioned instantly and maintenance is seamlessly managed for you, and you can start streaming data the day you
sign up.

Increasing developer productivity and agility. With a fully-managed service you don’t have to spend 6-9 months hiring
people who know Kafka just to manage infrastructure or bog down your developers with Kafka maintenance. As a result
you avoid the time and expense of the hiring and ramp-up stages for new people and the slowdowns caused by moving
developers off of critical projects. Of course the project doesn’t end when the product launches. There will always be
ongoing bug fixes, improvements, and feature enhancements, which typically requires developers to invest more time
into developing new tools, new integrations, and so on. Confluent Cloud offers a suite of fully-managed tools and
connectors so your best people remain focused on your critical projects and apps that drive competitive differentiation
and revenue – not maintaining Kafka.

Below is a typical view of how a new Kafka project timeline looks.

Traditional Kafka Development

Project 6-9 months of hire 3 months 9-12 months to build the reproduction - grade
Kickoff Kafka resources to ramp Kafka platform and develop application

Go to market in 2 years

Traditional Kafka Development

3-6 months to focus
Project Start in Launch your application in months
on app development,
Kickoff 1 week and grow your business $$$
not managing Kafka

Go to market in 6 months

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With Confluent Cloud, the two-year project can potentially be reduced to six months. You don’t need to hire a full team,
and you can get your Kafka clusters up and running in a matter of weeks. You can then focus all your energy in building
applications and delivering value from your project faster.

The following are real-world customer use cases:

• Next-gen cybersecurity company built their massive scale (GBps+) threat intelligence app in six months versus two years.
A 75% reduction.
• Leading financial institution launched their real-time market data service in three months versus one year with
alternatives. A 75% reduction.
• European web analytics company launched their machine learning application in one week. A 50% reduction.

The next section focuses on TCO.

Increse speed Reduce total cost Maximize return

to market of ownership on investment

Deploy Kafka at scale Operate more efficiently with Deliver higher returns with your
within one week of lower infra cost, maintenance, project by launching faster and
starting with Confluent and downtime risk reducing operational burden

We first try to estimate the cost breakdown of a customer’s operating expenses. This typically includes three main components:
1. Infrastructure – this can be on premises or cloud provider bills.

2. Operational costs – in the form of full-time equivalent (FTE), including engineers maintaining and building out platform
capabilities for Kafka, e.g., SREs and DevOps.

3. Support and services – this includes third-party spend to cover things like professional services, training, and support plans, etc.

Annual Operating Costs

$ 2,000,000
$ 240,000 $ 1,875,645

$ 950,000 $-

$ 1,500,000

$ 1,000,000

$ 400,950

$ 500,000
$ 193,134

$ 73,561

$-
Inf - Inf - Inf - Operational Outage Cots Support Subtotal
Compute Storage Network Costs (not counted) Cost (CP)

We then look at cost take-out opportunities and ratify these with the customer.

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Comparing annual operating costs: Self-Managed vs. Confluent Cloud

$ 2,000,000 Confluent Spend
$ 1,857,645
$- Support & Services
$$240,000
73,561
Operations
$ 1,500,000
Infrastructure

$ 73,561
$ 1,000,000

$ 680,000

$ 500,000
$ 480,000
$ 667,645
$-

$ 200,000
$- $-

Self-Managed Confluent Cloud

In this example, we see that Confluent Cloud allows us to remove the infrastructure and support and services costs in the
self-managed solution completely and reduce the operations costs by more than 60%. The overall savings amounts to
$1,177,645 or 63% over one year.

When we model the above savings over three years, we get $3.5M+ (63%) in savings.

Annual Operating Costs

Self-Managed TCO Confluent Cloud TCO Cumulative Savings

$ 8,000,000

$ 6,000,000

$ 4,000,000

$5,572,936

$ 2,000,000 $3,715,291 $3,532,936

$2,355,291 $2,040,000
$1,857,645
$1,177,645 $1,360,000
$680,000
$-
Year 1 Year 2 Year 3

In this section we also look at risk costs, as identified by the following three categories:
1. Downtime – It takes significant investment and expertise to maintain a reliable platform with high availability. Confluent
Cloud comes with a 99.5% SLA for Basic clusters and a 99.95% uptime SLA for Standard and Dedicated clusters built in,
with no disruptions for upgrades and planned maintenance.

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2. Performance degradation – If your organization experiences any downtime, it may result in significant performance
degradation, which can lead to prolonged periods of lost productivity. Confluent’s 24/7 expert-led support helps prevent
issues and enables fast recovery.

3. Security infringement – Your data is obviously important. It can be costly and risky to manage it all by yourself. Confluent
Cloud comes with enterprise-grade security and compliance to make sure your data is always safe.

The impact of risks, such as downtime, performance degradation, and security infringements, should not be understated.
Various studies have estimated that an hour of downtime costs an organization $100K on average. And a recent study by IBM
found that the average data breach costs an organization $3 million to 4 million, from detection and resolution costs, fines
and reparations, and reputational harm to the business.

We can model these risks costs, however, many organizations choose not to quantify these directly. In general, we take
direction from the customer in terms of what they’re comfortable modeling.

This is also the case when we review the overall ROI. We work with the customer to model business value or cost
effectiveness for their organization.

4. Key takeaways and questions asked

When undertaking a business value assessment we are often asked a common series of questions, so we’ve listed and
answered them below.

Value our customers see from Confluent Cloud

Moving to a fully-managed Apache Kafka deployment for event streaming provides a ton of value for any organization. Our
customers typically see a reduction in the TCO of Apache Kafka by up to 60% and up to a 75% increase in speed to market
for their apps. The cost savings and operational efficiencies that come from this can save your business millions of dollars
and countless FTE hours.

When should we complete the analysis?

The obvious time to complete a business case assessment is prior to starting a project. Further, a business case analysis is
often required to justify budget allocation upfront.

In addition, there is a strong argument to continue the business case exercise in the form of ongoing benefits realization, or
to complete a “sanity check” part way through a program. Studies by McKinsey, Everest Group, and IDC suggest three out of
four digital transformation projects fail to deliver on their stated business value. By incrementally assessing value and costs, a
project can pause, or pivot, if it is not hitting business goals.

As a vendor that mostly relies on a subscription model, we encourage ongoing scrutiny in costs and value. Why? It makes
good business sense. Gartner found that nearly two-thirds of tech buyers would purchase more from existing providers if
they see value from their investments being clearly demonstrated.

How long does it take to complete a business case evaluation?

It depends. We can complete a high-level TCO exercise in about an hour. Whether or not you are interested in our product,
just understanding your own cost structure is a useful exercise and we can provide a number of cost-saving tips during
the process. Equally, we can go through a process that takes 2-3 hours, 2-3 days, or 2-3 weeks, depending on the level of detail
required.

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What information is required?

We provided an example list of questions in section two of this paper, but it varies. We collect as much information as
possible about the case we’re assessing , plus any variables we think will be impacted.

For the TCO, at a minimum, we require information on development cycles / timeline, infrastructure costs (compute, storage,
and network), developer FTEs and DevOps, or operational FTEs (number and fully loaded costs), and support and services
details. Additional information may include: the positive impact of business agility and the negative impact (associated
costs), security infringements, performance degradation, and downtime.

Modeling a range and adjusting numbers

Accurate TCO calculations forecast the future and are therefore predictions at best. Any credible ROI calculation should
include a range of outcomes, including lower/upper bounds (sometimes referred to as a Monte Carlo simulation). We always
try to model a range with a conservative estimate in the middle.

In terms of accuracy, cash flows can be “NPV’d,” which means discounted to “net present value.” This adjusts the dollar
numbers to compare over time (i.e., cash today is worth more than cash tomorrow). NPV adjustments are obviously more
applicable to five-year business cases, rather than three-year business cases.

Since we mostly run three-year models – and accept accuracy is often less than 10% – we tend to simplify our models to
exclude NPV adjustments. While we acknowledge this approach – and sometimes use it for financial services customers – we
mostly avoid it to keep things simple.

We also acknowledge that customer needs vary. We tend to weigh a business case depending on what’s important to a
customer. Some will have higher-level strategic priorities around cost savings over risk costs, for example.

Credibility
We aim to maximize the credibility of the business case in the following three ways:

1. Being conservative, aligning with a theme of under promising and over delivering.

2. Acknowledging factors that cause uncertainty.

3. Clearly stating and ratifying assumptions and estimates, with the option to easily adjust these at any time in the process.

Initially, customers tend to be shy about sharing actual numbers. We recognize that we first need to earn their trust and
sometimes start by using placeholder numbers (estimates), in an effort to illustrate what the business case might look like. If
the customer likes the insight we provide, they’re often more inclined to share actual figures.

Charting the projections and using a narrative

A business case is generally an exercise in persuading someone to spend money and that investment is justified. And it’s been
shown that people tend to be more convinced when a story is told using visuals such as graphics and images. For this reason,
we tend to use charts to illustrate one-year and three-year benefits.

In addition to charts, a story requires a good narrative, which helps to explain the overall value proposition when discussing
and presenting the business case – especially to a nontechnical audience. As illustrated in the image below from
a Forbes article on data storytelling:
• Visuals (charts) help engage people
• Data helps convince people
• Narratives help take people along the journey

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Narrative Visuals Narrative Visuals Narrative Visuals

Engage

Explain Enlighten

Data Data
Data

We know decisions are often based on emotion as well as logic. So, emotion also needs to be factored into the narrative.

Value can be intangible or indirect

Separating and quantifying value as a standalone TCO or ROI number has its limitations. To use an analogy for direct value,
it is a little like trying to place value on the foundation of a house, separately from the house. It doesn’t make total sense.
The foundation is valuable, of course. You can estimate its cost. But does it have a separate value to the overall house? How
valuable is the house without its foundation? We believe as businesses become more software-defined, their technology and
data platform foundations become fundamental, just like a foundation is to the house.

An example of indirect value leans on the analogy of paying for insurance. Much like insurance, when you invest in security,
you hope to never have to really use it. We can clearly articulate the costs associated with security, but what is the value?
Is it cost effective? We only really know if something goes wrong. Otherwise, how can we quantify the business value
of a security infringement not happening?

The value of quantifying value

People assume the reason for completing a TCO or ROI exercise is to get to the output – the end result. The TCO savings
of 75% or the 3x ROI … but this is only half the story. The real value comes in the process of analysis and collaboration during
the exercise.

The process also includes completing discovery, and agreeing on the assumptions and estimates. The collaboration includes
the communicating and sharing of information, where the vendor gets to understand both the customer’s challenges and
opportunity and the customer gets to fully understand the vendor’s value proposition.

Helping our customers complete ROI and TCO models and demonstrating how we deliver business value helps our customers
make more informed decisions and strengthens our long-term partnership. If you’d like to learn more or discuss our approach
to business value and event streaming assessments, please contact bvc@confluent.io or visit http://cnfl.io/kafka-tco.

About Confluent
Confluent, founded by the original creators of Apache Kafka®, pioneered the enterprise-ready event streaming platform.
With Confluent, organizations benefit from the first event streaming platform built for the enterprise with the ease of
use, scalability, security and flexibility required by the most discerning global companies to run their business in real time.
Companies leading their respective industries have realized success with this new platform paradigm to transform their
architectures to streaming from batch processing, spanning on-premises and multi-cloud environments. Confluent is
headquartered in Mountain View and London with offices globally. To learn more, please visit www.confluent.io. Download
Confluent Platform and Confluent Cloud at:

www.confluent.io/download

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