By David Gewirtz
Here's an obvious fact: before you can determine your ROI (Return on Investment), you need to figure our how much you're investing. In other words, how much is this stuff going to cost? An old acronym has been picking up new flavor of late, that being TCO, which means Total Cost of Ownership.
Like many economics concepts, TCO is simple on the surface and nearly impossible to nail down as you delve deeper. On the surface, the idea is that the cost of a purchase is more than just the object itself. In the case of the purchase of Palm computers, for example, the total cost to your company won't just be the price of the handhelds and other hardware. Your total cost is the price of the hardware, plus any software, plus the cost of the people managing and setting up the devices, plus the cost of training, and so forth, throughout the life of the product.
"TCO attempts to be predictive in an environment where prediction is difficult."
It would be like saying you're leasing a car and it costs $330 a month. But you also spend $20 a week on gas, $300 per quarter on maintenance and repairs, $9 a month on car washing, and $23 on fuzzy dice. If you're going to lease the car for three years, your $330 a month cost is really a TCO of $18,707.
The problem is that TCO can't really be accurate. In our example, it doesn't account for insurance. It doesn't account for the fact that you might change jobs and thereby change your commute or you might meet a new girlfriend or boyfriend who's an hour away. It doesn't count any souping-up of the engine you might do, and it doesn't count the various bank fees for turning the car in at the end of the lease.
In other words, TCO attempts to be predictive in an environment where prediction is difficult.
The fact that TCO is, of necessity, inaccurate, doesn't prevent well-meaning marketers from trying to use it to their advantage. For example, Palm's esteemed competitors at RIM, makers of the Blackberry device, have been touting a Goldman Sachs study. The study claims that RIM devices are replacing laptops among "power users" and that since RIM devices have a yearly TCO of $2,100, they're obviously more cost effective than laptops, which have a TCO of $9,700 per year.
