Cloud services are the latest trend in IT world now days, it makes a lot of sense for businesses because  it saves all the Setup, maintenance and future upgrade cost.  However monthly reoccurring payments are definitely a cost which businesses worry about.

The intent of this article is to do a cost benefit analysis between Office 365 and On premise Exchange Servers. If your organisation has say 20 to 100 employees then probably Office 365 makes good business decision but if your business has over 2000 users then spending in north of $10K per month on licensing cost may not be very desired.

Further Office 365 offers an array of hosted services in a single license cost including Exchange Online, Skype for Business, SharePoint Online and many more. If you are interested in those services or your already run SharePoint and Lync services in office too then you may need apply the logic from this article on other services because here we are just considering Email services as the benchmark.

So when does it actually make more sense to be on premise Exchange and when should we move towards Office 365 ? well, its a difficult question to answer but in an effort to do so, we first need to calculate the cost involved in each kind of deployment, when you are migrating from lets say Exchange 2007.  We are going to take two examples, one where the user count is 50 and another where the user count it 2000.  I know its a huge gap but you should be able to figure out the cost for your environment with this illustration.

Lets begin with On premise Exchange, Because its our own managed server we have to consider high availability as well, which means that we need to setup at least 2 exchange servers. Earlier the HA used to be very complicated but Exchange 2010 onwards its very simple to setup HA starting with as low as two servers only. So to Migrate to an Exchange 2013 environment we have to consider following costs

  1. Exchange Server licensing cost: Exchange 2013 comes in two flavours. Standard and Enterprise, the biggest difference between them is the number of Exchange database it can hold. Exchange 2013 Standard can hold a maximum of 5 databases where as Enterprise can have upto 50 databases. Frankly speaking, Exchange 2013 standard is more then enough for most of the SMB’s. Exchange 2013 Standard Retails for around $700 where as Exchange 2010 Enterprise comes around for $4000.  From HA perspective, we need to consider at-least 2 Exchange servers, so our cost become $700 x 2 = $1400
  2. Exchange Licensing like any other MS licensing is a very confusing topic, article here should help with some doubts
  3. Windows Server 2012 License cost: We will need to host our Exchange 2013 Standard ( or Enterprise) on Windows 2012 standard (With Windows 2012 onset the licensing is simplified and there is no more Enterprise server).  Windows 2012 Standard retails around $1200, because we need two of them, so the cost would be $2400 for both of them.
  4. Windows and Exchange CALS:  CALS are not technical requirement but purely compliance requirement, Each Exchange user requires one windows CAL ( you should already have it, if you worry about compliance) and One Exchange 2013 CAL. Each CAL comes approximately for $70.
  5. Outlook License: Outlook 2003 is not supported with Exchange 2013 or Even office 365 ( it runs Exchange 2013), Exchange 2013 supports minimum Outlook 2007 Sp3 and above.  So in case you are still running dated Outlook 2003  then you will need to upgrade get too.  Outlook is available as an individual product and retails for roughly $100. Alternatively you have an option to use Exchange built in Outlook Web access (OWA) without any additional cost.
  6. Setup and Installation Cost: You probably are planning the upgrade Inhouse or might be planning to outsource the project, but in any case Cost/Time is involved, the cost is entirely dependent on your service provide ( Hire Us, We are really economical)
  7. Maintenance Cost: Exchange Servers are pretty much trouble free but still unexpected issues cannot be disregarded, so you need to hire some external or in house professional to manage and maintain your servers.( Hire Us)

On the other hand if we speak about Office 365, it does save the businesses from regular maintenance and future upgrade cost, But still following cost should be considered before moving to Office 365

  1. Migration Cost: Office 365 Migration is a work of art, its requires precision to ensure a smooth and zero downtime migration. You should hire an experienced consultant for migrating your mailboxes from On premise Exchange server to Office 365. Its going to be time consuming process and will cost you some amount depending on the number of Mailboxes, other complexities and most importantly the company helping you with migration. We save clients over 50% migration cost as compared to companies in US and get in touch and save cost.
  2. Licensing Cost: For using Office 365 services you need to pay a monthly per user reoccurring license fee, the amount depends on the type of license you choose. Office 365 licensing starts from $4/user/month and goes even above $22/user/month.
  3. Outlook License: Outlook 2003 is not supported with  office 365 ( it runs Exchange 2013), Office 365 supports minimum Outlook 2007 Sp3 and above.  So in case you are still running dated Outlook 2003  then you will need to upgrade get too.  Outlook is available as an individual product and retails for roughly $100, Also Office 365 offers plan (from $12/user/month) which include Office standard or professional licenses, so if you choose those options then you can download latest Office version from there.  Alternatively you have an option to use  Outlook Web access (OWA) without any additional cost.

 

So now that we understand the cost involved in each kind of Migration i.e. Office 365 and On Premise Exchange Server.  Lets try to put this illustration to work with two companies

TailSpin Toys: This is small retail shop with 50 employees, They have currently an Exchange 2007 Server hosting their email services. lets refer to following table to see how much each of the option cost them.

  1. Office 365: For the purpose of this example we will consider that they will move to Business Premium Plan which includes latest Office 2013 and retails for around $12.5/user/Month.
Line ItemsQtyCostTotalComments
Office 365 Migration Cost5045$2250Qty 50 represent 50 users and $45 is per mailbox migration cost. The cost is just for illustration purpose
First Month License Cost5012.5$625$12.5 is the cost of business Premium plan
Outlook License50Included$0Office Standard license is free with Business Premium Plan
Total$2875 This is the cost for getting strated
License Cost for next 3 years36625$22500We multipled monthly license cost to 36 months to get license cost for 3 years
Total Cost including setup and 3 year licensing$25375 Total cost the business will spend in 3 years on office 365 services including the initial migration cost.
  1. On Premise Exchange:  We figured the cost for Office 365 Migration for 50 users of the company, lets now find out how much it will cost them to migrate to On Premise Exchange Server
Line ItemsQtyCostTotalComments
Exchange Server 20132700$1400Licensing cost for Exchange 2013 Standard, will need two servers for HA
Exchange 2013 CALS5070$3500 Exchange CALs cost
Windows 2012 Licensing21200$2400 Licening cost for windows Server needed for hosting Exchange 2013
Windows 2012 CALS5070$3500 Windows Server CAL Cost
Outlook 201350100$5000 Cost for Outlook 2013 Licenses in case your current outlook is older then Outlook 2007
Setup and Migration cost13000$3000
Maintainence Cost (3 Years)31000$3000Assuming Business spends $700 per year on maintenance
Hardware Cost22000$4000Hardware cost for servers required for installation
Power, Space and Cooling Cost31000$3000Electricity , Power and Space requirement for hosting servers
$28800

 

So if we notice in above Example, TailSpin toys will have to spend upfront approx $29k to setup Exchange 2013 On premise and where as for Office 365 there all inclusive cost (not to forget peace of mind) for 3 years is approx 25K. So in this case definitely Office 365 makes more sense, lets not try and study a company with almost 2000 users and see what is difference,

 

Contoso Enterprises: Is a big pharmaceutical company with approximately 2000 users scattered across the globe, they are running their email services from their US offices currently on Exchange 2007. All the outlook clients in their office are Outlook 2003. Lets see how much Office 365 and On premise Exchange cost them and which is a better way forward for them. The calculation is going to be simple, we are just going to replace the number of users because hardware wise two exchange servers will be able to handle 2000 mailboxes easily.

Office 365: Business premium plans cannot have over 300 users, so for Contoso we need to choose an enterprise plan.  Considering that we are doing Email only comparison, so I will choose the most basic plan of $5/user/month, for the purpose of this calculation.

Line ItemsQtyCostTotalComments
Office 365 Migration Cost200040$80000Qty 2000 represent 2000 users and $40 is per mailbox migration cost. The cost is just for illustration purpose
First Month License Cost20005$10000$5 is the cost of Exchange online Plan1
Outlook License2000100$200000Exchange Online Plan1 do not provide outlook license
Total$90000
License Cost for next 3 years3610000$360000We multiplied monthly license cost to 36 months to get license cost for 3 years
Total Cost including setup and 3 year licensing$650000

On Premise Exchange 2013:  Here we have increased the setup and maintenance cost compared to TailSpin toys as this is a bigger migration and will required more efforts.

 

Line ItemsQtyCostTotalComments
Exchange Server 20132700$1400Licensing cost for Exchange 2013 Standard, will need two servers for HA
Exchange 2013 CALS200070$140000Exchange CALs cost
Windows 2012 Licensing21200$2400Licensing for Windows Server needed for Hosting Exchange 2013
Windows 2012 CALS200070$140000Windows Server CAL cost
Outlook 20132000100$200000Cost for Outlook 2013 licenses assuming current outlook version is below Outlook 2007
Setup and Migration cost110000$10000 Increased the Setup cost as number of users has increased many fold.
Maintainence Cost (3 Years)32000$6000Assumung Business spends $700 per year on maintenance
Hardware Cost22000$4000Hardware cost for servers required for installation
Power, Space and Cooling Cost31000$3000Electricity , Power and Space requirement for hosting servers
$506800

 

Now if we look at this example, the output is entirely different, Office 365 migration for Contoso along with 3 years licensing cost comes around $650K where as on premise Exchange 2013 upfront cost comes to be $506K. There is a huge saving of almost $150K. Although from financial point of view it would be debatable if its easy for business to pay $500K upfront or pay $650K in monthly instalment, but from technical point of view there is a definite saving.  Moreover we considered 3 years ROI because thats an ideal shelf life of a software and by that time next version of Exchange will be available, however its quite true that bigger business do skip couple of upgrades usually and with that an on premise Exchange with no upgrades for say next 8 years will make for a huge saving.

In this article, we have tried to explain Office 365 vs Exchange On premise from financial stand point, but a business may have altogether different reason for staying on premise (privacy) or going on Office 365 (additional features like Lync, Sharepoint online, free future upgrades etc). This article is just for illustration but I hope it helps you to get out of your dilemma of which way to go.

Whichever you decide to go, Pledge Technologies has lots of experience with both Exchange 2013 and Office 365 Migration, we promise to give you the most lucrative rate for the same. Please get is touch with us to discuss your plans.

If you likes this article or it helped you even a bit then please show your love by sharing this article via Facebook, linked in or Google.

NOTE: Licensing cost mentioned for different products is to our best know information or internet sources, we do not guarantee that cost. Costoso and TailSpin company names are a result of our imagination and any resemblance to an existing company or brand is purely coincidental and should be forgiven.

 

 

%d bloggers like this: