Report: Cloud-Based Email Cheapest Option for Most Companies

Written by Richard MacManus / January 6, 2009 6:30 PM / 17 Comments

A new report from Forrester presents a cost analysis of cloud-based email systems in enterprises, such as Google Apps or Yahoo!'s Zimbra. In the report, Forrester argues that cloud-based email services are cheaper than running email on-premise for all companies with less than 15,000 employees. What's more, Google Apps is significantly cheaper than both on-premise solutions and other cloud-based email services - even for very large enterprises. This could spell trouble for Microsoft, as we explain below.

Despite the cost benefits, at this point most companies (56%) are looking to implement a 'hybrid' model of on-premise and external email services. Just 19% plan to migrate their entire email base to a hosted or managed email provider.

Forrester's cost analysis (outlined in full in its report) shows that for the "Information Worker" segment, a large portion of many modern enterprises, cloud-based email is often cheaper. Forrester concluded that "cloud-based email is always cheaper for companies with fewer than 15,000 users".

The following chart of various options is interesting, because Google Apps comes out significantly cheaper than Microsoft Exchange Online - and other cloud based email options. Also interesting is that Microsoft Exchange Online Standard is about 10% cheaper than many cloud-based providers - due to its economies of scale no doubt. One wonders whether Microsoft will be forced to drastically reduce its pricing for Exchange Online, in order to compete better with Google Apps; although that of course comes at the risk of under-cutting one of the company's cash cows, Microsoft Office.

Source: Forrester; the above figures are based a scenario for 15,000 employees with email.

Even as the staff numbers increase, Google Apps remains by far the cheapest option. Of course there are other factors to consider other than price, but even so these figures are striking and are likely to be very pursuasive for many enterprises over the coming years.

Lastly, there are some interesting comments in the report about about the low price point of Google Apps. Google told Forrester that it "uses automation and massive scale to achieve an order of magnitude lower cost of service than a typical enterprise." This led Forrester to believe that "Google can make money at this price, and that the service will handle some firms' or users' needs well, including its bigger customers like Genentech and Avago Technologies."

However Forrester noted that it is unsure how much focus Google will give to the service. Also Forrester suggested that Google Apps still needs "better mobile support, an offline email and calendar client, and a clearer view of the product road map."

Note: Forrester released a companion report, entitled Should Your Email Live In The Cloud? An Infrastructure And Operations Analysis, that digs deeper into the technical issues around cloud-based email.

Comments

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It's just matter of time before large corporations become comfortable with letting someone else handle their email. That's my guess as to why such a high percentage (56%) are doing a hybrid. They don't feel safe going all the way so they will dip a toe into the water and see how it feels. If it works out, then that 56% will start to transition their email to someone else.

Posted by: shopfiber.myopenid.com | January 6, 2009 7:00 PM

That, and I bet lack of offline access in Gmail is an absolute dealbreaker for enterprise.

Posted by: Q dub | January 6, 2009 8:13 PM

I work at Avago, one of the companies that has made the full switch to Google Apps. The change was easy and welcome for most users, and an awkward change for others. Overall, everybody is fine with it now (we just made the switch last month).

The off-line access problem is solved by using any of the standalone email clients with IMAP support (Thunderbird or even Outlook). Most users are accessing their email via Thunderbird or Outlook. The web interface isn't very productive for high-volume email use.

Posted by: Yup | January 6, 2009 10:02 PM

I have implemented few Google Apps installations in smaller companies (5-50) but from this text I am amazed how Gmail can scale both technologically but also financially (customer-wise).

Posted by: Jovan | January 7, 2009 4:21 AM

@Qdub Offline access in Gmail is available : use IMAP and synchronize locally.

Posted by: Jean-Marc Liotier | January 7, 2009 6:15 AM

As an IT director for a company of about 200 people in different locations, the thought having to support Imap for my users is cringe worthy. One of the big advantages to using google apps is the ability to off-load all the e-mail client issues. Each week someone has some problem with Outlook, usually because they are storing to much or simply because they mis-clicked and removed something. If the pst file gets corrupted it can be a multi hour affair to repair it.

We are thinking about switching. If we do, we won't be offering any support for other clients. That puts the responsibility on the user. The g-mail interface is simple and it will be hard, even for them, to exceed their storage limits.

Posted by: Mrgjr | January 7, 2009 7:20 AM

I really don't understand these comparisons between Exchange and Google Mail. Exchange is so much more mature and offers much more features that even half the price Google is asking is too much.

Gmail is nice for home users, but if you need a good solution for notes, tasks, calendar and email functionality nothing beats MS Exchange.

Posted by: Johan | January 7, 2009 7:20 AM

While there are some very valid observations here, the simple fact is that users prefer to preserve their ability to customize email and closely integrate it with their LOB applications. Apps such as ACT!, blackberries, windows mobile phones and specialized apps such as time tracking or customer service apps don't easily integrate with anything except a smart client at the end user's desk or a locally based server. Until the big guns in the "mail in the cloud" world crack the "I need to talk to things other than the apps I offer" challenge there are going to be a lot of barriers to entry.

Posted by: Lee Drake | January 7, 2009 7:27 AM

Agree with Johan. Microsoft Exchange provides a lot more functionality than Google Apps. A lot more. If MS is close to Google in terms of cost, then MS wins automatically.

Posted by: K | January 7, 2009 11:10 AM

Totally disagree with Johan and K.

I used Outlook/Exchange for 15 years until this past year when I joined a company that only uses Google Enterprise Apps (Gmail/GCal/GDocs/GSites). Initially, I was skeptical but with adequate training (, a good change mgmt plan for those companies looking to make a switch) and a couple weeks of cranking away with the tool, I've become WAY MORE productive. In fact, there's very little (if anything) that the Google solution can't do. PLUS, the increase in collaborative tools across teams using Google Apps is unrivaled by any on-premise tool including Exchange. The cost-benefit simply makes this a no-brainer. As soon as Google releases its offline mail and calendar tool (Q109?), there's nothing Exchange can do better.

Posted by: Felipe | January 7, 2009 12:06 PM

While Exchange is feature rich and the Google suite is relatively sleek and affordable, neither offers the ultimate collaborative benefit of an application like Email Center Pro. For improving work flow, reducing operational costs (service is priced per organization rather than per user) and increasing efficiency, the service is spot on.

Posted by: Jason Galic | January 7, 2009 2:47 PM

I'd been running an Advertisement company with over a hundred employees sitting at ten different locations across the globe. Our team found it hard to get together to collaborate on projects as we were sitting at different locations, until we found a new enterprise collaboration suite available in the market called Taroby. With Taroby we've found it easier to work together as a team, as it uses a quite innovative concept of a "Team Inbox".

Posted by: Bob Robins | January 8, 2009 3:24 AM

$25.18 per month/user for 15,000 users?? My God, that's $4.5 Million a year.

Here at BlueTie we handle millions of users and billions of messages a month, and NOBODY is paying anywhere near that kind of price.

Doesn't anybody do due dilligence anymore?

L.

Posted by: Larry Rutter | January 8, 2009 5:48 AM

Thanks for the great review, Richard.

While obviously important, the out-of-pocket costs considered in this study are absolutely negligible compared to the price organizations pay for information overload.

But don't take my words for it. Try the Information Overload Impact Calculator by research firm Basex:

http://www.basex.com/iocalculator

A real eye-opener. It is!

Cheers,

-d.

Dmitri Eroshenko
Founder and CEO
Relenta
www.relenta.com

Posted by: Dmitri Eroshenko | January 8, 2009 7:40 AM

I'm not sure what this article points out except some obvious and not so obvious facts. First off, Microsoft is not a new comer to delivering hosted e-mail. They made a large play into the hosted email the market (circa years 1999-2000), but as with all things, other factors needed to be fully in play and ubiquitous in nature in order for the other to succeed. And what was missing at the time was ubiquitous broad-band access and certainly wireless mobility, not to mention better resiliency features for the mail servers. So the hosted market was destined to do just what it did for them, not go very far. Now, fast forward to today, and the email world is very different, email is truly a "dial-tone" service, its a "commodity". It is stable, from the lower level protocols, all the way to the application that you use to compose and read. Google, sees this but more importantly, email services for Google and others is now just a means to an end, which is "value added" services over and above email, but somehow connected. Prices for vanilla email, should drop to zero over the next two years, and the vendors that see that coming today, and plan for the higher level services, both from the infrastructure end (such as more intelligent MTA's) as well as the business applications side (everything from sundry collaboration apps to compliance and legal discovery capabilities or enablers - API's, including highly specialized - high dollar value - applications where email becomes an under-pinning transport), will be well positioned to ask Google, Microsoft or even IBM, to cough up a billion or two for the pleasure of buying them.

Posted by: Peter Mojica | January 10, 2009 9:31 AM

This is a load of crap. I support more than 500 users and there is NO WAY it's costing $14k a month. A quad core Linux server, Postfix, Dovecot and RoundCube. It's fast and stable and has no monthly overhead other than power and a T1. It's hard to add in overhead cost of Outlook as it's included in our Office site license.

Posted by: David Joyce | January 12, 2009 11:34 AM

David Joyce needs to factor in his and/or other staff salaries for support of the mail delivery systems & desktop mail apps along with email security systems such as AV & SPAM control (what, you don't run any security on your mail?), the cost of informal support network if the IS group is not doing it's job thoroughly, etc, etc. The real cost of running any system is much more than the capital cost of the underlying platform.

Posted by: Ross Manning | February 4, 2009 3:18 PM

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