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Crunching the costs of Microsoft Exchange on-premises vs. cloud services

Security concerns are less of an issue for most organizations, but do the costs of using Exchange on premises vs. the Office 365 mail service stack up?

Many organizations may be at the crossroads to decide if they want to continue with Microsoft Exchange on premises or use the Office 365 mail service and move to the cloud. Office 365 email is a relatively new service, run and hosted by Microsoft with administration handled by the messaging administrator. There is also another approach: dedicated Exchange on public cloud, where Exchange 2013 or other editions run on cloud instances in Amazon Web Services or other public clouds.

Cloud deployments continue to gain traction. The Radicati Group expects cloud email deployments to rise from $8.7 billion in 2015 to $34.9 billion in 2019. Many companies are asking if it makes financial sense to make the switch to the Office 365 mail offering.

With Microsoft Exchange on-premises systems, determining price was fairly easy because the choices were largely the same. But cloud changes the pricing equation: Enterprises lease rather than own equipment, which alters the comparisons from apples-to-apples to apples-to-oranges. A corporation needs to consider new factors, such as electricity costs, bandwidth needs, personnel expenses and security requirements, before it can deduce if cloud is its best option.

Don't overlook electricity costs

Servers are complicated machines that include a mix of multiple socketed processors, multiple power supplies, hard drives in RAID arrays, heating and cooling systems, network connections and other devices to maximize performance. All this hardware results in a hefty hidden cost: electricity.

According to the United States Energy Information Administration, an industrial kilowatt (kWh) is priced at about 7 cents in 2016. The average in-house server chews up tens of thousands of kWhs during the year, resulting in hundreds of dollars in electricity charges. Multiplying that number by tens, hundreds or thousands of devices increases on-premises expenses significantly. The Natural Resources Defense Council, an environmental action organization, found that American businesses pay $13 billion annually for data center electricity. When calculating operating costs, businesses should examine their data center electric expenses. Since public cloud offloads system processing to a third party, the cost for electricity is removed.

Considerations over bandwidth

When servers are in-house, network communications are limited to the data center. Network switches and cabling are inexpensive, so companies usually have enough capacity to support Microsoft Exchange on premises. With cloud, transactions move from the data center. Since information flows out of the premises rather than among devices in the data center, cloud may require that a business upgrade its WAN connections.

When calculating operating costs, businesses should examine their data center electric expenses.

Cloud includes other network charges. Vendors typically let customers move as much data as they wish into the cloud, but pulling data out is a different story. Often, there are low monthly limits, so as users download information, the service costs rise -- sometimes quite dramatically.

Consequently, bandwidth demands render a cloud choice moot in a number of cases. If enterprise workers are emailing large files to one another and to business partners -- for example, in an engineering or a video production company -- then cloud may not be the best choice.

Broadband availability can also play a role. Offices that have smaller pipes to the Internet may have to make significant upgrades to move to Exchange online. Suburban and urban customers usually have plentiful choices in this arena, but rural offices may have trouble finding high bandwidth links.

Avoid trade-in costs

Like all products, hardware eventually breaks down and is replaced. Typically, companies try to run Microsoft Exchange on-premises hosting systems for about five years -- although some are replaced faster while others run longer. A key part of on-premises system evaluations usually involves upgrade costs. Traditionally, the upfront costs have been significant. In response, vendors turned to leasing models, which like cloud, spread the hardware costs out over the life of the product in low monthly fees.

However, personnel may represent a significant hidden cost. Evaluating hardware options is a time-consuming task, one that can take handfuls of employees months to sift through spec sheets and Response for Proposals. Opting for cloud, such as the Office 365 mail offering, avoids those charges.

Digging into staff issues

Staffing is another complex area. At a high level, the idea with cloud is to offload staffing costs to a third party, but do companies take that step? In many cases, they keep the current staff but shift responsibilities. Instead of being the primary line of defense, they oversee the cloud services. In this case, the business pays those employees' salaries as well as those of the vendor. The justification is often that IT demands are growing quickly, so cloud caps personnel expansion, but this factor, like many, varies by company.

Security a major issue?

Security has been a concern with cloud services from the start. However, vendors appear to be closing coverage gaps. Exchange Online Protection provides inbound and outbound spam filtering, reporting, message trace, multi-engine antimalware and mail-flow configuration features. Compliance officers can run in-place e-discovery queries across Exchange, SharePoint and Lync via a single interface.

Businesses have noticed the improvements vendors, such as Microsoft, have been making in cloud security. The Cloud Security Alliance polled more than 200 IT and security professionals and found that almost 65% trust the cloud as much or more than an on-premises product.

Cloud has emerged as a viable option for running IT applications. These services may help companies reduce electric and staffing requirements but increase network investments. When choosing to stay with Microsoft Exchange on-premises services or move online to a service such as Office 365 mail, there is no one answer that fits all organizations.

Next Steps

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