Does payback on email alone make Google Apps' $50/yr. worth it? (Docs, etc? That's icing)

Whenever I talk about doing something crazy like using Google Apps instead of other office suites, a conversation that's usually driven by my beliefs about computing in the cloud, there are some number of ZDNet readers that chalk it off to insanity or a momentary lapse of reason. Or, maybe I forgot to take my meds that morning. But, on the heels of some unrelated events and discussions that took place over this past week, not only am I more convinced of going after a cloud computing approach like the one offered by Google Apps, I've got a different way of explaining the ROI that will probably resonate with many IT managers, small business people, and CFOs better than any other previously used rationale.

First, this is and isn't a story about Google Apps.

It is a story about Google Apps because of the way Google Apps is currently the best example of how a scale service provider can deliver certain IT functions at such a reduced cost ($50 per user per year) that it is almost impossible not to consider.

For small and medium businesses (SMBs) that can't afford basic IT fragility, costs, and headaches, Google has figured out what, since 1999, has been the Holy Grail for every company (not just IT) looking for an in with SMBs -- how to hook them online. Think about it. To the extent that FaceBook, MySpace, AIM (AOL Instant Messenger) have been outrageously successful at attracting a specific audience and making them stick, who has really had that kind of success with the SMB market? NetSuite, with its blend of salesforce.com-like CRM and Intuit like bookkeeping functionality probably rises to the top. Perhaps eBay as the electronic storefront of choice for many. But no single provider is the FaceBook, MySpace or AIM of SMBs. Meanwhile the SMB market in aggregate is widely recognized as being the most lucrative to those who can crack it. So far, despite thousands of attempts (a good many of which I was involved with back in the 1999-2000 timeframe), no one has.

This isn't a story about Google Apps because to the extent that Google finds a way to crack the SMB market the way no one else has before, Google Apps won't be the only offering of its kind from a provider that's in Google's league. The SMB market is simply too important to too many of Google's competitors for Google to be allowed to run away with the show.

So, bearing in mind that this is as much as a story about the future competitors to Google Apps as it is a story about Google Apps itself, consider the following.

As seems to happen every couple of weeks (or sooner if some person e-mails me a message with a 5 MB attachment), I get an automated message from our Microsoft Exchange server that tells me that my inbox is over its storage limit of 150MB. Given how close my inbox always is to that threshold, I just got one of those "purge your inbox or die!" messages last week. At first, the message is like a nudge. But if I ignore it long enough, the server simply goes into action and rejects all outgoing mail. It tells me it's doing this, but it's nice enough to let the inbound mail, including spam, flow in.

After not touching on the topic in at least a year, last week, I had a conversation that had to do with migrating from IBM Lotus Notes to Microsoft Exchange (strangely, in the last five years, I've never heard of anybody going the other way). That conversation morphed rather quickly into a pros/cons discussion of outsourcing e-mail.

Back in February of last year, my fellow blogger Phil Wainewright asked "What's the true cost of running e-mail in-house?" The truth is, I'm not sure anybody knows the answer to that question because so much of that cost is fuzzy. For example, whereas storage architecture is the life-blood of outfits like Google (not just for e-mail, but for search, YouTube, etc.), Amazon (with its S3 service), Yahoo and Microsoft and their scale affords them certain opportunities to cost effectively increase overall capacity, storage is a checklist item for most non-IT companies (I said "most." Not all.).

The typical thought pattern goes something like, "how much storage do we need to bring that application online?" A decision gets made, product is purchased, the application is set up and until its users get nearly mutinous about its limitations or something catastrophic happens, the IT staff attends to other tasks. Even with storage coming down so dramatically in cost per gigabyte the way it is, the idea of doubling that server's storage capacity is still painful enough to someone's budget that it's simply not an option until things really start to break.

Meanwhile, in comparing notes with other people who rely on some sort of corporate e-mail system, pretty much every person I talk to has a limitation on their inbox size. For some, it's less than the 150MB limit. For others, it's more. But one thing is for certain: now that e-mails are just as likely to have a multi-megabyte movie or PowerPoint attached to them as they are 10 words of text, everybody groans when it comes to the limitations on their inboxes. Yet somehow, for absolutely no cost, Google can provide you with the same inbox and e-mail address (yourname@yourcompanydomain.com) with a limit of 2GB. Pay $50 per user per year, and then, the ceiling for everyone in your company goes up to 25GB. For me who has been struggling with the 150MB limit for years now, that would be more than 177 times the storage I'm allowed now.

Going back to the fuzzy costs of e-mail, on the basis of storage alone, I'd posit that Google's charge of $50 per user per year is probably enough to cause any SMB or CFO in larger organizations to re-examine their current e-mail choice.

For example, when I hit the limit, which is about once per month, I spend around 30 minutes digging around my e-mail looking for stuff to delete. Junk mail is an obvious one but a block-delete there is a bad idea given how many legitimate mails are getting routed there. My sent mail folder is another no brainer, especially if it has a few outbound emails in it that have big attachments connected to them. Then, I dig through my inbox (sorting on the basis of attachment size) and where there are e-mails with really big attachments that I need to keep, I save those attachments to my local hard drive (a re-allocation that I wish my e-mail could easily keep track of) and delete the mail. Finally, I purge my Deleted Mail folder.

Let's say I spend 6 hours of my time on this exercise every year. I can guarantee not just my employer, but most employers, that the 6 hours of time their employees may be spending annually on this futile exercise is worth more than the $50 you'd pay for each one of them so this wouldn't be a problem. Or, let's try the math another way. There are some number of people in your company where there's no cost to keeping their inboxes clear. Either their hourly wages crash the break even analysis or their inboxes never come remotely close to reaching their limits. But, on the other hand, there is some number of highly paid people in your company who are worth $300 per hour. Over the course of the year, the 6 hours they spend purging their e-mail costs $1800. That's 36 users of Google Apps Premium.

Of course, we're still talking about one extremely fuzzy cost. Never mind all the others that would take us a while to list before we finally came around to the hard dollar costs. Last year, after some local weather-related event, the e-mail server on which my account resided became inaccessible. Several single points of failure between my PC and the server had failed. The local area network was down. Power was out. The virtual private network was down. Naturally, having once been a Lotus Notes user and having been able to recover from an IT disaster like that by simply dialing into another location and attaching to a different Notes server to which my e-mail was routinely replicated, I thought I'd be able to do the same thing between my Outlook client and some other Exchange server at another geographical location that was still accessible. But this wasn't the case.

So, I inquired with our IT people as to why things were the way they were. The answer was cost. In fact, it doesn't matter whether its Notes or Exchange (even though it seems as though Notes' replication architecture makes it better suited to this sort of fault tolerance). The expense (servers, software, networking, etc.) of having such redundancy was so outrageously prohibitive that basically, someone made the decision that the staff would have to grin and bear it in the event that the one server that hosted each person's mailbox went down. One issue, according to the IT people I spoke with, was scalability. There comes a threshold (in terms of number of users) where you simply have no choice but to add another e-mail server to your server room or data center.

But with Google Apps, adding users (starting with the first one) and giving them 25GB of personal storage never requires an additional server and only costs $50 per user per year. Alternatively (and completely forgetting any of the hardware costs for a minute), once you've navigated Microsoft's complicated labyrinth of server software, client software, client access licenses (CAL) , and software assurance, $50 per user per year for an e-mail and group calendaring system that requires minimal oversight from someone in the IT department (again, completely forgetting about the hardware), seems like a pretty good deal (not to mention how differently it hits the books because its a service).

For example, assuming you're an SMB using a Microsoft Volume License (which you would for 5 or more users) and you're getting one of those standard 30 percent discounts from some reseller of Exchange, you could expect to spend around $660 on a copy of Exchange Server with the kind of upgrade protection (what Microsoft calls Software Assurance) that ensures you'll be able to upgrade when a new version comes out (at no additional cost). The cost of Software Assurance (approximately 35 percent of the acquisition cost of your software) recurs once every two years. With that same 30 percent discount, for each CAL required to access that Exchange server (CALs are required regardless of client software used), you pay a one time perpetual licensing fee of $47 ($67 list price x .70) plus about $8 every year for Software Assurance (SA). In other words, $63 initially and then $8 every year after that (fyi: Microsoft only sells SA in two year chunks so it'd be $16 for 2 years of SA). According to the licensing specialist I spoke to at 800-426-9400, the reason a CAL needs SA is because CALs are not transferrable when you upgrade your server. Upgrades to servers require upgrades to CALs as well. SA assures you that you won't have to pay the full boat for new CALs.

Or, for the server side of e-mail and group calendaring (Microsoft has completely separate charges for client software like Outlook), you can pay Google a straight fee of $50 per user per year, never have to worry about hardware, backing up, etc. and, oh, by the way, when Google upgrades its e-mail service which seems to happen pretty often (in other words, you don't have to wait for major releases to get some cool functionality upgrade like what was added as a result of the Postini acquisition), the IT people barely have to lift a finger (oops, there are those fuzzy costs again!). All the end-users have to do in their browsers is press the refresh button. By the way, for organizations paying the $50 per user per year charge, Google promises 99.9 percent uptime.

Guess what? None of this analysis is meant to paint Exchange Server in a negative light. For some organizations, Exchange Server along with some of the other products that Microsoft is just now coming to market with in the area of unified communications are great solutions that hang together really well and for some organizations will provide terrific ROI. What I'm trying to point out is that when you factor in all the hard and soft costs of running an e-mail system -- the servers, the storage, the networking, the fault-tolerance, the accessibility, the software, the upgrades, the people, the spam, etc. -- $50 per user per year ain't such a bad deal to get the sort of e-mail system that Google Apps gets you.

Enter: All the people who poop on Google Apps because, relative to the cost of Microsoft Office, paying $50 per user per year isn't such a great deal (they have their break-even analyses and, to give them the benefit of the doubt, let's assume they're fair). OK, fair enough. If the only reason to look at Google Apps is for its ability to do the sort of stuff you'd do with Microsoft Office, then maybe Google Apps is no clear winner. But then again, although I'm sure they exist, I can't imagine many companies becoming clients of Google Apps without taking advantage of the e-mail functionality which, as I just proved, is probably worth more than $50 per user per year when you consider what it costs to run your own solution. In other words, all the Office-like functionality is simply icing on the cake. Not to mention the collaborative abilities built into it, the Start Page that all users get (the organizational equivalent of iGoogle), and the free Web hosting.

Finally, as a Google Apps user, I'll be the first one to admit that you must accept some compromises when you move into the so-called "cloud." Yes, your applications may not be accessible while you're disconnected from the Internet (that problem is temporary thanks to Google Gears). And yes, you're trusting Google with what could very well be incredibly sensitive information (the Googlefolk occasionally remind me that if they EVER screw that part up, it's game over for them... in other words, they take that trust very seriously). And, the apps aren't nearly as robust as their desktop competitors. I was reminded of this yesterday when a document I created in Google Docs neither translated the way I expected it to when I saved it as a PDF nor did it look very good when I cut and pasted its HTML into a regular Web page (it took a bit of hand editing, but I finally got it fixed). Google Apps is most definitely a work in progress and not nearly as mature as MS Office.

But all this said, there are a lot of organizations that might be willing to accept these sacrifices once they consider what they might be getting for their $50 per user per year and whether they really need anything more.

Finally, a reminder that this really isn't about Google Apps. It's about the model of Google Apps that will invariably be repeated by others -- a model where just one part of the offering (in Google Apps case, it's e-mail) makes for such a compelling ROI story that it makes it a lot easier to overlook the shortcomings of the rest of the package (provided there are any such shortcomings in the context of your organization's needs).