Busting the myths of Email outsourcing

Busting the myths of Email outsourcing

Summary: When you pay that outsourcing firm one and a half times $150 per hour for night and weekend work, understand that the people who actually do the work during their usual off hours get zero, zilch, nada and the outsourcing firm pockets the money. This is the dirty little secret in outsourcing firms make a killing in profits and the losers are the workers and the clients.

TOPICS: Servers

When David Berlind suggested that 90 percent of businesses can't justify insourcing their Email and therefore should outsource their Email instead, it kicked of a firestorm of debate inside and outside of our ZDNet blogsphere when JMJames who recently started blogging for our sister site TechRepublic.com took David to task. Our own Phil Wainewright compared running an Email server in-house to doing your banking in-house and concluded that "most people in favor of keeping Email in-house are simply prejudiced".  Our own Dion Hinchcliffe suggested that running an in-house Email system is the same as running your own in-house electric power plant.  Speaking as someone who actually builds Email servers, I'm going to have to bust some of these myths.

Email server equals Power Plant or Bank:
I don't know how anyone can even make this comparison in the first place.  An Email server is $5,000 while a Power Plant large enough to run a 100 person business probably costs $250,000 not including installation and diesel delivery.  Most businesses do run their own Email servers while extremely few businesses run their own in-house banking.  If anyone actually believes that these things somehow equate to each other, then you're a salesman's best friend and I'd like to sell you some ocean front property in Nevada.

Only prejudiced people are against outsourcing:
Phil Wainewright suggested that people who are for running Email servers in-house are "prejudiced".  The fact of the matter is both JMJames and I work for IT outsourcing firms that make lots of money selling outsourced Email services.  If we were "prejudiced", it would be in favor of outsourced Email.  The truth of the matter is, I would love for you to outsource all your Email services to me because it is a very lucrative business and I would start my own business tomorrow if I had more than a few hundred users willing to sign up.  I would make more money in a single month than if simply had offered my consulting services to build an Exchange server for you.

Insourcing doesn't account for overtime:
Phil Wainewright suggested that insourcing doesn't account for staff overtime.  Hearing this from an outsourcing proponent had me rolling on the ground laughing.  I think it's time that I let every one in on a little secret.  Only businesses that outsource their IT work pay overtime and companies that insource IT work usually pay nothing for nights and weekends because their staff is usually on salary.  When you pay that outsourcing firm one and a half times $150 per hour for night and weekend work, understand that the people who actually do the work during their usual off hours get zero, zilch, nada and the outsourcing firm pockets the money.  This is the dirty little secret in outsourcing where firms make a killing in profits and the losers are the workers and the clients.

Insourcing doesn't account for monitoring:
Phil Wainewright suggested that insourcing doesn't account for service monitoring.  I say you don't have to because any business has to have their own monitoring system anyways to monitor their servers, routers, switches, and firewalls.  Lots of businesses I know of rely on a cheap and simple combination of Whatsup and Solarwinds or MRTG.  Even if you did outsource something like CRM to Salesforce.com, would you really trust Salesforce.com to do your monitoring for you when they wouldn't even admit they had some severe outages?  Even though Salesforce.com started a new website to report uptime, it still makes good sense to verify.

In-housed Email results in smaller mailboxes:
Dion Hinchcliffe says that in-housed means smaller mail boxes, but I say nonsense.  Hard drives (and hardware in general) are the cheapest aspects of IT.  Outsourcing proponents like Sun wants you to think of storage as electricity.  Sun would have you believe that it's better to pay $300 per month for 300 GB of storage rather than buy 300 GBs of redundant RAID storage for a one time fee of $300 plus a few dollars per month in electricity.

In-housed Email results in less accessibility:
Dion Hinchcliffe says that in-housed means less accessibility.  I'm wondering if Dion has ever built an Email server and what makes him think that an in-house Email server is any different from an off-site server (I almost wanted to say out-house server because it would probably be an accurate description of the performance of an off-site Exchange server).  Microsoft Exchange 2003 has Outlook anywhere capability where Outlook 2003 just connects to Exchange without any VPN service and it can bypass just about any firewall or proxy restrictions.  Exchange 2003 SP2 added significant enhancements for mobile devices like Palm and Windows Mobile.  While there are bad IT departments that refuse to adopt technological progress, forward thinking IT departments will jump to implement these features.  If a business is faced with an IT department that refuses to adopt technological advancements to improve productivity, then it's probably time for the IT leadership to make some staffing changes or it's time for the business to consider new IT leadership.

Speaking of accessibility, one thing that the outsourcing proponents will NEVER mention is the speed of the server.  Anyone who's ever tried to use an Exchange server who deals with large attachments via an Internet connection would tell you that the experience stinks.  Forcing 20 or more people to use a remote Exchange server is just dumb.  No off-site server can compare to the performance of a cheap gigabit server on the LAN. 

The issue of server uptime:
Dion Hinchcliffe says that in-housed means less Email uptime.  As someone who designs Email systems, I can tell you that keeping an Email server running isn't rocket science.  Microsoft Exchange 2003 is almost zero management since user management is mostly done from the Active Directory and all it really needs is an occasional patching and some database maintenance.  Outsourced firms can easily manage a hundred Exchange servers with a few Exchange administrators that rotate shifts.  You can have as much uptime as you want but it will cost a lot less to run in-house.

In-house Email servers cost more:
All the outsourcing experts say in-house Email cost too much.  As someone who built these systems for a living, I can authoritatively tell you that it isn't true.  An Exchange server for 100 people shouldn't cost more than $6000 in hardware and that's for 3 dual-core servers which include 600 GBs RAID storage plus $10,000 in server and client licenses but the hardware and software costs can be spread across 4 years.  As for the costs of labor, it should be minimal.  For a small business with less than 100 people, the administrator who runs the Windows servers probably runs the Exchange server as well.  At most, an Exchange expert might have to be brought in to design and build the system, but it really doesn't take much to do routine administration.

When factoring wages in the decision to outsource or not, a business has to ask itself if it actually intends to lay people off in the event that they do decide to outsource.  The fact is that an IT person probably spends less than 10 percent of his time managing an Exchange server so it's highly unlikely that a business will save on head count.  If they can save on head count, there were staffing inefficiencies in the first place that could be addressed without resorting to the outsourcing of Email.  In the case of a really small business with less than 20 people, there are plenty of companies that will provide cheap remote management of an in-house small business server.  When you consider all the alternatives, it just doesn't make any sense to pay $45 per user per month for a severely bandwidth-constrained off-site Email server.

Topic: Servers

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  • Any chance?

    I tried to post this in Dion's section, but kept getting error messages.

    The way I see email used today does not really produce the right cost to benefit. All things being equal (privacy concerns etc.) reducing cost by outsourcing would help. It is the benefit side that I question:

    Organisations that send emails with attached documents are an example of when email does not work. This is a really poor way to collaborate, with all the attendant info. management, workflow problems. Better to have an Intranet approach; also decrease document production and increase the number of lightweight (or user centric) applications (AJAX/SOA is _one_ thing that interests me here, but I am surprised not to see more about WinFX ? and its constituent elements).
    Data capture capabilities are widening, and this is a really important opportunity for most organisations (those with customer service requirements in particular). Organisations really need the ability to record conversations they have with customers. This approach will extend out into internal communications ? why say it and then write it?
    Access to, and increased awareness of the right tool for the job will also occur. With regards to access, lots of organisations have or will shortly have a VoIP system in place. The push to CoIP is not such a big one from where we are today. Mobile devices are a real hurdle for a lot of organisations, but this barrier is disappearing. Organisations I see really benefit from improving their awareness of how things are moving in this area.
    Bottom-line for me is that personalisation will be the leading factor. People want to see their information presented in a cohesive but granular way. Communication channels will have to be a part of the wider web services mix. Collaborative working will have to be possible in a seamless way: internal/external contributors; office/mobile situations; individual/team working; private/social activities. Email will play its part, it will be commoditised and be outsourced, but I think it is *thank you and goodnight* for the email client.
  • Outsourcing

    I run and part own an IT consultancy business. A part of the service portfolio is outsourcing. Outsourcing is an extremely attractive business to be in, for all the reasons George/JMJames states ? but only if your interest is the short-term. I see lots of examples of really poor outsourcing arrangements - bad customers and money grabbing suppliers. The fall-out is permanent reputational damage - often on both sides. I have decided that I'll only ever do outsourcing when:

    I am dealing with a customer who can write a tight specification - they know exactly what they want.
    The specification really does translate into a sensible underlying business case.

    The simple fact is that outsourced providers has to make a profit, and are unlikely to get economies of scale (on staff or equipment) that much exceed all but the smallest organisations.

    Another key issue is the ITT to contract cycle. Firstly, is it more cost effective to go through an equivalent process with staff i.e. job description etc. Secondly, bidders _have_ to effectively insure against losing the contract. They add on a cost equal to the amount of time they expect to take during the process, and factor-in a risk rating to account for the possibility of their bid losing.

    I stay in outsourcing, because it can work for small/mid-size organisations. But my general rule is that organisations are better doing the repeatable, core things themselves ? for the moment this includes email, but not when it becomes a commodity. It is better to *outsource* for above baseline skills i.e. instances where you need a specific skill for short (or unpredictable) period of time.
    • I completely agree

      You get the rational post of the day. Thanks.
  • It depends on the size of the business

    The company I work for needs ~25 e-mail accounts. We pay ~$1500 annually for web space and maintenance plus e-mail. It would be really tough to justify doing this in-house. Never mind the software and hardware costs, the man-hours alone would kill us (and by us I mean me, seeing as I'm the only one in this company skilled enough to maintain a web and e-mail server). If there's a problem now, all it takes is a 5 minute phone call and it gets fixed, and anyone can make that phone call, not just me.

    Also you say:

    [i]Only businesses that outsource their IT work pay overtime and companies that insource IT work usually pay nothing for nights and weekends because their staff is usually on salary. [/i]

    That makes ME laugh, because you assume that my boss would rather me work overtime building an e-mail server rather than work overtime to get other work done, work that will bring money into the company. Because that's what I've been doing the last several weekends, working on a project that will add an extra million bucks to our bottom line this year and in years to come, not building or maintaining an e-mail server that will erase a $1500/year expense.
    Michael Kelly
    • Not the same thing, we're talking Exchange

      The going rates for hosting Exchange is $45/user/month. We're not talking about hosting some POP or webmail accounts. If that's all you wanted, it's almost nothing to host it in-house.
      • Almost nothing?

        Maybe in terms of software and hardware costs, but you add in the monthly cost of an additional T1 or DSL line (we have one and that's maxed out on bandwidth), that's $600/yr for a bare bones connection, plus time spent in maintenance (sorry, but the time I'd have to spend in yearly maintenance is worth more than $900) and that $1500/yr to outsource looks pretty good. Especially when you consider that I can be spending my time on more important projects.
        Michael Kelly
        • Send it once or send it many

          If you're sending a 10 MB attachment in-house, what takes more bandwidth? A remote hosted mail server or a local popmail server? Which is 70 times faster?

          You're wrong, it doesn't take an additional T1 or DSL. You have a T1 or DSL anyways. Having the server local actually reduces your bandwidth.
          • That would make sense

            if we were all in one building. I have five different buildings to worry about, all too far apart to wire physically or go wireless. And virtually all of the e-mailing, aside from simple messages which is virtually no bandwidth, is between the different buildings. And this doesn't even take into account the people who need to check their e-mail from home or on the road.

            So if a 10 MB file is e-mailed from building 2 to building 3, and building 1 has the server, then building 1 has increased activity. And as I've said, our bandwidth is maxed out to begin with.

            I have gone over our situation with many experts before, and all agree that more bandwidth would be needed if we do it in-house. And if you take into account that the outsourcing solution not only covers e-mail but web development, if you add up all that time plus the minimal hardware costs, and the choice to outsource is really an easy one.
            Michael Kelly
          • that's different

            If you're more than 10 miles apart and you can't go with a Wi-Fi wireless bridge or line-of-sight optical link, that's different. If you have 20 people spread out over 5 buildings that can't be linked with wires or wireless bridge, you're doing the right thing.

            That isn't want the email outsourcing debate is about tough. We're talking about situations where there is more than 20 people per site.
          • What is the debate about then?

            Yeah, limit it down to only the theoretical cases that match your case and exclude all the real-world examples that don't fit ...
            phil wainewright
          • That is a rare win for the off-site solution

            I'm saying that in a situation where there are less than 20 people per site, then an off-site solution is good. Above the 20 user threshold, nothing compares to an in-house solution (which can have outsourced remote management). Above the 50 user threshold, in-house staff should be able to cover Exchange management as well.

            Hey, I'm not the one that tried to exclude Exchange from the debate. You did that even though you can't raise a single example of something that's better than Exchange. Ok you brought up GMail, but please. GMail is not an Exchange contender. Windows Live Mail beta already has calendaring support. GMail can't hold a candle to Outlook Webmail 2003 or Scalix Webmail. Even so, it still doesn't address the off-line usage question.

            You still haven't addressed my question that people DO want offline capability and the DO want to work with email attachments on their local computer.
          • Shared Mail

            Lotus Notes Replication was a valid alternative to using over a hundred floppy disks. CD burners were new, and I am not certain the company had one available to me. I did not have a ZIP drive at home. USB did not exist, so do not mention USB drives.

            Lotus Notes has always had the ability for "Shared Mail". That 200MB email would be stored once per server, just like Exchange is doing. Where do you think Microsoft got the concept?
      • MSExchange Hosting?

        In a recent post to ZDNet, I suggested that very small companies would outsource email, but there is some size where it is better to keep it in-house because the responsibility is the company's. I host email for companies with less than 10 employees, and setup in-house email for companies with more than 40 employees. Most of my customers have thousands of employees, and none are around 25 employees. In the grandparent post, Michael states that 25 employees is below the point where his company notices the pain of not having their own mail server.

        Very shallow Internet research returned:
        - 100 email accounts for $20/mo. No OS specified.
        - Linux hosting at $80/month. Unlimited email accounts.
        - Windows hosting at $170/month. 300 email accounts.
        - MSExchange at $10/mo/email account.
        - MSExchange at $600/mo. 30 accounts included. Additional accounts $7/mo.
        - MSExchange at $1500/mo. 150 accounts included. Additional accounts $7/mo.
        - MSExchange at $4500/mo. 500 accounts included. Additional accounts $7/mo.

        The highest per mail account monthly cost is $20, less than half your $45. $9 or $10 per month seems to be the standard for MSExchange accounts.

        I would be interested in the justification for MSExchange. A "standard" SMTP/POP3/IMAP mail account can be hosted for 20 cents per month. An MSExchange account costs 50 times that. Why use MSExchange?
        • I don't set the Enterprise standards

          That was from David Berlind's post that kicked off this debate.

          As for "why use Exchange", it does more than a POP/IMAP account. It has calendaring, Outlook webmail, smart phone support, Outlook 2003 Exchange over SSL mode. That may or may not be justifiable for you, but like it or not Exchange is the dominant platform in Enterprise email. I don't set the market shares, I'm just dealing with reality.
          • Domino?

            I create my own reality, so maybe I am insane. If a company tells me they will only use Microsoft software, I tell them they are talking to the wrong person. I think software should be fast, good, and inexpensive, and using Microsoft software removes the first three items on that list.

            It is difficult to think "Microsoft" and "secure" at the same time. I am glad MS added SSL support, but if a company cares about security for email, they will be using Lotus Notes clients. Domino supports the rest of your list, and has had those functions much longer than Exchange.

            Yes, Lotus Notes/Domino hosting costs similar to Exchange hosting, but includes more. Once a company is large enough to need the extra options, bringing it in-house is usually cost-effective.

            I have not seen a study about what large companies are using for email in quite some time. A few years ago, over half of the Fortune 10, 100, 500, and 1000 were using Lotus Notes. (Which of those lists is your definition for an "Enterprise"?) Microsoft dominated small companies, but was unlikely to be used when someone was responsible for the infrastructure.
          • I've got no problem with alternatives

            But for the purpose of debate, I tend to talk about what most people are using.

            I don't have a problem with what you're saying except when you go on to say something like "It is difficult to think 'Microsoft' and 'secure' at the same time". Given the fact that you don't know many things about Exchange, statements like that do nothing but troll and adds no value to the debate.

            I have no problem with POP3, IMAP, Open Source, Lotus (I?ve set these up too), so long as they?re in-house and offer high-performance and lower cost than an off-site solution.
          • Sorry

            I apologize. A blanket statement about Microsoft's security was not needed.
          • Thanks

            And I didn't mean to imply that Exchange is the ONLY Enterprise email solution and it may have come off that way. I have no problem with Lotus based solutions and I've done some limited deployments of it in the past. I just happen to be more familiar with the Exchange environment.

            My point is that it isn't an Exchange versus Notes argument, it's an in-house versus out-house debate. I simply believe an in-house Exchange or Notes server is a lot more productive for the users because of the massive bandwidth increase.
        • You're also talking about a shared server arrangement

          The $45 price is probably a dedicated server solution. The prices you quoted are very likely to be on a shared server and they're running the hosted version of Exchange designed for ASPs.
          • Dedicated MSExchange Hosting

            The last three prices were for "Dedicated Microsoft Exchange Hosting Plan". If they are using Shared Hosting, they are violating the "Truth in Advertising" laws.

            Another company offers "Managed Dedicated Exchange Servers":
            $549 for 25 "User Licences"
            $1,099 for 100
            $2,099 for 200
            $5,499 for 500
            Additional "User Licenses" at $7/month/user for each plan.

            This company offers Shared Hosting depending on mail files size for $10 (100 MB) to $40 (1 GB) per user per month. Few employees should be allowed the higher priced plans.

            All these plans have 100% Guaranteed Uptime SLAs.

            If a company buys a plan well beyond their needs, they could pay $45/month/user, but the company would have other issues, such as a poor procurement process.

            Again, this was extremely shallow research. I am certain better prices could be found with more than 2 minutes of research.