How much does Exchange really cost?

How much does Exchange really cost?

Summary: Serena Software says it will save $750,000 when it junks Exchange in favor of Google Apps at the end of this year. But some say the numbers don't add up, wondering how an 800-employee company spends a million dollars a year running its email servers in the first place.


A heated discussion is raging in the comments to a Clint Boulton eWeek article about Serena Software's decision to switch from Microsoft Exchange to Google Apps.

Google AppsWhat is at issue is the true cost of running Exchange. Serena says that junking Exchange in favor of Google Apps will slash its costs from $1 million a year down to $250,000. Many of the commenters are wondering how an 800-employee company manages to blow an eight-figure sum on running its email servers, and the debate throws an intriguing light on how people evaluate the relative costs of on-premise software against in-the-cloud alternatives. Here's one of the commenter's calculations:

"800 CALs at retail pricing is $67 x 800 = $53,600. Exchange Enterprise Edition is $3,999. Let's assume they have two servers: $7,998. Let's also throw in the Software Assurance CAL of $35 x 800 = $28K. Two beefy servers at $10K each = $20K. Two full time Exchange administrators at $100K/year = $200K. Total = $309,598/year."

Serena's VP of corporate communications responded, explaining that ancillary costs such as spam filtering, security, archiving and disaster recovery (DR) accounted for much of the total cost:

"Here is how we factored our costs, basic Exchange costs (CALs, SAs and the like) paired with Postini is around $500k. That's not our full costs though ... where the costs really start adding up is in storage and disaster recovery (particularly when you consider we have DR plans for 18 countries). So when you take unified messaging, storage, DR and admin costs which come to $500k and add the original $500k we were looking at $1 million USD per year as a total."

That hasn't cooled the debate, with several Exchange hosters weighing in to say they can provide an equivalent raft of services for a much lower all-in cost. But the discussion does underline how easy it is to underestimate the cost of an on-premise application if you don't factor in all the associated extras — not just the theoretical costs of the software, hardware and day-to-day operations but also the often-overlooked costs of managing patches and upgrades to each of those ancillary tools as well as the core package itself (not to mention the management time expended on explaining over and over again to users why they can't have Gmail-like 6GB mailboxes). In fact Mimecast, a company based near me in London, has a thriving SaaS business providing all those ancillary services around Exchange, leaving its customers to run just the bare Exchange servers on-premise.

Has Serena over-stated its Exchange costs? I suspect not, given the kind of headaches I know Exchange causes many companies of its size. With operations spread across the globe, it makes perfect sense to leverage Google's global infrastructure rather than struggling to maintain its own internal email empire.

But Serena does have a vested interest in talking up the cloud story, given its own strategic commitment to become a SaaS vendor. I was especially interested to note from the eWeek story that Serena has "no current plan to jettison SharePoint," which staffers use for collaboration. That rather contradicts last year's story that Serena runs its intranet on Facebook (I was skeptical at the time). So I suspect the transition to Gmail may not be as abrupt as the eWeek story suggests, and Serena will continue to spend on Exchange for a while yet until it can get all its users to switch over.

All this argument over details, however, obscures the core message of this story, which is that running Google Apps as your corporate email system is demonstrably and significantly cheaper than Microsoft Exchange. Anyone who seeks to argue otherwise is significantly understating the true costs of running Exchange on-premise.

Topics: Enterprise Software, Cloud, Collaboration, Data Centers, Software

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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  • Umm

    what additional hidden costs? Those two Exchange admins aren't just shelf ornaments you pay $100k a year for. They administer the system. All your patches, maintenance, and other "hidden" costs aren't hidden at all; they are accounted for in the cost of your admins.

    The only reason this gets complicated is because someone with an agenda or who is trying to sell you something makes it complicated on purpose.
    • You do know...

      ...that downtime is also a cost? Exchange servers require maintenance, and they do tend to get corrupted and require restoring. While they are being patched and restored people are not productive and there is a cost associated with that. Picture 20 hours of downtime a year (not unheard of with Exchange) with 800 people billable at $100 an hour, you get $1.6M a year. Now those people can do other things, but lets say one misses an email that would have brought in an order. If that customer goes elsewhere because they didn't get a response in time, what is the cost? What if they can't email an RFP response by the deadline because email is down?
      About 9 years ago I did some work with a Transportation Industry customer who at that time didn't consider their email a critical system. They had two drives in the same RAID set fail on their Exchange server and lost a days email. They later calculated the lost at over $100,000, not counting the hardware. And this is a customer who made large, expensive objects that take months to build. Imagine a law firm or a stock brokerage firm, and the hidden costs skyrocket.
      • Ummm......Backup is the answer

        So you start out by bashing Exchange from what you hear I take it. Then end up with an example of a hardware issue that happened to be the server that was running exchange. Nothing to do with Exchange at all. The way I go about not missing emails is by using a store and forward from my ISP. If my server goes down, they take all my email for me and then once I am back up they ship all the email to our server leaving us with no lost emails. Not sure where exchange would be down for 20 hours in a year, I would like to see the condition of these servers and how they are configured because that is not good and should never happen. Exchange has always been one of the most rock solid pieces of software I have ever been around and that is alot of software. It takes some know how, but once you have it you can keep exchange running to your hearts content. It really is very simple and easy to use even after they have changed it to mostly being a command line driven configuration. Easy as pie really.
        • Trust me, I do know Exchange Backup

          I have designed dozens of backup scenarios that made use of VSS integration with storage arrays point in time copy applications (HP's Business Copy or EMC's Timefinder for example) to do regular hourly or on the 1/3 hour running backups throughout the day and even one with CDC allowing for to-the-second restore. I have been working on D2D2T projects for over 7 years, and do know a bit about it. I will admit I haven't done any Exchange projects in the last 8 months however, so my information may be a little out of date. Having worked with Microsoft since Windows version 1.10 though, I doubt they've fixed everything since last spring.
          By the nature of your post I am guessing you've little experience with large Exchange environments because they do get corruption, it's a question of when not if, and when you are talking uptime, it comes down to how quickly it's found and corrected. Your mention of [i]The way I go about not missing emails is by using a store and forward from my ISP. If my server goes down, they take all my email for me and then once I am back up they ship all the email to our server leaving us with no lost emails.[/i] is another indication. Global enterprises typically don't go through an ISP for mail services, they would have their own presence on the network, so in effect they are their own ISP. Imagine getting a notice from Microsoft that their mail server was down and try resending later to get an idea of the importance of keeping email running. One of the recommendations I always make if to keep datastores to less than 500GB, usually 150-200GB, and have several of them. This makes recovering or restoring them faster and easier to manage, even if it makes more work for the SAN administrator. I am always horrified when I hear customers discussing 2TB datastores, that's a recipe for disaster (those are the 20 hours downtime cases).
          Lastly, I gave that example (even if it is 9 years old) because it was rather traumatic for me, I was berated by the customer for being right. He felt I hadn't insisted strongly enough...

          Remember, just because you are successful racing go-karts doesn't mean you can compete in Formula One.
        • Mythical Creatures

          Until today, I'd always lumped admins who actually liked Exchange in with the Tooth Fairy, Easter Bunny, Santa Claus and other mythical beings.

          Damn! Now I'm going to have to rethink the whole deal.

          Wait! It's mid-November already! Crap!!! Gotta start being nice!!!
          Dr. John
          • I agree

            But since he made the statement "[i]Exchange has always been one of the most rock solid pieces of software I have ever been around[/i]" I suspect he may be a bit of a neophyte. I have a friend who inists that his Hyundai Pony was the best car he ever owned.
            Ah, to be young and innocent again!
          • No thanks!

            One time through being YD&FoC was enough for me. I'll stick with old, wise and treacherous. :-)
            Dr. John
      • Small Firm

        I have just five users, three attorneys and two staff. We do still bill some clients by the hour although that is changing fast. We moved from Exchange to the Cloud for a little more than $400 per month. When the internet is down, like it was last night during a storm, I can't access the Cloud. I'm thinking of returning to Exchange. What would you recommend?
  • Bad numbers

    Having implemented more than a dozen Exchange systems I can tell you that if a company has 800 employees you'll be hard pressed to even find one full time Exchange Administrator...that's generally a part time job and the indivduals responsible for Exchange have a slew of other responsibilities.

    As for the SLA's associated with the low cost alternatives I think you'll be hard pressed to find any ASP or 'cloud computing' company providing a 15 minute, 30 minute or even a 1 hour SLA which most companies hosting Exchange internally now generally expect.

    Bottomline is you can't compare apples and oranges and if you're going to try, you better make sure that all major cost related aspects are a one to one comparison otherwise your numbers are simply 'BS'.
    • That depends.

      [i]Having implemented more than a dozen Exchange systems I can tell you that if a company has 800 employees you'll be hard pressed to even find one full time Exchange Administrator.[/i]
      If that 800 employee customer is a 500 lawyer law firm, then you could easily have 2 admins, although I doubt they would only do Exchange (add SharePoint etc to those duties, but I see them as being one and the same). If a law firm can't bill, the costs are staggering.
    • Thanks

      Thanks for stating that an 800 user implementation of Exchange isn't a two $100k admin job. We have just under a 100 users and we spend almost no time in administering Exchange. Not that I wouldn't mind sitting around for $110k a year and waiting for something to happen between patch updates. ;-)
  • RE: How much does Exchange really cost?

    I am running an exchange server (among all the other
    IT duties) for 65 users. If I divide 800/65 that gives
    me about 8%. If I take 8% of $1m that gives me a
    budget of around $80k. I can take this to the owner
    and pitch one of two things, either I am really cheap
    or I should get a raise.
    • RE:How ... ?

      <font color=grey><em>"If I take 8% of $1m that gives me a
      budget of around <strong>$80k</strong>. I can take this to the owner
      and pitch one of two things, either I am really cheap
      or I should <strong>get a raise</strong>."</em></font><br>
      Be careful, because if your manager have he/she thinking cap on, they may say hmmm, I can save <strong>2x80K</strong> (dump you and the Exchange server). Know what I mean? ;)<br>
    • How much... those 65 users bring in on an hourly basis? That is the true measure, what does it cost the company for email to be down for an hour?
  • The article is misleading.

    The cost savings isn't so much Exchange versus Google Mail
    but rather in house versus outsourced.

    As for the in house cost of running Exchange the company
    must have a very elaborate Exchange environment to push
    costs up to $1M/year. We're talking many severs at several
    locations with the possible use of a SAN instead of local
    storage. A likely complex and unnecessary configuration for
    800 users.
    • As you said, they have a vested interest

      in the cloud. It sounds as though the company may be willing to [b]way[/b] overstate the cost.

      How would it look to it's potential customers that while they're talking up their SaaS products, they're running all their own infrastructure off "the cloud" (in house)?

      From those that i've talked to that run Exchange, if it's costing them a million a year to run it, they're doing something drasticly wrong.
      • RE: ... vested interest -- ing, ...

        <font color=grey><em>"From those that i've talked to that run Exchange, if it's costing them a million a year to run it, they're doing something drasticly wrong."</em></font><br>
        Could it be a M$ partner rapping another customer?<br>
        Just a rhetorical question.<br>
        • M$ partner or Not.....

          This should not cost the company this much money. I personally run an exchange environment for 200 users and to be honest is one of the best products I have ever worked with as far as maintenance and ease of use and setup. Our costs to run the server are included in my salary of which I do a host of other things besides being an exchange admin. As for the cost to license this it was somewhere in the range of just under $10,000. I am seriously blown away by the cost this company is stating because it just doesn't add up. I understand the other costs of other things such as storage and DR, but seriously excahnge should not be one of the products that an admin needs to work on that often. It just works and makes my life a hell of alot easier. Say what you will, but its a breeze over hear and thats just my view.
          • If you bothered to read the whole article

            You'd know that this is a company with multiple international locations. That significantly complicates things.

            Basing your judgement on nothing more than the number of actual users is short-sighted. A 50 employee company could have more complex requirements than one with 500 employees, depending on the nature of their businesses.
  • RE: How much does Exchange really cost?

    An associate of mine moved his 100 user company off exchange and into google apps a few months back .... Then the employees realized they couldn't use outlook anymore (at least not effectively).. Then they discovered it would change the way they use their blackberry's and smartphones ... Finaly the users and manag,ent revolted. I made a small fortune changing them back.