How much does Exchange really cost?

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.

What 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.