What's the true cost of running email in-house?

What's the true cost of running email in-house?

Summary: The argument whether to outsource email is dominated by perceptions and prejudices rather than hard facts. Most companies have no idea of the true costs.

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TOPICS: Outsourcing
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There's been a bit of a debate going on here amongst ZDNet's bloggers, both publicly and privately, about whether it's better to outsource email or keep it in-house. Behind the scenes, George Ou is even trying to cost a list of all the ingredients required to set up a redundant Exchange architecture, including software and staffing, so as to prove that it's "cheaper" than paying an outsourced provider.

You know what? I've come to the conclusion that most people who are in favor of keeping email in-house are simply prejudiced. I don't see them including any costs for management and monitoring software to make sure that the system stays up and running and to send alerts if it doesn't."Most companies do not understand the true, hard costs of their messaging systems" I don't see them including the cost of holiday cover or overtime for the email administrator, so I guess if the system goes down at 8pm everyone will just have to wait until next day before it comes up again. There just seems to be an unspoken assumption that, so long as you set it up right, the in-house system just isn't gonna fall over (or if it does, only during office hours). Whereas (the assumption continues) everyone knows that outsourced providers are always having outages ... The other interesting question I have in my mind is, how did we end up centering the discussion on Exchange hosting when it was originally sparked by Google's moves with Gmail? Where's the price comparison of an in-house Gmail infrastructure compared to the cost of Google's service?

Anyhow, my role as the resident SaaS blogger here on ZDNet is to be prejudiced the other way, so I decided to ask an expert on email outsourcing to put his point of view. Patrick Fetterman is president of Mi8, an innovative New York City-based company founded in 1997, which specializes in providing hosted Microsoft Exchange as a subscription service.

Patrick and his company have had long experience of dealing with most companies' natural diffidence about email outsourcing, so he takes a much more conciliatory line than my own provocatively combative approach to such matters. But what struck me most about what he put down was his final point, so I'm going start there and then work back, because I think it underlines the way this argument is dominated by perceptions and prejudices rather than hard facts (I've added emphasis to some of his words):

"Amazingly, every company we talk to has a TCO for their messaging system that is far below the industry average, and uptime that is far above the industry average! I don't mean to poke fun, but it's become blatantly obvious to me that most companies do not understand the true, hard costs of their messaging systems, nor do they accurately measure their downtime. We assist companies in calculating these numbers, and they are often shocked by what they discover."

He goes on to add that the point of outsourcing isn't usually to save money, but to improve the performance and reliability of email:

"Outsourcing is not usually an enormous cost savings, but it is predictable, which is often a benefit (and it should be at least roughly equivalent to your internal costs, not significantly higher.) Also, outsourcing can deliver an improvement in reliability and performance, especially if you're on an older, trouble-prone system, or if resources are hard to come by."

He prefaced these comments with a balanced assessment of the factors to be taken into account when weighing up whether or not to outsource email:

"There are many reasons to consider outsourcing a messaging system, but in my opinion, there is no silver bullet to this, no one item that says, 'You absolutely MUST outsource your messaging!' Rather, it's how your organization weighs several different factors:

  • The mission-critical nature of email
  • The availability and cost of talented email administrators in your geographic region
  • Your overall IT budget and project calendar
  • The required feature-set
  • Integration with other systems
  • Regulatory requirements impacting email

"I disagree with some previous posters in whether or not a company should consider outsourcing a truly mission-critical system, but it must be in balance with the other issues listed above. Email has become mission critical for most companies, just like the phone system and an Internet connection, but like these other systems it is NOT a core business function of the company; rather, it is an infrastructure service. This should put messaging on the top of the list of systems that should be considered for outsourcing."

Topic: Outsourcing

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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40 comments
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  • Switched to in-house

    I switched my company to in-house last Oct. The conversion was a challenge (I'm not even close to qualified.) I could not be happier with our choice. All the fear I had of running Exchange was overblown and the performance is astonishing.

    Feel free to disagree, but I'm going to be hard pressed to out-source again.
    xabbo
    • Switching to in-house

      I agree full heartedly. I am in the process of switching, but will be using Exchange only for calendaring, tasks, contacts and SMTP functionning. POP will be another vehicle yet-to-be-determined. I've seen too many problems from ATT/SBC to allow them to continue screwing up one of my company's lifelines. Think I'm joking ? Check out how they deal with their own blacklisted IPs.
      techotter@...
  • The Hidden Yet Explosive Cost

    There's another hidden, potentially explosive cost: smaller businesses without full-time IT staff, backrelease unsupported Exchange (or none), who end up accessing "in-house" email as POP-mail, storing everything on individual laptops. With attrition, laptops lost, upgrades ..etc.. the potential cost (contractual, legal ..etc) of a company NOT having access to their own communications can be huge.
    This is not a hypothetical scenario, I've seen it happen.
    Zoli Erdos
    • The Hidden Yet Explosive Cost

      Ive seen users store mail locally on their laptops even when the mail services are externally handled.
      thabib_z
  • This is the best I have heard so far

    Mr. Wainewright, thank you for writing this article, it is the most clearly written and logical post I have seen from the outsourcing team on this issue, and I find it hard to disagree with it.

    "I've come to the conclusion that most people who are in favor of keeping email in-house are simply prejudiced."

    I don't think I have ever hid my active dislike of outsourcing as a general rule. I know that I am violating Rule #712, when I make a decision based on a gut-level "yuck factor". But this response is instilled by my long, deep, personal history as not just a customer of managed service providers, but as a former employee of one. Am I prejudiced against outsourced solutions? You bet I am. I'm I close-minded about them? Yeah, I am. But I am still a rather rational person, and I would rather admit to being wrong than hold onto a wrong idea out of pride. I just have not seen any clear, logical reason to beleive that oursourcing deliviers either better value or better price, particularly when it comes to email.

    "I don't see them including any costs for management and monitoring software to make sure that the system stays up and running and to send alerts if it doesn't."Most companies do not understand the true, hard costs of their messaging systems" I don't see them including the cost of holiday cover or overtime for the email administrator, so I guess if the system goes down at 8pm everyone will just have to wait until next day before it comes up again."

    Yes, this is true. Myself and other are leaving this out of the equation, and I will add it to my list of things to be looking out for. To be fair, though, most large businesses already have these things. That is part of my point. Most large businesses already have a team taking care of mission critical systems, and adding email to the list, which is just about the easiest system in the world to run, is not much additional work.

    "Whereas (the assumption continues) everyone knows that outsourced providers are always having outages."

    Whenever I mention something like Salesforce.com, it is to make the point that oursourced vendors are not perfect either. The outsourcing crowd would have one beleive that oursourced vendors never go down. Well, they do. They are subject to all of the same problems as in-house, and once an in-house IT department reaches a certain size, their redundancy and what not is just as good (may not be as big, but just as good) as even the biggest outsourced provider.

    "The other interesting question I have in my mind is, how did we end up centering the discussion on Exchange hosting when it was originally sparked by Google's moves with Gmail? Where's the price comparison of an in-house Gmail infrastructure compared to the cost of Google's service?"

    Blame Mr. Berlind for this one. In my original post (http://www.zdnet.com/5208-10532-0.html?forumID=1&threadID=17781&messageID=349351&start=-1), I simply said (in a nutshell), "leasing is always worse than buying, and if you do decide to lease, Google is not a great choice anyways). He then responded (http://blogs.zdnet.com/BTL/?p=2588) with a post that was 50% quotes from Centerbeam, a company that provides outsource Exchange. Indeed, my response to that (http://www.zdnet.com/5208-10532-0.html?forumID=1&threadID=17796&messageID=350047&start=-1) points out quite clearly that he abandoned the field regarding Google. He simply gave up. I have mentioned a number of times that a *Nix running sendmail, qmail, or Scalix compares even better than Exchange, in favor of in-housing. Now, we honestly cannot compare anything to Google at this point, because we have no details on the Google thing anyways, like "what's included?" and "how much does it cost?"

    "He goes on to add that the point of outsourcing isn't usually to save money, but to improve the performance and reliability of email:"

    Here is where Mr. Wainewright began to win e over. He is now setting out to show that oursourced email does not necessarily deliver a better cost, but a better product at the same cost. I can beleive this. A well run company, when scaled massively, can deliver this server to smaller businesses, and have the cost to themselves low enough to still make a profit, pay for marketing, sales, etc., and still deliver at roughly the same price. This is something which follows my guidelines for outsourcing. I love the quote, too:

    "Outsourcing is not usually an enormous cost savings, but it is predictable, which is often a benefit (and it should be at least roughly equivalent to your internal costs, not significantly higher.) Also, outsourcing can deliver an improvement in reliability and performance, especially if you're on an older, trouble-prone system, or if resources are hard to come by."

    I really wish I could hire this guy, he seems like one of the few people in the business of selling IT services who actually understands customers. He isn't promising gee-whiz technology (it's email, after all..), AJAX forms that blow up a browser, or anything else. He is offering increased reliability at about the same cost, and does not promise savings when he knows (and I know) that it most likely won't be cheaper. If his service truly can deliver significantly more reliable service than I can provide in-house, at the same cost, by all means, we have something that we can start a sales talk on.

    I am still not completely sold on the idea of outsourcing email; there are still reliability concerns (I like to reduce potential points of failure whenever possible, and outsurcing multiplies potential points of failure) and privacy concerns. In addition, we have the challenges that SaaS companies face to establish trust (http://blogs.zdnet.com/SAAS/?p=81).

    However, I will say, this gentleman knows exactly what I am talking about, understands my problems, and addresses in an honest fashion the realities that he can provide.

    J.Ja
    Justin James
  • Most IT admins don't get overtime

    Most IT admins get nothing for working late or over the weekends if they're in-house. If they're outsourced staff, they still get nothing for working overtime over the weekends, but the outsourcing company will bill YOU for overtime and pocket the money.
    george_ou
    • All too true

      When I worked for managed services, every customer that wanted 24x7 service got billed extra for it, as if we needed to hire extra staff just for nights and weekends, when the reality was that the staff was there anyways. In other words, each customer was paying 75% of the cost of a full staff, but actually getting 25% of a full staff, and that skeleton crew was handling a large number of customers. Indeed, 9x5 customers were money losing accounts, and the 24x7 customers were only profitable because of that upcharge!

      J.Ja
      Justin James
    • Overtime?? What's Overtime??

      I'm a network Admin at a Hospital... I get no overtime... if we go down, I work until it's back up... I'm on salary... We have had great luck with our in-house Exchange System... there have been some downtimes, no question... but they are extrememely few & far between... I would much rather support it ourselves than leave it up to someone else....
      brandonw407@...
    • Depends on definition of "IT Admin"

      As an "IT Systems Administrator", I do get overtime because California's labor laws specify that certain categories of support (IT, administrative or whatever) be paid hourly and are eligible for OT. This may be the same in some other states. And paying me internal OT makes more sense than paying subcontractor OT rates.
      techotter@...
  • The monitoring issue

    You would have to have something like Solarwinds in place to monitor the rest of your systems anyways even if you did outsource email. Adding the email server to that system doesn't cost any extra.

    Even if you outsourced ALL your applications, you still have routers and firewalls locally which you'll want to monitor on your end anyways. You'll also want to monitor your ASP because obviously they won't always admit they had a problem, think Salesforce.com. Sure they put up their own public monitoring site for "trust", but would you trust them without verifying?
    george_ou
    • so true

      Also outsourced email needs managment time too. How come thats never accounted in the cost.

      All the email at the company I work for is done in house with Microsoft Exchange. I cant recollect an instance when I could not access my email. If my memory is right I've not had this problem at all.
      zzz1234567890
      • I wish we could outsource our email

        We have email issues at my site. Our Exchange boxes go down couple times a month or more and our windows admins wouldn't know until the next day or 30 minutes later if it was during business hours.

        So our CIO got on our managers to really start monitoring email since it has become critical.
        Since I'm in charge of our external email boxes (running sendmail/procmail/qmail) which we use for incoming and outgoing email I had to write a program that monitors incoming and outgoing email (looking at the queues, size of files in our queue, if I could communicate w/ the exchange boxes, monitor the pix, etc).

        Now we know when we are having email issues in a minute or two. But I have to be honest, I wish we could outsource our email to like google since they would be better at it than we our. Unfoutunately, we our a major hospital and no way could we outsource our email.
        dwjunix
        • Nothing to prevent outsourcing

          "Unfoutunately, we our a major hospital and no way could we outsource our email." I'm a Chief Privacy Officer and, from my experience, there is nothing in the fact you're a "major hospital" that would prevent you from outsourcing. Many major health organizations outsource their IT infrastructure, application support and network support for the same reasons other organizations do - sometimes to save money, but mostly to have more reliable operations with predictable expenses.

          If you do head down this path, you need to ensure you're dealing with a reputable firm, and that security, confidentiality and privacy obligations (they are separate concepts) are clearly defined in your contract. Proceed cautiously, but don't be afraid to do so.

          BTW, at the risk of taking this thread in a different direction, it's my view you should also look at a more secure e-mail environment. IMHO, MS Exchange and Outlook just don't make the grade. We use Lotus Notes / Domino and I believe it's a far more secure, more robust environment that can also be used for application development and collaboration (if you use it only for e-mail, you're really wasting it's capabilities). I do note we have far fewer outages than our peers using the aforementioned MS e-mail environment and if e-mail is becoming, or has become, a critical system, then availability needs to be considered.
          IT Makes Sense
  • Waht about sensitivity of content?

    One thing not covered here is the sensitivity of the emails and data containted within (business intelligence).
    Perhaps companies feel safer keeping this in-house.
    Compliance and regulatory issues with larger companies is also a factor
    thabib_z
    • Content thiefs are usually employees

      I think this is a relatively common concern, but the truth is that most proprietary information that is stolen from companies is stolen by employees, not by consultants, contractors, or external sources. Outsourcing companies generally do better employee screening and have better controls in place than most small and mid-size businesses (and better than some large businesses).
      patfett
  • The issue of prejudice

    "I've come to the conclusion that most people who are in favor of keeping email in-house are simply prejudiced"

    I would be very careful with these types of generalizations. If I did have a prejudice on this issue, I would be for outsourcing since I'm an IT consultant in a company that hosts Exchange for other customers. When I say outsourcing is often a rip-off, you're hearing it from a credible source.
    george_ou
    • lol, same here!

      "If I did have a prejudice on this issue, I would be for outsourcing since I'm an IT consultant in a company that hosts Exchange for other customers. When I say outsourcing is often a rip-off, you're hearing it from a credible source."

      The joke of it is, I am too! The company I work for makes their living doing all of the things that the internal IT departments are not competant to do... which seems to consist mostly of writing a lot of Excel macros that process data that comes from a SQL database. All of the horror stories that Mr. Berlind et al put forth of internal IT departments are no joke, they are real. When I worked for a F500 company (doing managed network management services, no less), the network frequently had hour-long outtages, email servers were frequently down for half a day or so, etc.

      Much of the difference between an outsourced company and internal IT all depends upon management. When management/HR has poor BS meters, they get a gang of fools doing their IT. For whatever reason, HR departments seem extremely unable to be very discerning when it comes to hiring. They love asking irrelevant things what what certifications you have, in-depth questions about the "major projects" you have been on, etc. Heck, I once BSed my way into a job that I was completely unqualified merely because I brought a CD-ROM that had a little Flash app (lots of shiny animations!) that was an in-depth version of my resume. It even had a pretty cover and label. That was all it took, some moving pictures. This is a huge problem at companies, HR is generalised and doesn't know how to hire tech workers. In an outsourced company, HR is focused on hiring tech people (and may even be technical people themselves) and are more likely to know what to look for. Whether or not they actually hire the right people (have to save costs, after all, to turn a profit) is another story...

      J.Ja
      Justin James
      • All depends on hiring and promotion practices

        There are outsourcing nightmares, and there are insourcing nightmares. My point is that if you compare competent outsourcing to competent insourcing, the insourcing will be cheaper and the service will be better.

        This of course depends on your ability to hire competent IT staff. I?m glad you brought up the issue of HR. A couple years ago, I had the pleasure of working for one of the best IT departments where the entire company elected the IT department for a service award and we all got a nice little bonus check and a plaque. This particular IT department was built from scratch to replace an outsourced consulting firm that was more interested in keeping the status quo of broken systems so that they?ll never work themselves out of a job. The way this shop was built was that our CIO was one of the few managers that personally went to the job fair and personally screened the applicants. He didn?t wait for HR to screen a bunch of paper warriors.
        george_ou
  • email? why?

    I'm actively trying to get away from email, preferring instead IM - but that needs managing as well - especially from a SarBox perspective.
    dahowlett@...
  • Further thoughts on hosted service providers vs. traditional outsourcing

    My comments a bit long, so posting a pointer instead ...

    http://www.zimbra.com/blog/archives/2006/02/email_via_saas.html
    dietzen