Is the Cloud Always Cheaper?

Office 365 and Exchange Online are good offerings – they provide useful functionality, a growing feature set, pretty decent uptime, and they’re relatively inexpensive. Microsoft, in this third major iteration of cloud services, has done a good job at offering a comprehensive set of applications and services. (We use Exchange Online internally and are quite pleased with it.)

From Microsoft’s perspective, the primary reason to move their customers to the cloud is to make more money. In 2015, Microsoft told Wall Street financial analysts that moving its customers from a “buy” model to a “rent” model will generate anywhere from 20 percent to 80 percent more revenue for the company. As evidence of how right Microsoft was, the company’s Office 365 revenue for the fourth quarter of 2017 is now greater than its revenue generated from traditional licensing models.

From a customer perspective, one of the key reasons for migrating to Office 365 is to reduce the cost of ownership for email, applications and other functionality. Our cost modeling has demonstrated that this actually is the case.

So, Microsoft makes more money from the cloud, but its customers spend less when migrating to the cloud. On the surface, that doesn’t seem to make much sense until you realize that the cost savings for customers are coming primarily from the labor that you no longer have to pay to manage an on-premises system, and from the stuff you no longer have to buy to maintain it, especially when considering hardware and software refresh cycles.

But what if you’re a small organization that wasn’t spending much on labor because you have an easy-to-manage email server, for example, and your hardware requirements to run it are not significant? Let’s go through an example comparing Exchange Online Plan 1 with Alt-N Technologies’ MDaemon Messaging Server for a three-year period for a 50-user organization:

Exchange Online Plan 1

  • $4.00 per user per month
  • $7,200 for 50 users for three years

MDaemon Messaging Server (with priority support)

  • $2,433.04 initial cost, or $1.35 per user per month for three years

MDaemon Messaging Server (with priority support, Outlook Connector and ActiveSync)

  • $4,678.43 initial cost, or $2.60 per user per month for three years

So, the on-premises platform will save a 50-seat organization anywhere from $2,522 to $4,767 over a three-year period. If we assume that an on-premises email system like MDaemon could be managed by an IT tech making $35,839 per year (the national average for that position according to Glassdoor), that means the tech could work anywhere from 4.1 to 7.7 hours per month on the MDaemon infrastructure to bring its cost up to that of Exchange Online Plan 1, although it’s unlikely that much of a time investment would be required. Of course, I have not factored in the cost of the hardware necessary to implement an on-premises email system, but most organizations already have that hardware on-hand already.

The point here is not to abandon consideration for Exchange Online or other cloud platforms, since they offer a number of important benefits and there are good reasons to go that route. But for organizations that need to get the most bang for their buck, they will be well served to consider using on-premises solutions, especially if their hardware and software refresh cycles are longer than three to four years. That’s especially true for things like desktop productivity platforms like Word, Excel and PowerPoint, where the average refresh cycle is quite long (one survey found that Office 2010 remained the most popular version of Office in use five-and-a-half years after its release.)