Peter de Haas: Microsoft Exchange Isn't That Expensive

Peter de Haas, Online Strategy Manager for Microsoft Netherlands, has taken issue with the eWeek article claiming that Serena Software is going to save $750,000 per year by moving to Google Apps. He points out that Microsoft Exchange isn't that expensive. He quotes the Radicati Group, which says, "Mid-size organizations (i.e. 1,000 email users) had a 3 year average TCO of $562 per user/year." So instead of $1 million a year, Microsoft Exchange costs only $449,600 a year (800 employees x $562 per user/year). Um, OK. That's still more than ten times more expensive than the Google Apps price of $40,000 (800 employees x $50 per user/year).

Peter then points to Exchange Online, a hosted version of Exchange run by Microsoft, as a lower cost way to get Exchange. That's certainly cheaper--$92,352 a year, instead of $449,600 a year. However, Peter rightfully points out that that price doesn't include Microsoft Outlook--which if you figure in buying Microsoft Office at $300 for each of the 800 employees, adds $240,000 to the bill (800 employees x $300). If you spread that cost out over three years ($240,000 / 3 = $80,000), then the annual cost for using Exchange Online and the e-mail client is $172,352 per year--still more than four times the Google Apps cost of $40,000 per year. So while Serena Software may not be saving $750,000 a year, it's still saving a chunk of change.

While Peter is right for taking eWeek to task for overstating the cost of Exchange, I think eWeek also overestimates the cost of Google Apps. The article says Serena will pay $250,000 per year for Google Apps, rather than the $40,000 I come up with (800 employees x $50 per user/year).

No matter how you slice it, the ultimate takeaway is that Exchange is still on the high side for licensing fees. Microsoft has only itself to blame for this state of affairs. If Microsoft were to drop the effective price of Exchange to $50 per user per year, Microsoft would stop Google Apps dead in its tracks. Google Apps hasn't done well in large enterprises, but if Microsoft were to meet Google's low price, that would drive the nail into the coffin. I think two things will prevent that change in Microsoft behavior. First, Microsoft likes the margins of the Office suite, and second, Microsoft may be worried that regulators would see such a pricing strategy as monopolistic.

Comments

[Peter de Haas]

Guy,
Thanks for adressing this.
Besides the costs being off here and there in the article it was also written under the assumption that Exchange = Gmail fictioanlity wise, that's not the case. Exchnage is not beta, it supports iPhone, Nokia and Windows Mobile out-of-the-box, etc. So price wise and functionality wise its an apples to oranges comparison.

eWeek should start using Microsoft Excel for their calculations is my main conclusion :-)

[Adelbert]

what about the differences in SLAs?