A brief overview
When running a business, it is imperative to have a good email system which wont let you down, and this is especially true if your income derives from email inquiries. An email solution for small businesses can be quite different to an email solution that you would use on a medium or large business. Generally, in small businesses, it is quite common and good practice to use Office 365 as it is a really scalable and easy solution to implement which is packed full of features. Office 365 also comes with in-built email spam protection which means your spam will be blocked before it even reaches your mailbox.
However, if you have a business with more than around 500 staff / mailboxes, it could actually be more beneficial and cost effective to have an on-premises exchange server to host your emails. There are a number of differences and considerations to take into account when making a decision on which email platform to use. I have highlighted some of the major differences below.
Things to consider when choosing between Office 365 and Microsoft Exchange
Office 365 Pro’s:
- Easily scalable solution, which means if your company expands quickly due to acquisition or any other means, you dont need to outlay any money up front for hardware infrastructure.
- Much lower IT costs as the infrastructure is managed by Microsoft, rather than your own internal IT team.
- Microsoft Office software is optional and can be bundled so you have one bill for the software and email service. This also means you always have the latest version of Microsoft Office.
- In built spam protection using Exchange Online Protection.
Office 365 Con’s:
- You are not in control of your data / emails as they are hosted on 3rd party hardware infrastructure.
- The data / emails may not be hosted in your country. This could be an issue for your organization if the country where your emails are hosted has different email retention laws or email privacy laws.
- There is an ongoing monthly cost for the service and software which you are only renting and do not actually own.
Microsoft Exchange Pro’s:
- The data and infrastructure is completely within your control, which means there is less chance of anyone else gaining access to your data and emails.
- The hardware and software is owned by your company perpetually, however you may need to upgrade the hardware and software every 5 or so years to keep up with the latest technologies.
- No ongoing service costs, and all software and hardware is fully owned by the company.
Microsoft Exchange Con’s:
- Higher IT staffing costs due to server administration and maintenance that is needed.
- High initial capital outlay to purchase the hardware and software.
- The initial setup takes much longer than setting up Office 365.
- Need to install and set up spam protection software, which can be costly.
What is the best solution for your business?
This completely depends on a lot of different factors, and there is no one size fits all approach. There are a few questions that you should be asking yourself, such as:
- Does my business prefer a rental model or an ownership model, and are there any tax advantages in my country for one or the other?
- How many IT staff does my company employ and do they have the expertise to set up and maintain an on-premises Microsoft Exchange server?
- Have I done a cost analysis of both options? If you haven’t, see below on how to compare the costs.
How to compare the costs?
The costs can be tricky to compare, and the results can depend on the time frame for comparison. In order to show you how to compare the costs, we will use an example of a 500 user organization that will require email client software (such as Microsoft Office) as well. See below an example of how to calculate the costs for each service.
For Office 365:
- Cost of Office 365 plan, including software, for 500 users.
- Once off IT Labor costs to perform the Office 365 migration.
- Ongoing IT Maintenance Costs for support (adding/deleting accounts, modifying permissions etc).
- Possibility that you may need to upgrade your WAN connection bandwidth as your mail server will be on the internet, rather than the LAN.
For Microsoft Exchange:
- Cost to purchase hardware, such as server, warranty, UPS (uninterruptible power supply), backup media.
- Cost to purchase software, such as Microsoft Windows Server 2012, Microsoft Exchange Server 2016, Microsoft Exchange Server CAL’s (Client Access Licenses) for 500 users, backup software, spam protection software.
- Cost to purchase Microsoft Office 2016 (or current version) for 500 users.
- Once off IT Labor costs to set up the new infrastructure.
- Cost of electricity to run the hardware required.
When working out these costs, we have generally found that if you are looking at a short term view of about 2-3 years, Office 365 works out more cost effective. However, if you are looking at the long term view of about 5+ years, an on-premises exchange server works out cheaper, but only marginally. The problem with this is that 5 years is generally the lifetime of a physical server, so by the time you get to the 5 year mark, you will be looking to upgrade the server and most likely the software as well, which means you don’t really get a cost benefit from using an on-premises exchange server.
Taking into account all of the Pro’s and Con’s, pricing and other considerations, it is very hard to say conclusively which option is the better way to go, as it completely depends on your needs. However, with this in mind, it is reported that 20% of the world wide Microsoft Exchange market is now using Office 365, and this figure is increasing year on year. This doesn’t mean that Office 365 is the right option for you, it simply means that it is definitely an option worth considering next time you are reviewing your email platform.