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The general availability of broadband access has created an option for hosted services for many business applications. These "cloud" based services can provide a cost effect way for businesses to reduce costs, simplify operations, and provide for rapid scaling up or down. There are many services that now offer customers in New Jersey hosted Microsoft Exchange services. Microsoft introduced its own service in the fall for hosted Exchange services. With all of the options available, including purchasing a new Exchange server, what should a company do if faced with the replacement of an aging Exchange Server?

The right answer depends on the business requirements and the need to customize the Exchange environment. For most businesses that only use e-mail, calendaring and public folders, a hosted solution is a viable option. Businesses that build business processes around the Exchange server may have no option but to keep a physical Exchange server.

Hosting prices range from $7 per month to $20 per month depending on the service provider and services included in the bundle. The service offered by TriNet Technology includes SpamSoap Spam filtering, the Outlook client software, Outlook Web Access, 25 GIGs of mail storage per mail box, a link to the customer's Active Directory, Activ Sync for PDAs and a resource mail box for $17 per month per user. Users get access to the latest version of Outlook, Outlook 2010. Add-ons for e-mail archiving, Sharepoint, CRM and Communications server are also available. With high speed internet access, the user experience using hosted Exchange is about the same as a local server. All things being equal, the decision to used hosted Exchange versus having an Exchange server boils down to dollars and cents.

Most financial analyses use either Net Present Value (NPV) or Return On Investment (ROI) to determine the value of a project. When working with a small or medium sized business, I have found these measures to be meaningless. A more appropriate measure is Net Operating Cash Flow (NOCF). NOCF is a more appropriate method for comparing hosted versus premise based solution for small and medium sized businesses. A purchased or premise based solution includes hardware, software licensing, server setup, client setup, migration, electricity, and ongoing support as expense cash flows. The hardware, software licensing and initial setup can either be paid for out of operating cash flow or financed through a bank loan or leasing. The hosted solution includes client setup, migration, monthly hosting fees and administration as expense cash flows. For the purposes of the following NOCF analysis, a hosted Exchange service from TriNet Technology, Brick, NJ was used.

Table #1 shows the expected NOCF for a business with 10 users for both a purchased server and hosting over four years. On a straight purchase, the NOCF of a hosted solution is less than the cost of owning an Exchange Server over four years. NOCF if with a hosted solution avoids the large up-front costs associated with purchasing a server. If the server is financed, the NOCF for the hosted solution is even more positive saving over $3,500 cash over four years. When you combine the flexibility, scalability, reliability and simplified administration of hosted Exchange, the hosted solution would be the better option.

Table #2 illustrates the NOCF for a business with 25 users for both a purchased server and hosting over four years. The results are similar to the 10 user solution with the advantage going to the hosted solution. With 25 users, the hosted solution consumes nearly $4,000 less cash versus purchasing a server and financing it over 4 years.

Table #3 illustrates the NOCF for a business with 100 users for both a purchased server and hosting over four years. The results are similar to the 25 user solution with the advantage going to the hosted solution. The hosted solution would generate positive cash over the four year period of approximately $19,000.

In nearly every situation, it will be more cost effective to have a company's Exchange server hosted. Switching to a hosted Exchange can help generate positive cash flow and reduce administration. The migration to a hosted Exchange service requires careful planning and coordination to minimize the impact on end users. After a successful migration to a hosted service, the business will benefit from years of improved cash flow.

 

About the Author:
Marshall Wright of DeckerWright Corporation has been providing New Jersey businesses with Technology Consulting Services including HARDWARE, SOFTWARE & NETWORKING solutions since 1984.

For more information please contact DeckerWright.