Why I have a hard time recommending Exchange on-premises

Not that long ago, picking Exchange on-premises over Office 365 used to be a thing. As in, there were legitimate reasons I might choose to keep a self-hosted Exchange server rather than go to Office 365. However, I think it’s time to put those days behind us, once and for all–especially in the SMB. Some people seem intent on holding onto tradition, but I just have a really hard time convincing myself it’s a good idea anymore.

Back when Office 365 was still called BPOS, the difference between on-premises Exchange and the cloud-hosted variety was night and day. Back in those early days there were some… how shall we say this?? Limitations with the service… and maybe some other issues. In short, I would usually still lead with Exchange on-premises. Besides, most small business customers (the target market for BPOS) were already familiar and comfortable with the Windows Small Business Server product, so they had no qualms about migrating straight into SBS 2008 or 2011, instead of making the leap into the cloud.

And honestly, I had a hard time faulting them for preferring to go that route. SBS was/is a solid product, and 2011 (built on Server 2008 R2 and Exchange 2010) was the best release to date. Of course, Small Business Server, as many of you know, is no longer offered. Customers who had purchased Software Assurance for 2011 were given an upgrade option into Windows Server 2012 Standard and Exchange 2013 Standard, which is an okay deal, and some folks accepted that solution–even with the uber-attractive Office 365 pricing that was available.

Why I have to lead with Office 365

Office 365 has come a long ways since BPOS, which was built on Exchange 2007. Exchange 2010 powered v1 of Office 365, and now the service is based on Exchange 2013 (soon to be supplanted by 2016).  Reliability is excellent, and the product has more to offer than any small business could reasonably afford to buy in an on-premises flavor.

So nowadays I approach the question like this: If I were a small business owner, would I want to continue hosting a commodity service like email on my own hardware, in my own “datacenter” (I say that in quotes purposefully since we are talking about a small business here), with all of the cost and risk that this decision represents?

The answer is unequivocally, “No.” For as little as $5.00 USD/user/month (Business Essentials) at the time of this writing, I can have the same exact functionality as my old SBS box, with little or no capital expenditure, near-zero risk for my business, AND I can provide my users with better uptime and an improved feature set. Let’s explore these claims in a little more depth.

Point # 1: Yes, Office 365 has better uptime than your rinky-dink server closet

A self-hosted Exchange server:

• can experience back-pressure issues when the hard-drive approaches capacity
• can choke on updates and hang
• could experience issues caused by a backup agent or other third-party software

Not to mention, sometimes the ISP is down, or the power tends to go out during thunderstorms in the springtime–I’m sure you are familiar with all these issues and more if you’ve been working in the SMB space for any amount of time.

And let me tell you something else: you have never heard a five-alarm fire bell ring until some law firm with important deadlines blows up your support desk because their Exchange server is suddenly offline, or email isn’t flowing properly. I for one am glad as hell that I never have to take those types of calls ever again–thanks to Office 365.

Point #2: Yes, Office 365 has more and better features than your on-premises server ever did

Bundling with other software and services, the solution becomes even more attractive. Integration between SharePoint Online, OneDrive, Skype for Business and so forth is built-in, and requires no extra engineering, hardware or configuration. I can just start using it that way–all interconnected–out of the box.

Then you start to realize that it is furthermore possible to deliver even better security features than you had with your old on-premises Exchange server. Azure Rights Management and Email encryption, built-in Mobile Device Management for enabling selective wipe, and Multi-factor Authentication are all just a few clicks away in the online administrative portal. The speed with which you can deliver new improvements means that you are faster and more nimble in the cloud as well. What would be the cost (and hassle) of implementing similar add-on services to your on-premises servers?*

Point #3: Yes, Office 365 is also cheaper than remaining on-premises

Riddle me this: what is the total cost of ownership for an on-premises implementation, all-in, of:

• Server hardware with redundancy
• Power, Internet, facilities, etc.
• Windows Server + CAL’s (Standard)
• Exchange Server + CAL’s (Standard and/or Enterprise)
• Licensing for Office apps (e.g. Pro Plus, etc.)
• Business continuity / DR plan and related expenses

Most people could not answer this question without a Microsoft partner’s help. But it isn’t rocket science–most people quickly recognize that we are talking several tens of thousands of dollars in capital investments.  Indeed, Exchange is often one of the biggest factors driving the requirement for high availability to begin with, and that forces up cost quickly on-premises.

I’ll use round numbers from a recent project–in this case we are dealing with a small law firm of about 30 users who decided to self-host Exchange 2013 Enterprise on a high-availability Hyper-V failover cluster in their fancy downtown co-location. Any guesses on what this hardware solution cost them, including servers, storage, software and implementation labor?

Answer: Seventy-five thousand dollars and a 3-4 week project lead time

Let’s think about that: 75K / 36 months (until the next refresh cycle)–that’s more than two grand per month with financing on a three year lease. This is actually before the monthly bill on their facilities (which I believe is another 1,000-1,500 per month). Granted, these servers are going to run other things besides Exchange, but even if I account for that, and remove the extra horsepower, storage, open value software, etc.–we’re still looking at cutting this bill in half.

Now, how much would it cost this same organization to go with a super-elite Office 365 E3 plan, which includes all the bells and whistles, even the desktop Office applications?

Answer: $20.00 x 30 users = 600.00 USD / month x 36 months = $21,600 total for three years, and I can implement tomorrow.

In other words, there is no contest–not even close. Oh yeah, and E3 also happens to include email encryption, and a bunch of other fancy stuff that would be extra to achieve on-premises. Tell me again why you are considering an on-premises Exchange Server?

Conclusions

A lot of organizations just do not realize how much difference exists between Office 365 and the traditional on-premises offerings. While it is true that at the end of the day, Exchange Online in Office 365 is really just Exchange Server under the hood–the same product you can buy on-premises–the full truth is: Office 365 is an advanced, well-connected ecosystem that offers the best in Enterprise-class features with high availability at a fraction of the price.

For all the above reasons and more, I just have a really, really hard time walking into a small business and saying, “Yeah–they have all that Office 365 stuff in the cloud now, but… you know what you should really do instead? Spend 2-3x more on this hardware based solution with us.”

My conscience won’t let me do it; I know the sales people in my field have trouble grasping this point, but trust me–it’s the right thing to do by your customer.  See also: my recommended migration path from legacy SBS servers.

Footnotes:

*Actually, you could add these features to an on-prem deployment using the Enterprise Mobility Suite, another Microsoft cloud offering, for about $8.75 USD / user / month. Extra servers/services also required on-premises e.g. ADFS.