E-mail is hot again. Major vendors, from Microsoft and Google to IBM and Cisco, are vying to provide this venerable communications application. While Microsoft Exchange is the on-premises champ, e-mail delivered as an online service resets the competition, as customers large and small look to reduce costs and eliminate operational headaches.

The competition has just started. Of the roughly 996 million business mailboxes worldwide, IDC estimates, only 2%--20 million--were software as a service in 2009. But when it comes time for companies to upgrade their e-mail, they must consider SaaS options. GlaxoSmithKline, Coca-Cola Enterprises, Panasonic, and the city of Los Angeles are among the jumbo accounts--tens of thousands of employees--that have moved their e-mail to the cloud.

Although Microsoft is the e-mail market-share leader on-premises, it's betting that most customers will move to the cloud. "We'll look back in five years and say, 'Why would anyone run their own e-mail?'" says Tony Scott, CIO of Microsoft, whose 90,000 in-boxes run on the vendor's own SaaS environment. Stephen Elop, president of the Microsoft Business Division, says half of the company's Exchange, SharePoint, and Dynamics CRM revenue will come from service-based products within four years.

E-mail can be divided into three categories: premises, hosted, and SaaS. SaaS is built on a multitenant architecture and delivered over the Internet. With a hosted service, the e-mail servers might reside on a customer premises and be managed remotely or operated off the customer premises, but each customer gets dedicated servers and storage.

SaaS e-mail's market share doubled since 2007, IDC estimates. Fourteen percent of companies that use outsourcing have SaaS e-mail, our InformationWeek Analytics survey of 530 business technologists finds.

What's the draw of SaaS? First, companies can get substantial cost savings, as SaaS's multitenant architecture allows for economies of scale. Second, companies don't have to sacrifice features or availability to get those savings. Third, IT departments can employ fewer people by handing over time-consuming and costly maintenance to a provider, and they can focus some of those people on more strategic tasks. Fourth, some companies find that SaaS e-mail makes it easier to give employees the mobile access they're demanding, such as from home PCs.

Why Now

As you can see from our table on p. 24, SaaS e-mail providers offer services for as little as $3 per user a month. The recession kick-started market growth, as companies considered options that might have otherwise seemed too daring.

Take Sanmina-SCI, a nearly $6 billion-a-year global contract manufacturer. Sanmina-SCI moved more than 16,000 employees from premises-based Exchange to Google Apps as part of a company-wide push to reduce costs. "We looked at servers, backups, personnel tied up in running things," says CIO Manesh Patel. "When we ran that analysis and did the comparison, it was a fairly compelling case to move to the cloud." The move saves the company about $10 per month per employee, Manesh says, which works out to about $1.9 million a year--a figure any CIO would be happy to bring to a budget meeting.

At Blue Man Productions, which runs the popular Blue Man Group shows, the cost of maintaining e-mail servers for its 500 employees in five U.S. cities, plus Berlin and Zurich, ran into six figures, says company IT manager David Wharton. Switching to a SaaS-based Exchange offering from AppRiver cut the cost by a third, he says.

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SaaS E-Mail: User Insight and a Buyer's Guide

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