Rackspace, the hosted service provider and supplier of Rackspace Cloud, is building up its cloud-based email service, which includes a custom mix of hosted Microsoft Exchange with its own Rackspace Email. It currently serves 1.6 million email accounts.

"Only a small percentage of employees really need the advanced features of Microsoft Exchange, yet many businesses are paying a lot more to run Exchange for every single user," said Kirk Averett, director of product for Rackspace cloud applications, in an announcement by the San Antonio services supplier Wednesday. Rackspace Email is a lower cost option that Rackspace built through an acquisition, while continuing to offer hosted Microsoft Exchange services. "Most businesses can realize a significant cost savings by utilizing this model," said Averett.

The new hybrid mail offering now features shared calendar viewing between Microsoft Exchange and Rackspace Email users and a new Web interface for Rackspace Email to help business users get more productivity from the lower cost alternative, Averett said. Rackspace customer Mike McDerment, co-founder and president of the online billing and bookkeeping firm, Freshbooks, said his firm wants a hybrid approach to email. "I live and die by email. I need to synch up my office email with my Blackberry. I need Microsoft Exchange," he said in an interview.

About one-quarter of the company's 45 employees are also Exchange users, he said, but the rest of the staff is happy with Rackspace Email and its simpler services. "One advantage to the hybrid approach is cost," McDerment noted. The firm actually started out with only Rackspace Email, then added higher level Exchange services, such as Blackberry synching and Active Sync services, as Rackspace first made them available over three years ago. In mid-2007, Rackspace had 100,000 email users. The new interface for Web email use is simpler to navigate, with improved search and speed, Averett claimed. Email administrators manage the hybrid system from one management console.

Rackspace email accounts get access to free, hosted SharePoint with a limited amount of storage.

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