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.
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.
Cost isn't the only reason to switch. Features, availability, and streamlined operations are also worth considering. And companies are finding they can give SaaS e-mail to a new level of employee, thanks to the lower cost and browser-based access SaaS provides. Microsoft says Starbucks, for instance, chose its SaaS offering to give certain employees in its coffee shops e-mail, while keeping its corporate e-mail on premises. After Delta Hotels & Resorts went to Gmail for 2,500 employees, it decided it could afford to extend e-mail to another 2,000 hotel employees, given Google's low cost.
DMS & Associates, which provides accounting and administrative services to small businesses, relies on 35 subcontractors to serve clients. A year and a half ago, CEO Kimberlee Augustine had her subcontractors using free Gmail. However, because so much of the business relies on e-mail--DMS makes payments for clients in e-mail--she wanted a secure archive of all messages sent and received by the company's contractors. So she moved the contractors from Gmail to Rackspace Email, a bare-bones SaaS offering that gives her administrative access to all company messages. "I can peek at what's going on, get a sense of the tone between the accountant and the client," Augustine says. "I don't read all the e-mail, but I keep an eye on it, and I couldn't do that with Gmail."
Blue Man Productions' Wharton says the AppRiver service, which uses Outlook, makes it easy to provision and deprovision users, including those with mobile devices. This feature is essential because many employees, particularly those involved in producing shows, don't have desks; they live on BlackBerrys and iPhones. "When the hiring notice comes out, in 10 minutes we can create an account, download an in-box, and hand them a BlackBerry as they walk in the door," he says.
The service provides a higher level of business continuity. Under its old system, all Blue Man offices except in Las Vegas relied on the mail servers in New York. If those servers went down or power went out, so did mail service for six of the company's seven offices. In addition, e-mail latency was a problem. "Some users have 40,000 messages. When you have an in-house server and an in-box with that many messages, then Outlook and BlackBerry would crawl," Wharton says. Now, he says, overall performance is substantially improved.
More Than E-Mail
Market competition is increasingly for a collaboration suite that goes beyond e-mail. Microsoft's Business Productivity Online Suite includes e-mail and other services, such as SharePoint online and Web conferencing, starting at $120 a user per year. IBM's LotusLive Notes service bundles e-mail, calendaring, and instant messaging, starting at $108 a year. The Google Apps suite, at $50 a user per year, wraps e-mail with Google's browser-based word processing, spreadsheet, and presentation software, which allows document sharing and simultaneous editing.
This larger collaboration challenge is what IT leaders are really trying to solve. Circle Global, a manufacturer and reseller of textiles, recently moved its 75 employees from a POP-based e-mail provider to WebEx mail, a SaaS-based product from Cisco that includes PC-based and mobile e-mail. Circle Global also uses the WebEx meeting software. The Cisco e-mail and collaboration software package costs the same as the POP-based e-mail alone, says Brock Nunn, Circle Global's head of marketing.
Sanmina-SCI CIO Patel says that cloud-based providers are continually adding features. "People can work in small groups, work asynchronously, have the information captured and make it searchable, and make it self-service so IT doesn't have to get into day-to-day management," he says. "In the long term, that will be a much bigger benefit than immediate cost savings." A SaaS model lets vendors add features without the old upgrade cycle that required putting code on machines. IT manages can just decide whether to allow a new feature on their domain.
Why Companies Say 'No' To SaaS
Would-be customers must weigh the downsides to SaaS, and some conclude they're too great. Forty-one percent of companies already using some SaaS have no plans to use SaaS e-mail, our November 2009 survey on SaaS found. The biggest concern is around security and privacy risks from letting a provider operate your e-mail infrastructure.
The servers and databases in a provider's data center are subject to the same external and internal threats that your own infrastructure faces, whether it's a cybercriminal exploiting an OS flaw to steal data or a cloud vendor employee getting access to your e-mail. Companies considering SaaS e-mail must satisfy themselves that the provider's physical and logical security and operations practices are at least as good as their own. In addition, many SaaS e-mail providers will themselves partner with other SaaS companies to offer services such as archiving, encryption, spam and malware filtering, and so on. Thus, the security and privacy risks can extend across multiple providers, each of which may have varying levels of operational proficiency and security expertise.
Companies may also have concerns around compliance. Organizations in highly regulated industries such as pharmacueticals or finance may be less inclined to move e-mail off-site due to concerns that the provider will fail to meet complex requirements. Some may worry that the provider won't provide sufficient levels of data protection in terms of backup and archiving to preserve critical mail in the event that the provider's primary data center experiences a disaster or emergency.
Companies also must know they can get their data out of a cloud vendor, if the relationships sours or the vendor gets out of the SaaS e-mail business. However, compliance concerns haven't proven insurmountable: Major pharma companies GlaxoSmithKline (with Microsoft) and Genentech (with Google) are using SaaS e-mail, for example.
Uptime is a concern. If a provider's e-mail goes down a total of nine hours in a year (equivalent to 99.9% uptime), employees might not gripe, if they're isolated and quickly resolved. But if an outage lasts an hour, or you can't get clear answers about what's wrong or when it will be fixed, that won't fly.
Integration and authentication also can be challenges for companies trying to link SaaS e-mail systems to on-premises systems. (See p. 25 for more.)
There's also a question of disruption versus return. While SaaS can deliver cost savings, some CIOs find it's not worth the retraining and change if their e-mail system is fairly modern. For them, SaaS won't get consideration until it comes time for an upgrade.
The Outlook On Outlook
While companies are turning to SaaS providers for e-mail, many aren't ready to give up Outlook as the local client.
DMS & Associates retained Outlook as the e-mail client, in part because its contractors are familiar with it, but also because CEO Augustine likes its calendar functions. Circle Global had considered Google Apps but decided on a provider that would support Outlook because it had other Microsoft applications in house it wanted to sync with Outlook, most notably Microsoft Project Server. "It integrates Outlook task assignments into each user's Outlook client," says Nunn. He couldn't sync Project Server with Google Apps.
Microsoft will keep pushing those integrated hooks. With its upcoming SharePoint 2010, companies will be able to display employee profiles, like an in-house Facebook page, alongside e-mail messages so you can see thumbnail photos of every person copied on an e-mail.
Microsoft will lose some customers, though. Sanmina-SCI moved off Outlook to the browser-based Google Apps user interface. "Early on, we were leaning toward leaving Outlook, but there are some features and functions of Google that don't work with Outlook, so we decided to go entirely with the Web-based interface," says Patel.
Sanmina-SCI's standard browser is Firefox. The browser-based UI does lack some functionality, such as the ability to drag and drop files or cut and paste items, Patel says. "Browser technology isn't where it needs to be," he says. "We're looking forward to HTML5 to provide a more robust interface." But, he says, the UI has generally worked well.
Cisco only recently laid out its plans for WebEx Mail, trying to displace Outlook with a browser-based client. Called Cisco Inbox, the product promises features (due later this year) to make it easier for users to organize their e-mail, and it puts e-mail at the center of collaborative environments.
Cisco plans to include what it calls "topics," which will let employees arrange e-mail by subjects such as a team, event, or project. Instead of standard folders, topics will live in a bar on the main screen just like individual e-mail messages. Cisco Inbox will go a step further by letting people add content to a topic other than e-mail--IM chats, video files, and .WAV-based voicemails. An employee will be able to invite colleagues to view a topic.
Cisco plans to integrate Inbox with collaboration sites, so people logged into their mail client and, say, LinkedIn can post messages to LinkedIn by sending e-mail. Cisco expects to initially support Skype and WebEx IM.
Cisco may face the hardest road of the Microsoft challengers. Though dominant in network infrastructure, with strong security and voice/video cred, the vendor has very little track record as a service provider. WebEx gives it experience with the technological challenges of scaling up a quality service, but it will have to work to convince customers that it has the collaboration and services depth. Cisco launched WebEx Mail in November but declines to say how many in-boxes it provides customers.
Then there's a little company called IBM. Trying to revitalize its Lotus messaging brand, it's pushing LotusLive, which bundles SaaS-based e-mail, IM, Web conferencing, and file sharing. Companies can choose a hosted version of Lotus Notes or go for a browser-based e-mail client with iNotes.
IBM this month showed off integrations of LotusLive with Salesforce.com data, Skype voice-over-IP calls, and UPS delivery data. For instance, the Salesforce integration adds a LotusLive tab to a person's Salesforce.com interface, to launch meetings and share and edit documents. The company's marquee deal so far is the 100,000-seat win from Panasonic in January.
Google's pricing seems to be the biggest force of change in the messaging market. With its free consumer version, many people have used Google's browser-based e-mail interface before enterprise adoption. Bundling e-mail and a productivity suite puts price pressure on Microsoft's giant e-mail and Office franchises. But Google, which gets 97% of its revenue from advertising and won't say how many paying business e-mail customers it has, still is learning the enterprise IT market. With its latest word processing and spreadsheet upgrade, it dropped the ability to use the programs offline, giving customers a month's notice and saying it will work on bringing it back. Google says offline isn't a very popular feature, but enterprise customers tend not to like those kinds of road map surprises.
All these vendors are going after more than just e-mail. Their goal is to control a customer's entire messaging and collaboration stack while also promising to relieve the IT operational burden. The shift from the premises to the cloud takes away some of Microsoft's home court advantage and creates opportunities for players new and old to grab market share.
Companies still can't live without e-mail, but it's clear many can do without running the hardware, software, and storage that on-premises e-mail requires. CIOs are increasingly comfortable with SaaS and hosted alternatives. Of course, companies considering SaaS e-mail must do their homework to choose a financially viable provider that can meet their uptime and feature requirements. But no CIO should do an e-mail upgrade without at least considering SaaS.
Michael Biddick is president and CTO of Fusion PPT, a consulting and IT services firm.
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