Microsoft has been ramping up its cloud-based Exchange Online offering for its largest customers - even though that may mean cannibalising its own on-premises Exchange Server installed base.
Microsoft has always offered an online option for Exchange Server through its business partners. But that traditional hosted service offering, now called Exchange Online Dedicated, simply moves a dedicated Exchange Server infrastructure to someone else's data centre.
Exchange Online Standard is different. The shared, multi-tenant service, launched 18 months ago, is a true cloud offering that competes more directly with the Gmail and Calendar components of the Google Apps for Business service.
Although the online version of Exchange was initially focused more on consumers and small businesses, Microsoft has gotten aggressive in targeting the service toward larger users - even though that means cannibalising its on-premises Exchange Server business.
"It used to be that Google Apps for Premier Edition was half the price of Microsoft. Now Microsoft Exchange Online Standard is $5 and Google is $4.17 per month per user," says Ted Schadler, an analyst at Forrester Research. Microsoft also upped the ante by increasing the total number of seats it can support per organisation from 10,000 to 30,000. (Microsoft has not "performance-tested" larger deployments. Deals for more than 30,000 seats need approval by Microsoft's business productivity suite engineers, a spokesperson says. Google does not have a per-organisation seat limit for Google Apps for Business.)
"Most customers will save money by moving from on-premises to online email. The economies of scale and efficiency with which we can run the environment are hard to rival," says Julia White, director of Exchange.
Microsoft is gearing up to fend off potential challenges of online providers that could poach users from its on-premises Exchange clients. Other players, such as IBM and Cisco, have also come forward with cloud-based e-mail services, but Microsoft seems laser-focused on one particular upstart. In the cloud, says Schadler, "it's mostly Google and Microsoft right now."
Microsoft is quick to point out what it sees as Exchange Online's competitive advantages against Google Apps for Business, such as better integration with its Outlook client, and the way it manages tasks and reminders. The company also touts more-advanced features, such as the ability to delegate calendar administration while keeping some e-mail private -- and the ability to audit that activity.
While most business users of cloud-based e-mail services are relatively small, Google counts several large enterprises among its clients.
That said, most organisations that have migrated from Exchange to Google Apps - includingelectronic manufacturer Sanmina-SCI, with 16,000 users migrated; and UK-based Rentokil Initial, with 10,000 users migrated and 25,000 due to be completed by June - say they began their assessments between one and two years ago. This was before Microsoft had a viable competitive product. It remains to be seen whether Google can keep winning away enterprise Exchange customers as the competition tightens.
A hybrid world?
Microsoft's White says interest among large businesses in cloud-based email is high - she claims that every enterprise user she has met with in the past year has wanted to discuss it. Microsoft is actively promoting the idea of moving to a hybrid on-premises/cloud infrastructure as a way for organizations to get their feet wet with cloud-based e-mail services. Departments with vanilla Exchange configurations can move into the cloud while those tightly integrated with other enterprise applications, such as an SAP ERP system, can remain on the on-premises system.
Directory sync keeps distribution groups and global address lists up-to-date automatically, eliminates the need to manage directory information in two places and enables co-existence mode between the local Exchange Server and Exchange Online. Jon Orton, a senior product manager for Exchange Management at Microsoft, explains that "the migration tools have the smarts to do conversion of things like LegacyDNS in old mail when it is migrated to the cloud, so that users can reply to those old e-mails without problems."
But the hybrid implementation idea doesn't make sense to some observers. "In my client base, that hasn't been the plan," says Schadler. Those who are moving to cloud are migrating completely, he says, eliminating the complexity and expense of having to still manage an on-premises system and keep both environments synchronized.
Microsoft also thinks it has an advantage because it pledges to keep the code bases for the on-premises and cloud-based services the same, even if features show up in one place before the other. However, the ability to continuously innovate is one of the strengths of the cloud, says Schadler. Given that and the rapid pace of change in Google Apps, it's hard to imagine Microsoft holding off on introducing innovative new features online until major versions of Exchange software are released.
In fact, Microsoft is already tweaking its online product, making changes and adding some new features every 45 days. "As we move forward, you'll see new things show up on our [online] service first, because we can. When the new [on-premises] version comes out, you'll see them show up on the server," White says. But, she says in a dig at Google, "we don't take a consumer-oriented approach [for enterprise use] and just roll things out [untested]."
While Google and Microsoft prepare for battle, it's still very much early days for cloud-based e-mail in the enterprise. For most organizations, it's not about whether Microsoft or Google is better, but whether to move into the cloud at all.
"Microsoft would like to believe everyone is talking about putting e-mail in the cloud, but ... nobody is rushing to do it just yet," says Sara Radicati, president and CEO of The Radicati Group, a market research firm. Indeed, so far Microsoft has just a handful of enterprise customers using its online offering. "The vast majority are businesses with 5,000 users or less," she says. Mass adoption among large businesses, if and when it comes, is likely to roll out very slowly, she predicts.