An open-source, cloud-based e-mail alternative to Microsoft Exchange called Open-Xchange has signed up two new service providers and predicts it will have 40 million users by the end of 2011.

Based in Germany, Open-Xchange has tripled its user base from 8 million to 24 million paid seats since 2008, with the help of three dozen service providers including 1&1 Internet, among the world's largest web hosting companies. Open-Xchange has 7 million users in North America today, but says most of its 2011 growth will occur on this continent, in part due to new agreements with service providers Lunarpages of California and Cirrus Tech in Toronto.

"You will see a lot of new partners coming on board using Open-Xchange as their primary e-mail and collaboration solution," CEO Rafael Laguna said this week.

Microsoft Exchange Server, the 800-pound gorilla in the room, had a worldwide install base of 301 million mailboxes in 2010 and expects to reach 470 million by 2014, according to a market analysis by the Radicati Group. On-premises Exchange accounts for 76% of users, but that number will drop to 72% by 2014 because of growing demand for hosted, or "cloud" services.

Although Microsoft Exchange is still growing, Laguna predicts that third-party hosting companies will increasingly become wary of Microsoft because Redmond is offering e-mail and other hosted services through its own cloud platform, rather than relying solely on partner companies.

Open-Xchange's strategy is to make e-mail cheaper for both partners and customers. Open-Xchange mailbox prices vary by service provider, but will typically cost $5 per user per month, about the same as Microsoft's own Exchange Online.

But Laguna says the Open-Xchange price includes more than just basic e-mail, coming with mobile access through support for Exchange ActiveSync, social media features, collaboration and file management. In other words, you don't have to pay extra for SharePoint-like services.

The Open-Xchange software itself is available under the GPL open-source license. The software can integrate with various e-mail clients including Microsoft Outlook. The Outlook user base "is probably the biggest hurdle for us to overcome," Laguna says. "We have to support Outlook the way Outlook supports Exchange."

The evolution of business email

Open-Xchange was founded in 1996 as Netline Internet Service and changed to its current name in 2005. While its cloud-based software is primarily attracting small businesses, up to 100 seats each, Open-Xchange also has customers running its software on-premises. In-house deployments account for 3 million of the company's 24 million e-mail accounts, and include some installations of more than 10,000 users.

But while Open-Xchange can scale up to enterprise environments, Laguna says "that's not our primary goal."

"We're telling people Internet architecture is the way to go," he says. "The browser is the client of the future."

Gartner profiled Open-Xchange last August in a MarketScope report on e-mail systems, giving it a rating of "caution," one of its lowest ratings, behind "promising," "positive" and "strong positive."

Only Microsoft was rated "strong positive," while systems from Google, IBM, Novell and VMware/Zimbra got the "positive" rating.

Gartner's report notes that Open-Xchange is "a small vendor with 50 employees and revenue of under $4 million in 2009." Despite the "caution" rating, Gartner's MarketScope doesn't say anything overtly negative about the company.

"With its strong push into the ultra-competitive service provider channel, Open-Xchange is less of an option for premises-based deployments, although large companies looking to cut e-mail costs by utilizing an ISP-type approach to service delivery might consider Open-Xchange," Gartner writes.