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Gartner: Hosted email more 'economically beneficial'

Gartner analysts say hosted email is edging toward its moment in the sun, but barriers remain for the midmarket.

A flurry of acquisition activity in the email market signals that providers in the coming years will put new emphasis on hosted and Software as a Service (SaaS) products, analysts at Gartner Inc. predict.

Smaller midmarket companies, working with smaller staffs and smaller budgets, are most likely to switch to hosted services as major vendors introduce new programs, said Matthew Cain, a research vice president at Gartner.

Cain said about 1% of businesses currently use hosted email, and the "vast majority" of those have fewer than 1,000 users.

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But projections from Stamford, Conn.-based Gartner show 20% of companies will use hosted email of some sort by 2012. Again, the emphasis will be on the midmarket. Microsoft, for example, is developing a hosted service for companies with fewer than 5,000 users. The company, which is aiming for a release this year, is offering 5 GB inboxes to college students for free through the Microsoft Live@edu program.

And there are other big names. Google last July bought email security specialist Postini. Dell last month completed the acquisition of MessageOne, a SaaS email service. The SaaS and hosted email market is no longer the purview of only unknown vendors, Cain said.

Cain called hosted email the harbinger of a "sea change in attitude" toward hosted services.

"It becomes more economically beneficial for more companies to run it in the cloud," he said. "Now we've got companies the size of Microsoft and Google and AT&T and Hewlett-Packard pretty aggressively getting into the market."

That isn't to say everyone will sign on. Twenty percent is a large portion of the market, but even by that estimation, most businesses will keep email in-house.

Jim Prevo, CIO at Green Mountain Coffee Roasters Inc. in Waterbury, Vt., said he has no interest in hosted email for his company, which has more than 1,000 employees and $341 million in revenue.

Prevo, who describes himself as an "old Yankee," said he's most comfortable keeping email physically in the building. On top of that, he doesn't have problems with the Microsoft Exchange Server he's using.

"You know, it just isn't that hard," he said. "I think we've always done a good job of putting a good server underneath the environment."

Add to that concerns about data recovery and hosting government-regulated email outside the business, and the barriers start to pile up.

Cain said he expects those problems to be solved "incrementally and organically."

It becomes more economically beneficial for more companies to run [email] in the cloud.
Matthew Cain
research vice presidentGartner Inc.
"As there's more and more contracts signed, I think we'll start to have more appropriate language covering some of the legal aspects and we'll start to see more attention paid to disaster recovery," he said.

Regardless of whether they switch to a hosted service, Cain said companies should spend 2008 developing a set of best practices for email retention. In a report released last month, he suggested companies focus on classifying email into four types for purposes of retention (see sidebar).

"Most companies are at a loss as to what to do with email," said Cain, who has researched the evolution of email for more than 15 years. "There's absolutely no type of segmentation." Users' wishes, business needs and government regulation are all crashing into each other, making conflict over what to toss and what to save imminent, he said.

"Those issues are front and center right now, and frankly most companies are not paying attention to it," he said.

Let us know what you think about the story; email: Zach Church, News Writer

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