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Exchange upgrades can deliver significant ROI

How can upgrading your messaging solution save your company money? Tom Pisello can explain.

One of the core utilities IT provides to an organization is messaging services, including e-mail, calendaring, task management and collaboration. This utility is surprisingly expensive, especially if the organization runs prior-generation e-mail platforms. A typical Microsoft Exchange 5.5 solution has direct costs of more than $350 per user, per year, including hardware, software, IT operations, support and administration, and overhead. Older versions of same generation e-mail solutions like IBM Lotus Notes are similarly expensive.

Newer messaging solutions have important productivity enhancements, and the high total cost of ownership (TCO) of these older generation e-mail solutions offers a significant savings opportunity. As a result, many companies are upgrading their e-mail infrastructure. The latest platforms, such as Microsoft's Exchange 2003, are expected to grow from 10% of the installed base in 2003 to more than 35% in 2004.

Microsoft Exchange 5.5 TCO – An opportunity for savings
In a recent study, Alinean modeled the current TCO for typical Microsoft Exchange 5.5 environments between 100 and 500 users, and found that administration and support costs surpass $299 per user annually for a typical 100 - 500 person installation, and requires between one and two full time equivalents (FTEs) to administer and support the environment.

In fact, 90% of direct costs for Microsoft Exchange 5.5 are for administration and support labor, placing a significant ongoing burden on IT operations and support.

When service levels are considered in the TCO equation for Microsoft Exchange 5.5, the costs increase dramatically. Most Microsoft Exchange 5.5 installations achieve, at best, only 98.5% availability. Each messaging downtime hour in a 500-person organization amounts to $8,600 in real productivity losses – costing more than $400,000 annually. In a 100-person organization, the expense exceeds $1,700 in productivity losses per messaging downtime hour. With more than 40 hours of messaging downtime annually in a typical Microsoft Exchange 5.5 installation, downtime losses can easily surpass $800 per user, per year.

Typical TCO Annual TCO (typical 500 user installation) Annual TCO per user Monthly TCO
Direct costs
Hardware and Software $25,000 $50 $4.16
Administration and Support $149,646 $299 $24.91
Overhead $1,300 $2 $0.16
Total Direct Costs $175,996 $352 $29.33
Indirect Costs
Downtime $406,268 $812 $67.66
Total TCO $582,264 $1,163 $96.91

The TCO for a typical 100 - 500 user Microsoft Exchange 5.5 enterprise is more than $1,100 per user, per year.

Reducing TCO with a Microsoft Exchange 2000/2003 migration
As a result of the high TCO of Microsoft Exchange 5.5 and the difficulty in scaling Microsoft Exchange 5.5 to meet mailbox storage and user growth demands, many organizations have been eagerly migrating to Microsoft Exchange 2000/2003 over the past two years.

Assessments of Microsoft Exchange 2000 consolidations and migrations indicate that the savings are indeed compelling. More than $100 can be saved annually per user in direct administration, support and overhead savings. Even more savings, $600+ annually per user, can be achieved with gains in availability, improved service levels and reduced downtime.

Understandably, this consolidation and migration requires a significant capital investment for new servers and software, as well as essential technical resources to help setup, migrate and deploy the e-mail systems and applications. Newer versions of Exchange require Active Directory. Therefore the migration to Exchange is typically accompanied by Active Directory implementations and server consolidations yielding additional best practices and savings. However, this process does make for a more costly and daunting (i.e. risky) project. For a typical 500-person company, the deployment investment is expected to cost more than $240 per user. For a typical 100-person installation, the migration costs are even higher, surpassing $370 per user.

Consolidation and migration costs typically include:

  • New enterprise servers
  • Microsoft Windows 2000/2003 and Exchange 2000/2003 operating system server and subscriber licenses
  • Storage area network, or direct attached storage
  • Storage management and backup software
  • Migration tools and systems management software, required particularly to assure a manageable and reliable Active Directory setup and deployment
  • IT training
  • Internal IT systems administration labor for assessment, procurement, setup, pilot testing, data migration and deployment
  • Professional services to assist staff on assessment and implementation
  • Book value/residual value write down on existing systems
  • Support resources for resolving deployment issues and supporting user questions during and after migration
  • Hidden, indirect costs to recover from migration issues including user support calls, finding and resolving security issues, and potential data migration losses

A typical 500-user migration can easily exceed $120,000, and take more than six months of planning, procurement, setup, migration and deployment. A typical 100-user installation can top $50,000 and take from two to three months.

Migration from Microsoft Exchange 5.5 to Exchange 2000 Initial Investment
Hardware and Software $75,000
Internal IT and Support Labor $15,000
Training $3,000
Professional Services $30,000
Asset Write-down $5,000
Total $128,000

Migration to Microsoft Exchange 2000 typically requires an initial investment of more than $100,000 for a 500-user enterprise.

The migration or upgrade from Microsoft Exchange 5.5 to Microsoft Exchange 2003 is compelling from a business perspective. While this upgrade can be quite daunting to a resource-constrained IT organization, the bottom-line benefits justify the costs: a typical 500-user organization can achieve an ROI of more than 300%, and an expected payback post-deployment of four months. As employees require richer messaging capabilities, especially remote and wireless access, shared scheduling and calendaring, task management and global address lists, newer generation messaging software delivers an impressive ROI and frees up valuable technology and staff resources.

Tom Pisello is the CEO of Orlando-based Alinean, the ROI consultancy helping vendors. CIOs and consultants assess and articulate the business value of IT investments. He can be reached at

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