Microsoft Exchange 2000 Merits Cautious Optimism

Product Background

Exchange Server 2000 is, at its base level, an e-mail server targeted at the messaging needs of both large and small corporations. The initial release of Exchange was a solid first step into the corporate messaging environment, but fell short in several strategic architectural needs, including its information store, or database. Exchange 4.0 had an unexpected storage limitation of 16GB, which caught many systems integrators and administrators off guard. Another shortcoming of the product was the lack of Internet access tools, such as NNTP for News Groups and no support for POP3.

Microsoft added Internet functionality in its Exchange 5.0 release, which shipped in March 1997. Exchange 5.0 offered a suite of new Internet Enhancements including POP3 and NNTP functionality, in addition to allowing for unlimited storage. Exchange Server 5.5 was released in November 1997 to meet the demand for advanced messaging beyond the need for point to point e-mail. Exchange 5.5 offered an enhanced set of Internet tools, such as Network News Transfer Protocol (NNTP), Lightweight Directory Access Protocol (LDAP) and Outlook Web Access Client (OWA). Unfortunately the product was still bug ridden, and users found issues ranging from the central Exchange Database, known as the Information Store, freezing for unknown reasons to TCP/IP memory leaks. Microsoft is now releasing Service Pack 3 for Exchange 5.5 to address a host of calendaring, store, and interoperability issues.

Exchange's largest two competitors are Lotus Notes and Novell's GroupWise. Sendmail, another competitor with a narrower focus, currently provides a higher level of POP3/SMTP based security than Notes, Exchange or GroupWise. The messaging market is growing rapidly in response to increased consumer demand for " Unified Messaging ", which at its base level is a single point of access to all electronic forms of communication, including e-mail, fax, voice-mail, e-forms, database access, and any other compilation of bits and bytes.

Product Strategy and Trajectory

Microsoft is utilizing a three pronged market strategy for Exchange 2000. First, Microsoft is attempting to establish the Exchange Server 2000 product as the premier turnkey messaging solution for both corporate and Internet usage with its new "Web Store". Web Store combines the Windows 2000 File System and Web Data into a single infrastructure, making all objects within the Active Directory URL accessible. Second, Microsoft has enhanced its web-based functionality to target the ISP marketplace. We believe that Exchange 2000's new clustering and enhanced web capabilities, combinesd with low cost, will incent ISPs to move to Exchange beginning in 1Q2000. Third, Microsoft is marketing Exchange Server 2000 under the " Lower Total Cost of Ownership " (TCO) banner by offering the lowest cost per server and client seat on the market. Each Exchange Enterprise Server License costs approximately $999 US, with each Client Access License costing approximately $29 US. The same Novell GroupWise licensing, based upon a 25-seat implementation, will cost over $3,480 US or just over $99 US per client seat. Lotus Notes Release 5 Mail Server licensing, also based upon a 25 seat implementation will cost over $2,133 US, or just over $45 US per client seat. Outlook, Microsoft's front-end messaging client, is bundled with Microsoft Office. Through bundling client software, Microsoft is further driving down the costs associated with implementing or upgrading a new messaging system.

During the first three quarters of 1998, Exchange Server 5.5 outsold Lotus Notes Domino by greater than 700,000 client seats. (Source: EMMS Electronic Mail and Messaging Systems) and continues to take a greater share of corporate client sales. This is in part due to the necessity to upgrade non Y2K compliant mail systems such as cc:Mail and MS Mail. The Fortune 1000 has been surveyed by the Radicati Group to determine which messaging systems are currently in use. At the present time Microsoft Exchange has a 44% market share in the Fortune 1000 compared to a 29% market share by it's closest competitor, Lotus Notes. Fortune 50 companies have 52% standardization on Microsoft Exchange versus 24% standardization on Lotus Notes.

Product Strengths

Exchange 2000's strongest appeal to the IT marketplace will be through integration with Microsoft's Active Directory (ADS) found in upcoming releases of Windows 2000, previously named NT 5.0. Lotus Notes Messaging systems do not currently have ADS capabilities, and Novell's GroupWise 5.5 offering lacks robust NDS integration and offers no support for ADS. The most immediate benefit of the ADS is simplified administration. From a single point on the network an administrator can easily control the entire Windows 2000/Messaging Implementation. For instance, Groups within the Windows ADS can be automatically used within Exchange Server as a Distribution List. End users will require no re-training, because the front-end interface connection to Exchange will not change. All objects contained within the new Windows 2000 ADS will fall into one of two primary mail categories:

• Mail-Enabled Object." This is an object within the ADS which has at least one e-mail address associated with it. Once enabled, the object can participate in routing.

• Mailbox-Enabled Object." This is an object, which is associated with a mailbox (or inbox) and at least one e-mail address. For instance, a Public Folder, or Network Share can have an e-mail address such as "salescontacts@widgets.com". Anything mailed or routed to this address will be placed into the specified object container.

With Windows 2000, Microsoft has included an Active Directory Connector to allow synchronization between the Exchange 5.5 Directory and the Exchange 2000 Active Directory. The connector allows for co-existence during either an upgrade or migration and will ship as part of the Windows 2000 server at no additional charge. The synchronization between the two directories will be essential for companies looking to upgrade to Windows 2000/Exchange 2000. According to Jeff Andersen of J D Edwards, a current beta tester, the Active Directory Connector is stable in a single site environment, but has not been tested over Wide Area Networks. Mr. Andersen added that the only potential downside to the Active Directory Connector is the time in which it takes to populate a new directory.

Exchange 2000 also provides multiple database configurations, which enables administrators to split a single logical database across multiple physical drives, thus improving performance, enhancing stability and enabling faster backups and restores. In the event that a single database fails, the server will continue to run. This allows the system administrator to " hot swap and/or restore " the physical drives without interruption of service. Mr. Andersen of J D Edwards stated that the multiple database configurations are " A step in the right direction." He further added, " Recovery is still poor from a database perspective, and deleted item retention for 30 days is not enough." Microsoft never completed fixes for the Exchange 5.5 database structure, even with the current release of Exchange Service Pack 3. This leads us to believe that users can expect to find similar bugs within the new architecture (probability 70%). However, neither GroupWise nor Lotus Notes can boast a database architecture as flexible as the Exchange 2000 structure. J D Edwards takes advantage of the granularity of the new Exchange databases architecture by dedicating databases to key executives, reducing downtime and adding " easy recoverability."

Microsoft is introducing another new feature, Distributed Configuration Architecture (DCA), into Exchange 2000. DCA will allow systems engineers and administrators to split Exchange Server's services (Protocols, Directories, Storage and the Web Store) across different servers, providing higher scalability. This DCA functionality, combined with Exchange Server 2000's ability to provide multiple database configurations, will give Exchange Server 2000 the ability to host millions of users. This newfound scalability will make it appeal to large scale enterprises and Internet Service Providers (ISP), and we expect that Microsoft Services such as MSN and HotMail will migrate to Exchange 2000 by the fourth quarter of 2000 (probability 70%).

Product Challenges

• Microsoft has only released BETA 3 of Exchange 2000 Server. The product, scheduled for release to manufacturing during the second quarter of 2000, will require a mass effort by the development team to repair minor bugs within the source code. Mr. Andersen stated that JD Edwards has been beta testing Exchange 2000 since Beta 2, and stated that Microsoft has responded well to bug issues and have made many enhancements to Beta 3. " On the whole the functionality of the product works as advertised." In the past, Microsoft has missed shipment dates during the initial releases of new products and service packs. In order to hit the targeted shipment date, bugs must be repaired in the Database Architecture, the Web Store, Clustering and Distributed Configuration.

• Microsoft will need to provide incentives to the majority of existing corporate client base in order for upgrades to occur. As always, Microsoft is offering competitive upgrade pricing, but will have to do more, such as offering discounted or free initial training to systems administrators while ramping up their own technical support staff in a limited time frame. The Microsoft Exchange Conference, held in Atlanta, sparked a great deal of excitement in both the Microsoft faithful and those IT Executives who look to be on the bleeding edge of technology. However, stability and reliability must be certain before the corporate world will take action on the new Back Office Suite.

• Microsoft is attempting to gain a share of the ISP e-mail platform with Exchange 2000, and will need to provide extremely competitive pricing due to the vast volume of Internet users. Microsoft's corporate pricing structure for Exchange offers the lowest entry point into the messaging market. However, the pricing will need to improve at the ISP level to dismantle the primarily Unix/Linux base. One advantage that Exchange will offer out of the box to ISPs is the Video Conferencing component. Presently ISPs must use a third party product that requires a second client piece, such as Microsoft's NetMeeting or White Pine Software's See you - See me software. Users accessing an ISP utilizing Microsoft Outlook 2000 coupled with an Exchange back end will benefit from the enhanced video and audio streaming capabilities built into Exchange 2000. We believe that the chance that Exchange will immediately debunk the existing UNIX Internet platforms utilized by ISPs is slim (probability 20%). In order to make an impact, Microsoft will have to not only aggressively price Exchange for ISPs, but also create an ISP tailored edition of Exchange Server, offering strictly Internet utilities.(4Q2000, probability 60%).

Vendor Recommendations

• Microsoft will have to ensure enough development resources to release the product in a timely fashion.

• Microsoft will have to aggressively market to the ISP field and create a tailored version of Exchange Server to fulfill both financial and functional ISP requirements for the product to succeed outside of the corporate world.

• Training efforts will have to be increased to 'ramp-up' the systems administrators responsible for deploying and administering an Enterprise Messaging System. The Microsoft Exchange Conference was a good first step, but much more is needed to prepare the marketplace.

User Recommendations

Exchange 2000 contains powerful enhancements which customers should spend time testing and evaluating. Given the high demand for a flexible database structure coupled with increased stability and reduced downtime, Exchange 2000 will be extremely viable candidate for either a migration or upgrade initiative. New Exchange Server customers, potentially ISPs, will benefit from the enhanced Internet features and scalability of the product. Neither Windows 2000 nor Exchange 2000 have been officially released and are not expected to ship until the second quarter of next year (probability 80%). Users should be cautious on the path to upgrading. Microsoft's initial releases tend to contain flaws within the code, (often referred to as ' bugs ') therefore it would be best to wait for the product to be fully "production tested" before jumping onto the bandwagon. For small to mid-sized companies (<500) the improvements contained within the next release offer few enhancements to satisfy current administration and networking needs. For larger organizations, the flexibility of database and service paths coupled with simplified administration and faster backups make this product extremely desirable. The forthcoming release of Exchange 2000, once officially distributed, will be an overall positive for users either upgrading or considering a new messaging system.

Exchange 2000 New Component Feature Chart: