So
You Want to Outsource Your Messaging?
November 20, 2000
Product
Background
Application
Service Providers have arisen on the Internet in response to such corporate
messaging woes as support expenses, misbehaving application and server
down-time. Assuming an organization ports all application functionality
to an ASP, the only real concern for internal IT individuals would be
ensuring a rich and stable connection to the Internet. ASPs use a "Thin
Client" configuration, which means that any hosted application accessed
by an end user, such as e-mail or word-processing application, is transmitted
to the desktop via a series of streaming screenshots, thereby minimizing
the need for excessive bandwidth and software installations on the client
machine.
The downside is the long-term cost of "leasing" the service. One of the
primary benefits of outsourcing is the initial negation of "up-front"
costs associated with the implementation of a production system. However,
after a typical 3-year cycle in a 1000 user company, the outsourced system
will cost over $250,000 more than an "in-house" production system. An
analogy may be made to a group of 3 college roommates who need a big-screen
television to watch football. Each roommate pays $20 per month for 3 years,
totaling $2160 when the television could have initially been purchased
for $1200. The appeal is immediate gratification coupled with reduced
initial financial pains.
Outsourcing
Advantages
|
Features
|
Benefits
|
| Implementation
speed |
Reduced
setup and configuration time. |
| Remote
access |
A user
can access his/her files from any location with a connection to the
Internet. |
| No need
to upgrade |
All
upgrades applied to ASP servers. No need for client or desktop upgrades. |
| Reduced
Support Cost |
Reduced
need for internal IT support. |
| Reduced
Initial Operating Costs |
Limited
funds required for initial startup. |
Outsourcing
Disadvantages
|
Features
|
Benefits
|
| Implementation
|
Decreased
control over infrastructure and deployment. |
| Remote
access |
Limited
to Direct Access Points for your ASP or need for secondary internet
access account depending on user travel plans. (Additional $20 - $30
/per user /per month). |
| Upgrades |
Little
to no control over hardware and software upgrades. One of the key
questions is will your ASP upgrade their software and/or hardware
more quickly than you would? Answer, probably not. |
| Support
Cost |
Support
costs are essentially negated and a monthly per user charge is assumed
(Average $24.95 per user per month ) |
Cost
Analysis
The
following figures assume the following:
1.
Company of 1,000 Users
2.
Outsourcing Messaging Only
3.
Messaging Platform is Microsoft Exchange (Lowest TCO @ $65 per seat)
4.
3 Servers 5. Assumes a 3 Year Cycle.
Internal
Costs
|
Hardware
|
Software
|
Support
|
Total
|
|
Year
1 $70,000
|
$50,000
|
$155,000
|
$275,000
|
|
Year
2 $0
|
$0
|
$175,000
|
$175,000
|
|
Year
2 $0
|
$0
|
$180,000
|
$180,000
|
Total 3 Year
Internal Cycle = $630,000
External
Costs
|
Hardware
|
Software
|
Support
|
Rental |
Total
|
|
Year
1 $0
|
$0
|
$0
|
$300,000
|
$300,000
|
|
Year
2 $0
|
$0
|
$0
|
$300,000
|
$300,000
|
|
Year
2 $0
|
$0
|
$0
|
$300,000
|
$300,000
|
Total 3 Year
External Cycle = $900,000
External
= 900,000
Internal = 630,000
Cost Differential = $270,000 + the tax benefits of amortizing the hardware.
Graphical Representation of Break Point - 3 Year Internal Hosting to
Outsourcing Comparison.
Product
Challenges
The
main challenge facing most ASPs is how to drive down long-term costs while
accumulating a solid revenue stream. One of the cost inhibitors for ASPs
is the amount of dedicated bandwidth they must maintain to support thousands
of users. Another challenge facing ASPs is Service Level Agreements (SLA);
if for some reason the ASP loses Internet connectivity, you will lose
connectivity to outsourced production systems, which negatively impact
your internal SLAs.
Vendor
Recommendations
ASPs
should target smaller organizations, startups and home based businesses
where the cost factor outweighs the benefit of an in house system. A 10-user
company is far better off with an ASP than to purchase hardware and software
and deal with the administrative headaches associated with support. The
key to an ASPs success will lie in the targeted marketplace. Those ASPs
targeting large organizations will most likely fail (probability 75%)
or scale back their profit margin in order to gain business. Those ASPs
who can successfully market to small organizations while providing good
technical support coupled with frequent software and hardware upgrades
will experience good success.
User
Recommendations
Small
startup companies and home based businesses consisting of fewer than 100
employees requiring enhanced e-mail should consider this as a viable alternative
to implementing a new messaging system. Once an organization moves past
three hundred users, consideration should be given to migrating to an
internally hosted messaging system.
Larger
organizations (>1000) should always look at the long-term bottom line,
and disregard the "masked" benefit of reduced startup costs. Through a
combination of solid administrative management and reasonable software
and hardware purchases, an in-house system should be more reliable, faster
and save tens of thousands of dollars over a three-year period.