Report: Office 365 Not Always the Lowest Cost Option

An industry-sponsored report released this month questions whether Microsoft's hosted offerings always represent the lowest cost option vs. other Microsoft-stack approaches.

Based on the report's calculations, Microsoft's public cloud Office 365 offerings might be more expensive than on-premises or private cloud deployments, especially if added or advanced features are required by organizations. However, for organizations with simpler needs, Office 365 services can offer lower total costs.

The report, "Cloud vs. Cloud: Comparing the TCO of Office 365 and Private Clouds," was researched and written by Osterman Research Inc., with funding from Seattle-based Azaleos Corp., a top Microsoft partner and systems integrator company. The 15-page report compares the costs of public cloud, on-premises and private cloud deployments. The supporting data are listed in a table in the appendix. The report's cost estimates are based on an enterprise-size company with 5,000 users over a three-year period.

The report's calculations take into account recent Office 365 price reductions announced this month. Microsoft reduced its Office 365 pricing by about 20 percent.

"Intangibles" Add Up
Microsoft offers four enterprise plans for its suite of public cloud Office 365 services, which includes services built on Exchange Online, SharePoint Online and Lync Online. Alternatively, organizations can deploy Microsoft's servers on premises, which is the more traditional route. A third option might be to establish a contract with a Microsoft partner providing hosting and support. In the report, this latter option, where a Microsoft partner manages and maintains the servers, is defined as a "private cloud" deployment.

Microsoft has always marketed its public cloud approach as leading to lower costs for organizations, because the hardware is commoditized and fewer IT personnel are required to run it. However, the basic gist of the report -- that Office 365 might not always be the lowest cost solution -- was surprising, even to Azaleos, which commissioned the report.

"In some ways the results of the report were a surprise for us," said Scott Gode, Azaleos' vice president of product management and marketing, in a phone interview. He added that potential Azaleos customers typically ask about the costs compared with their current solutions when examining their options.

"We have always told them that they need to think -- especially when they are comparing a public cloud solution like Office 365 with an on-premise or private cloud solution -- through all of the intangibles," Gode said. "[It's] not just the subscription cost of the actual product or service, but they need to think through all of the pieces of the pie that add up to the solution. So we've always given a number of different buckets of things to think about, but we had never got to the extra work to quantify those and put them in a tabulated format, like we did in the report. In the process of doing that, it did lead to interesting conclusions."

Costs are just one component to consider. Other considerations for customers, according to Gode, include feature sets relative to the solutions they are trying to architect, the overall security of the system and the overall integration of the solution with other applications.

Cost Comparisons
For basic scenarios, Office 365 represents a 21 percent less expensive option for organizations than using a private cloud, according to the report. However, if some "enterprise-grade capabilities" are required, then using a private cloud may be 20 percent less expensive than using a public cloud, according to Osterman Research.

If an organization needs to use the whole Microsoft stack to deliver unified communications, then the private cloud is "20% less expensive than the public cloud and also 18% less expensive than on-premise delivery," per the report.

The report claims that the reason why private clouds can beat Microsoft's Office 365 pricing in some cases is that Office 365's base pricing "is significantly higher than the fully amortized price of the hardware, software and other infrastructure elements offered in a private cloud deployment."

If an organization wants to add voice capabilities to a Lync deployment or boost the bandwidth of Exchange, then paying for those capabilities via Office 365 turns out to be more expensive than tapping a private cloud, according to the report. There are other nuances to consider too. For instance, the SharePoint Online feature set isn't as extensive as the capabilities afforded via SharePoint deployed in a private cloud.

The free "Cloud vs. Cloud" report with more details can be downloaded from Azaleos' Web site here. Registration is required.

About the Author

Kurt Mackie is senior news producer for 1105 Media's Converge360 group.

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