We (itgroove) have been working with a lot of clients that are moving parts of their infrastructure to Office365.  For some clients it really is a “no-brainer” and there is no discussion at all about 365 vs on premise servers.  For other clients it is a much more complex discussion.  So I thought it might be useful to have a broader discussion via this blog about the things you need to consider about whether or not you move all or part of your infrastructure to Office365.

To begin, you need to understand what Office365 actually brings to the table.  365 is NOT just email or SharePoint or Lync.  It is all of those parts integrated together and ready to roll out of the box.  It is really much more than most small businesses could ever hope to install on premise (more on this in a moment) or even most medium-sized businesses could do.  Most of the 365 plans actually slot users in at a service level, specially on the SharePoint side, that slides in above what you would get by having “Standard” versions of Exchange and SharePoint installed on premise.   Again, from a SharePoint point of view, you get a whole whack more functionality than you would get with SharePoint Foundation installed on premise.  In other words, you get features and functionality that if installed locally on premise would cost quite a bit.  And then there is the whole other world of possibilities afforded by Lync which most small businesses would never consider installing locally.

Most small businesses approach 365 coming from a Small Business Server environment and they try to “map” the costs as filtered through the SBS “lens” so lets do some mapping based on that paradigm.

In the good old days (2011 and earlier), small businesses could buy SBS 2011 Premium which would give them a bundle of two Server 2008 R2 licenses, Exchange 2010 Standard, SQLserver 2008 R2, SharePoint Foundation 2010 and appropriate CAL’s for the whole nine yards.  For a 30 user shop the costs for the software would be in the range of about $4800 ~ 5200 Canadian (give or take); not cheap but also a lot less than the costs for all of the standalone products and their attendant CAL’s.  You could use the SQLserver installation for line of business apps and, of course, SharePoint Foundation 2010 could utilize it for all SharePoint storage.  But you would have to spend a bunch more money if you wanted “full” SharePoint Server.  There was no option that would provide you with Office licenses, those were also an additional cost.

Now that SBS is but a fond and distant memory you would need the following to recreate the same on premise services utilizing the latest Volume licensing (assuming one physical server running Hyper-V and two VM’s, all pricing in Loonies Star):

Product COST TOTAL
Windows Server 2012 Standard $1179 $1179
30 Server 2012 CAL’s $45 per CAL $1350
Exchange 2013 Standard $946 $946
30 Exchange 2013 CAL’s $140 per CAL $4200
SQLserver 2012 Standard $1199 $1199
30 SQLserver 2013 CAL’s $279 per CAL $8370
SharePoint 2013 Foundation FREE N/C
Office 2013 Professional $679/user $20370

Now, if my math is correct, this adds up to $17244 without Office 2013, or $37614 with Office 2013 licenses.

So now we look at the license cost per product (does not include hardware and other related costs).  Exchange would be $5146 or $173.33 per user.  SharePoint (including SQL) would be $9569 or $318.96 per user.  Windows (server) cost would be $2529 or $84.30 per user.    The grand total per user is $576.59.  All of this ends up as up front capital out the door or some form of financed monthly cost (lease or financing, your choice).  If you factor in the costs of hardware, maintenance, backup, labour cost to support all of this on premise you would probably spend at least as much again, per user, over a three year term.  So, let’s say the total cost per user for 3 years to handle all of these services on premise would be $1153.  Add in  Office 2013 Professional for the users (you need Office to consume a lot of the services), so factor in another $679 per user which brings our three year cost per user to $1832 or $54960.

(NOTE:  To be fair, you may or may not need SQL for local on premise line-of-business apps.  If you do and you need the features of SQLserver Standard vs the “free” SQLserver Express editions then you need to take the next set of numbers with a grain of salt.  On the other hand, if you only want or need SQL to provide the “grunt” as the backend to SharePoint then the following numbers will be very interesting to you.)

Using the Office365 “E3” plan as a starting point (includes 5 copies of Office 2013 Pro per user), the cost per user per month is $23.20 so the three year cost per user equals $835.20.  Because Office365 is now providing all of the functions of the product licenses in our table in BLUE you can see that we have pulled out a massive up front cost as all of that is no longer required.  If we add in the $84.30 Windows server per user cost to our 365 cost we end up with a 3 year per user cost of $919.50.  For the sake of argument, add in another $100 per user over the 3 years to cover maintenance and what not on what would now be a DC/fileserver and you end up with a cost of $1019.50 per user.  This is a savings of $812.50 per user over three years or $24375 in total.

OK, lots of numbers and the numbers change depending on your circumstances and what you pay for Volume licensing.  But I think you can see where I’m going.  In our 30 user scenario we save slightly more than the cost of the Office 2013 licensing over the three year period by utilizing Office365.  That translates to getting Office 2013 “for free” and not having to deal with all of the issues that surround having to support all of the on premise services.  Factor in the rolling upgrades/updates that are included with Office 365, meaning you are ALWAYS up-to-date, and it looks to be a no brainer.

I hope this is helpful, it is certainly eye opening.   Yes there are costs for going to the cloud but it looks like there are savings, as well.

Star A “Loonie” is a Canadian dollar for those of you that are not familiar with the “Great White North”.  Named after the 1 dollar coin that has an image of a Canadian Loon on one side, HM Queen Elizabeth II is on the other side.

Stuff to think about when you consider “On Premise” vs Office365
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