A new report from Forrester presents a cost analysis of cloud-based email systems in enterprises, such as Google Apps or Yahoo!'s Zimbra. In the report, Forrester argues that cloud-based email services are cheaper than running email on-premise for all companies with less than 15,000 employees. What's more, Google Apps is significantly cheaper than both on-premise solutions and other cloud-based email services - even for very large enterprises. This could spell trouble for Microsoft, as we explain below.

Despite the cost benefits, at this point most companies (56%) are looking to implement a 'hybrid' model of on-premise and external email services. Just 19% plan to migrate their entire email base to a hosted or managed email provider.

Forrester's cost analysis (outlined in full in its report) shows that for the "Information Worker" segment, a large portion of many modern enterprises, cloud-based email is often cheaper. Forrester concluded that "cloud-based email is always cheaper for companies with fewer than 15,000 users".

The following chart of various options is interesting, because Google Apps comes out significantly cheaper than Microsoft Exchange Online - and other cloud based email options. Also interesting is that Microsoft Exchange Online Standard is about 10% cheaper than many cloud-based providers - due to its economies of scale no doubt. One wonders whether Microsoft will be forced to drastically reduce its pricing for Exchange Online, in order to compete better with Google Apps; although that of course comes at the risk of under-cutting one of the company's cash cows, Microsoft Office.


Source: Forrester; the above figures are based a scenario for 15,000 employees with email.

Even as the staff numbers increase, Google Apps remains by far the cheapest option. Of course there are other factors to consider other than price, but even so these figures are striking and are likely to be very pursuasive for many enterprises over the coming years.

Lastly, there are some interesting comments in the report about about the low price point of Google Apps. Google told Forrester that it "uses automation and massive scale to achieve an order of magnitude lower cost of service than a typical enterprise." This led Forrester to believe that "Google can make money at this price, and that the service will handle some firms' or users' needs well, including its bigger customers like Genentech and Avago Technologies."

However Forrester noted that it is unsure how much focus Google will give to the service. Also Forrester suggested that Google Apps still needs "better mobile support, an offline email and calendar client, and a clearer view of the product road map."

Note: Forrester released a companion report, entitled Should Your Email Live In The Cloud? An Infrastructure And Operations Analysis, that digs deeper into the technical issues around cloud-based email.