Office 365 offers great value compared to on-premises alternative

Microsoft has officially launched Office 365–the new cloud-based subscription productivity suite.

Inevitably, there are a myriad of head-to-head comparisons and face-offs with the rival Google Apps platform, but those are only valuable for an individual or company that is seriously considering a choice between the two. For an organization that has no intention of dropping Microsoft Office, the question becomes one of which path provides the better value.

Let me start with a caveat. The math behind determining the value of Office 365 vs. simply implementing and managing your own servers and Microsoft Office infrastructure internally are subjective. A lot varies by the number of users involved, or the how spread out offices or workers are geographically. And, you have to say Bill Gates backwards three times, and sacrifice a chicken to understand the voodoo math that goes into Microsoft licensing–so my math may be simplistic.

What would it take for you to build your own ‘Office 365’? Let’s consider the elements involved:


First, you need a server or two. You will need to be able to run Exchange Server, SharePoint Server, and Lync server simultaneously, so you need to consider the number of users involved, and calculate the expected load on the server(s) to figure out how much processing horsepower you really need. A small business with only 50 or so users may be able to run all three on a single physical server, while a massive company might need multiple servers for each of the backend Microsoft products.


To run your own ‘Office 365‘ infrastructure, you have to purchase Exchange Server, and SharePoint Server, and Lync Server–along with all of the associated client licenses. You also have to rely on using Outlook / Exchange through the Outlook Web Access interface, and use the free Office Web Apps, or purchase licensed copies of Microsoft Office for all users.


Someone has to administer, and maintain this infrastructure. You need an admin with knowledge of Exchange, SharePoint, and Lync to install, configure, deploy, and update the backend servers. The admin would also need to monitor the server and network hardware to make sure it is performing optimally, troubleshoot any problems, and upgrade or replace hardware as necessary.
A small organization can probably get by on a single physical server–perhaps using Hyper-V and multiple installations of Windows Server 2008 to create separate virtual servers for the different products. It would require a server of sufficient capacity, plus the licenses for Exchange, SharePoint, and Lync, and three licenses for Windows Server 2008.

We’ll assume $5,000 for a comfortably equipped server. You might be able to get by with less, and you could certainly spend a hell of a lot more. Throw in another $5,000 for the server licenses and associated client access licenses (Again–mileage will vary wildly. See note above about voodoo math and sacrificing chickens). Tack on $50,000 a year for a bargain-basement IT admin and you are looking at investing $60,000 just to get started. And, if you also want the actual Microsoft Office 2010 desktop software installed locally on users PCs, you have to add in another couple hundred dollars per user.

Contrast that against $7 per month per user–$84 per year. You need about 800 users just to reach the break even. For organizations of 500 or less, the math in favor of Office 365 seems to be a no-brainer, and also frees the company to focus on business and leave the tedium of maintaining servers and updating software to Microsoft.

Even for massive companies where Office 365 ranges from $10 to $27 per user per month–with the default being the $24 plan–the math may still be compelling. It gets tricky when you start dealing in volume license discounts and such, but a larger organization would also require more servers, more licenses, more client access licenses, and–most importantly–more IT admins and support personnel.

The value proposition will be different for each organization, but it is a worthwhile exercise for IT execs to at least run the numbers and figure out if Office 365 makes sense for their business.

Share on LinkedIn Share with Google+