The Savvy CIO

Some months ago we did a breakdown of the costs of Zimbra versus Microsoft Exchange. I’ve long been negative about the costs of Exchange. The price doesn’t scale down at all for small companies, and scales up far too quickly for larger ones. But the previous breakdown was a hypothetical scenario. There’s nothing wrong with that, it’s what we all do when making a purchasing decision. But now there’s some real life data to turn to.

The University of Pennsylvania runs both Exchange and Zimbra. They have nearly 1,000 users on Exchange and over 6,200 users on Zimbra, and the same technical support team takes care of both systems and their respective user bases.

My primary complaint with Exchange is how time-intensive and difficult it is to support and maintain. Support and maintenance are entirely hidden costs at the point of purchase, and many unsuspecting buyers have been lured in with steep license discounts only to discover the ongoing costs were far more than they bargained for.

The data from Penn agrees. For Penn, supporting an Exchange user is over 9 times more time consuming than supporting a Zimbra user.

For 1,000 users, Exchange requires 3.2 full-time equivalent staff members to support. With over 6,200 users, Zimbra requires 2.2 full-time staff members to report. That’s right, 33% less time spent on support for six times the users.

When Penn analyzed the total cost of ownership for Exchange and Zimbra (licensing, hardware, maintenance, support, etc.), Exchange came out at $7.50 per user. Zimbra was under half the cost at $3.00 per user.

Adam Preset, an IT technical director at Penn, discusses their deployment: read more »

We develop, customize, build, integrate and host web applications and web sites, and we do it almost exclusively on open source software.

Why open source?

There are several reasons, but here’s a big one:

Open source saves you money.

That’s you, the client. Open source saves you money. read more »

After the recent post on total cost of ownership (TCO), the Savvy CIO decided to use Microsoft Exchange–a common small business solution–as a TCO example.

The “Sales Pitch” Cost of Exchange: $4,844

Server Hardware: $1,000
Small Business Server 2008, 5 Client Access Licenses (CALs): $1,089
15 Additional CALs: $1,115
20 Outlook Licenses: $1,600

TCO Estimate of Exchange (4 year lifespan): $51,870

Initial Cost: $10,110

Hardware and Licenses: $4,844
Server & Exchange Configuration (8 hrs): $1,200
Spam Filter: $700
Spam Filter Configuration (3 hrs): $450
Outlook Configuration (.5 hr per user): $1,500
Backup Configuration (3 hrs): $450

Ongoing Cost: $870 per month

Online Data Backup: $20
Server Maintenance/Downtime (4 hrs): $200
Patches/Upgrades (2 hrs): $100
Exchange Administration (5 hrs): $250
Spam Filter Administration (5 hrs): $250
Energy Cost: $50

This TCO doesn’t even account for many expenses:

• User and admin training
• Productivity lost during unplanned downtime (Exchange average is 4 hours per month)
• Additional storage
• Part replacement
• Disaster recovery & emergency backup

The Savvy CIO is not sure why Exchange is common among small businesses with such a high TCO.

A TCO of $50,000+ doesn’t mean technology isn’t worth it. Exchange may still pay for itself in time and embarrassment saved and in reduced administrative staff. But knowing the TCO allows comparisons that help make wise decisions, the first of which is the outsourcing question:

Can you subscribe to a collaboration platform for less than $12,750 a year?

In full disclosure, the Savvy CIO’s firm is a provider of Zimbra, exactly this kind of hosted collaboration platform. There are also other alternatives that offer a much lower TCO to a small business than purchasing Exchange.

The basic piece of business technology is the PC: simple and inexpensive. When you purchase a $1,000 PC, you’re spending about 4% of the total cost of that machine over 5 years. In other words, maintaining, supporting and powering that PC for 5 years will cost your business nearly 25 times the initial purchase price.

Cost of a PC: $1,000
Total Cost of Ownership (TCO) over 5 years: $25,000

I know. Stunning.

TCO includes the costs you can see on your balance sheet (energy and internet, IT support, part replacement) and the costs you can’t (training for IT staff and users, downtime, user self-support, administration). You can imagine how TCO increases rapidly as the technology in question grows in cost and complexity.

Basing a technology purchase on initial cost can lead to a bad decision. A common rationalization for a big purchase is the false belief that once the high upfront layout is over, it won’t cost the company anymore: It’s free!

Free, in this case, is NOT free.

Technology decisions must consider total cost of ownership. TCO allows you to compare the various ways technology is offered: internal IT staff, outsourced IT consultants, capital purchases, software as a service subscriptions, etc.

The MaintainITProject has a list of core TCO questions to consider.

Good technology is unrivaled in its ability to improve business efficiency. The total cost of good tech is still worth it. But don’t be fooled by that attractive initial price tag and the promise of “free”. Know the TCO.

Technology changes fast. Your business can’t sustain jumping on the “new and improved” bandwagon every time. But changing too much isn’t the problem most businesses face.

For most it is changing too little, fighting down the growing certainty that a technology or business process that is paid for and familiar has become a problem. If this is you, here’s the bad news:

You have a legacy monster on your hands.

A legacy monster is usually some piece of hardware or software that was, years ago, a great source of efficiency and maybe even pride. Now faster, better, and cheaper solutions abound. But somehow the legacy monster is hanging on. Legacy monsters survive on lies like:

“It doesn’t cost us anything anymore.”
“Everyone is comfortable with this system.”
“We can’t take time for change right now.”

Don’t believe it.

Legacy monsters cost more to maintain than they did to purchase, better systems lead to better work, and today’s slow market means we all have a little extra time to improve business processes.

The truth is that the legacy monster’s initial cost is irrelevant. Hampering your business for months or years won’t “get the most” out of your investment.

Do you have legacy monster systems in need of slaying? Did you recent lay one to rest?