Commonwealth procurement procedures Submission 29 - Attachment 1 THREE YEAR TCO COMPARISON HOSTED EXCHANGE

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THREE YEAR TCO COMPARISON

HOSTED EXCHANGE

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1 MARCH 2012

This whitepaper compares the three year total cost of

ownership of a high availability Microsoft Exchange 2010

mailbox between an Australian specialist-provider hosted

model and the traditional on-premise installation model.

The analysis is presented in a realistic Australian context, in

Australian dollars, and is applicable to corporate or

government organizations with high levels of governance

requirement and security classification.

The analysis is performed for three theoretical but

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EMAIL IS A CRITICAL ELEMENT OF MODERN BUSINESS

Global IT analysts consistently rate email today as the top or near-top IT application in terms of business criticality. Organizations who get email wrong will suffer competitively in terms of timeliness of information, leakage of data, loss of worker coordination and increased cost of working.

Email is also of major concern from an audit and risk perspective because failure can not only compromise corporate integrity but also business continuity itself.

A modern organization must have an email system which is fundamentally resilient, secure, reliable, 24/7 supportable and easy to use.

An “enterprise-grade” email system is one that increasingly considers the email platform as the centrepiece of a broad messaging and collaboration capability, converging many types of communication and productivity needs across the entire organization. Designing,

implementing and operating enterprise-grade email in today’s internet environment is a specialist technical field.

WHAT IS MICROSOFT EXCHANGE?

Microsoft Exchange is a world leading enterprise-grade email system used by over three hundred million business workers. It was originally introduced in June 1996 and has been upgraded several times since to include additional and enhanced features. The current version at the time of writing is Exchange 2010.

It meets an email system’s fundamental needs, and adds Microsoft Office familiarity and a number of other productivity features such as the following:

 intranet/extranet integration  workflow automation

 Blackberry and other mobile device integration  mobile fleet management capability

 legally-compliant archiving and query solutions  high end filtering, border protection

 smart message routing based on presence  Fax, SMS and Social Media integration  CRM and other platform integration  voice access to email server  voice to/from text

 forensic logging

ON-PREMISE DEPLOYMENT

“On-premise deployment” refers to the model whereby the user organisation buys the infrastructure, facilities, licences and skills and takes upon itself the responsibility of

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implementation phase, but the user organisation essentially runs the platform itself using a mixture of capital and operating expense.

Such a deployment at high level involves an element of management oversight, and risks and costs sometimes volatile, that an organisation may not want to invest in a “non-core-business” activity such as a utility service.

HOSTED DEPLOYMENT

An alternative methodology to on-premise deployment is the use of a “hosted” service. In this model, a specialist third-party provider is responsible to own, operate and manage all aspects of the service, usually for a flat monthly per user fee.

Emantra is such a specialist third-party provider based in Australia.

Hosted Exchange (as provided by Emantra) uses exactly the same software as would be deployed on-premise: it contains all native enterprise functionality and is not an abridged version as offered by some offshore services. It runs on very-high-availability servers in top tier data centres. It can be delivered as a multi-tenant service, where different customers share the same hardware and instance of the licence but have complete logical discretion of their own data, or as a dedicated instance running on physical or virtual hardware.

The essence of the service is that it is fully managed and paid for by the month based on usage. All aspects of infrastructure ownership and secure housing, 24/7 operation, monitoring, maintenance and support, patching, reporting and daily remote back-up are provided by the service provider. The service is delivered to an agreed SLA which specifies minimal downtime tolerance. Financial penalties apply against the service provider if

guaranteed uptime is not achieved.

THREE YEAR COST COMPARISON

The analysis compares the Three Year Total Cost of Ownership of Hosted Exchange versus On-Premise Exchange. The data used was derived from a range of real-life scenarios drawn from enterprise clients of Emantra and other industry case studies, and was validated against supplier cost lists and independent reports published by global IT analysts.

Three typical scenarios were studied: organizations of 100, 1,000 and 5,000 users. The organizations were assumed to have levels of risk and security requirements compatible with Australian public company governance or Australian government security classification at the ISM-defined “Protected” level.

The costing comparisons are shown in detail for each scenario in Appendices A, B and C. Conclusions are shown in the table below:

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MICROSOFT EXCHANGE 2010

ENTERPRISE GRADE 5GB MAILBOXES 99.9% UPTIME SLA Protected Level Secure Internet Gateway

100 User Organization 1,000 User Organization 5,000 User Organization

THREE YEAR TCO:

Hosted Exchange On-premise Exchange Savings $ Savings % $178,616 $420,244 $241,628 57.5% $1,262,269 $1,873,960 $612,691 32.7% $5,033,080 $5,486,688 $453,608 8.3%

MONTHLY TCO PER USER:

Hosted Exchange On-premise Exchange Savings $ Savings % $49.62 $116.73 $67.12 57.5% $35.04 $52.05 $17.01 32.7% $27.96 $30.48 $2.52 8.3%

COMPARISON CONCLUSIONS

The table and the chart on the next page indicate that in the On-Premise scenario, the fully absorbed cost of an enterprise-grade email mailbox per user per month falls from $116.73 in a 100 user organization to $30.48 in a 5,000 user organization. This reflects the expected economies of scale which modern virtualization can bring. However a mid-sized

organization of 1,000 users can still expect to spend about $600,000 per year on an On-Premise enterprise-grade email system.

In all cases considered, however, the cost of Hosted Exchange compares favourably against the On-Premise alternative. In terms of percentage savings this is most evident in the smaller organization where the costs are more than halved by using Hosted Exchange. In terms of absolute dollar savings the 1,000 user organization shows the greatest difference: annual savings of more than $200,000 or about one-third.

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For organizations between the sizes considered, we think that linear extrapolation of these results would be roughly accurate.

The savings predominantly come from the scale and leverage the hosting provider can deliver. These results bear up against anecdotal reports where organizations consistently indicate effective savings of over one-third versus their former On-Premise implementation, with no diminution (often a substantial improvement) in other qualitative factors such as border control, support quality, SLA adherence and reporting.

Conventional wisdom had it that Hosted Exchange was suitable only for small businesses, while On-Premise Exchange was a better value proposition for mid-sized and large

organizations. Over the last five years, many changes have aligned to provide a different outcome today:

 Availability of third-party hosted Exchange professionals who are building scale in themselves and can pass on these economies

 Flexibility of service provider licence regimes  Vastly improved bandwidth availability

 The predominance of web services software which has been built from the ground up to be securely and robustly “multi-tenantable”

 Improvements in control panel technology which simplify administration  Service provider buying power on hardware, bandwidth, rackspace, etc

There is possibly a cross-over point between 5,000 and 10,000 users per organization where the On-Premise economics may be superior, although that would depend on the depth of discount which the Hosted service provider could deliver at such volume. It is notable that

$0 $20 $40 $60 $80 $100 $120

100 User 1,000 User 5,000 User

Monthly TCO per User

On-Premise Exchange

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there are organizations in the United States of over 100,000 users in size which have successfully and economically migrated to Hosted Exchange.

OTHER FINANCIAL BENEFITS

There are other financial benefits of Hosted Exchange which are more difficult to model, and are typically not indicated in the table above:

Predictability of cost and scalability

The best hosting providers will quote an all-up unit cost whereby future bills will only vary by user number or some other reported and manageable parameter. Thus future costs are more visible and easier to budget.

If properly designed in the first place, the hosting provider’s infrastructure should scale for things like processors, RAM, storage, bandwidth etc in a manner which does not bother the customer either in a service disruption or in a billing sense.

This can eliminate the significant cost risk of On-Premise deployments which may be affected by scale limitations or office moves etc.

Opex not capex

Hosted services involve minimal capital outlay on the part of the customer. There may be a fee for migration for example, or for dedicated instance set-up, but capital, licencing and infrastructure costs are amortised monthly. Thus the risk of stranded capital or the need and time for a capital budget approval process can be alleviated.

Burstability

Because of their own buying volumes, a good hosting provider will be able to pass on the savings of “burstability” which means that as long as a defined minimum of a resource, say storage or bandwidth, is used most of the time, it won’t cost any more to “burst beyond that” for short periods. This means the customer does not have to buy resources to always allow for their short-term peak need.

Switch on switch off

The ability to almost instantly switch on and switch off services, users, features etc for project work, test and development sites, staging, machinery of government changes etc is also of great value. Again, the customer pays only for what is used.

Reduced opportunity costs

The use of Hosted Exchange can also realize opportunity cost benefits where for example, back-of-house technical labour can be reassigned to higher level or more customer-facing duties, or where valuable office space can be released from the need to house internal servers.

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Potential to use a hybrid solution

Some organizations have a large number of employees not classified as “information workers” but for whom they wish to provide a rudimentary email facility. To minimise the cost, this could utilise a lower-end service such as Hosted Outlook WebApp only, a POP3 mailbox, or a public cloud service if data sovereignty was not a concern. In most instances, an advanced hosting provider will be able to provide some level of integration for access and identity management purposes between such solutions and the Hosted Exchange service used by the information workers, and thus provide a “best of both worlds” solution.

Less Management distraction

As a fully managed service with an assured outcome, Hosted Exchange will also allow the customer’s management more time to focus on the business itself and less on the non-income producing tasks which need to happen behind the scene.

SUMMARY

This whitepaper shows that Hosted Exchange may deliver both measurable and intangible savings to many organizations. Savings can be substantial, even for large organizations, and are such that that it is essentially not economically viable in today’s IT market for

organizations of a hundred or a few hundred users with enterprise-grade needs to attempt to build On-Premise facilities for email.

The key to realizing the value of a Hosted Exchange service is to pick the right service provider and be aware of the limitations that might exist. This is the subject of another whitepaper in this series. Please contact Emantra 1300 728 953 for more details.

MORE INFORMATION

If you would like more information about this analysis or Emantra’s other services or whitepapers, please contact us on 1300 728 953 or email [email protected].

Head Office Level 4

445 Upper Edward Street BRISBANE QLD 4000

Level 1 Realm Precinct 18 National Circuit BARTON ACT 2600

Tel 1300 728 953

Email [email protected] Web www.emantra.com.au

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APPENDIX A

HARDWARE _{Shared Infrastructure}Hosted Exchange _{On-Premise Exchange}

Email and AD server/s including redundancy $0 $16,250 Border Gateway/Firewall appliance/s $0 $0 SAN/NAS storage - production $0 $5,000 WORM Appliance/archive storage $0 $6,000 Three year 24/7 support, four hour response $0 $8,175

AV/AS appliance/s $0 $0

SOFTWARE _{Shared Infrastructure}Hosted Exchange _{On-Premise Exchange}

Windows Server including Active Directory $0 $14,000 Microsoft Exchange CALs, x 1000 (apportionment of Core CAL licence) $0 $13,800 Software premium support fees (apportionment for Exchange) $0 $0

AV/AS software $0 $5,400

Enterprise back-up software licences (apportionment) $0 $6,250 Compliant email archive software licences $36,000

LABOUR _{Shared Infrastructure}Hosted Exchange _{On-Premise Exchange}

FTE IT Tech/Admins ($100,000 gross avg salary growing at 5% per yr) 0.2 0.5 IT Admin cost (Year 1) $20,000 $50,000 IT Admin cost (Year 2) $21,000 $52,500 IT Admin cost (Year 3) $22,050 $55,125 Training, certification, recruitment at 15% salary $7,566 $23,644

FACILITY _{Shared Infrastructure}Hosted Exchange _{On-Premise Exchange}

Rack space, Tier 3+ DC incl power, 15RU $0 $58,500 Server to Internet Connectivity, committed Mbps $0 $36,000

SERVICES _{Shared Infrastructure}Hosted Exchange _{On-Premise Exchange}

24x7 Help Desk $0 $10,800

Remote Monitoring $0 $3,600

OFFSITE BACK-UP _{Shared Infrastructure}Hosted Exchange _{On-Premise Exchange}

Back-up server/s $0 $6,000

Back-up storage $0 $9,000

Back-up media (tapes or portable HDD) $0 $4,200

Offsite facility/contractor $0 $0

HOSTING FEES _{Shared Infrastructure}Hosted Exchange _{On-Premise Exchange}

Hosted Exchange $72,000 $0

Hosted Compliant Email Archive add-on $36,000 $0

TOTAL THREE YEAR TCO $178,616 $420,244

SAVING $ THREE YEAR TCO $241,628

SAVING % THREE YEAR TCO 57.5%

TOTAL THREE YEAR TCO PER USER $1,786 $4,202

ANNUAL TCO PER USER $595.39 $1,400.81

MONTHLY TCO PER USER $49.62 $116.73

SAVING $ MONTHLY PER USER $67.12

SAVING % MONTHLY PER USER 57.5%

Three Year Total Cost of Ownership Hosted and On-Premise Microsoft Exchange 2010 100 users, 5GB mailboxes, 99.9% Service Uptime

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APPENDIX B

Email and AD server/s including redundancy $0 $49,000 Border Gateway/Firewall appliance/s $0 $60,000 SAN/NAS storage - production $0 $35,000 WORM Appliance/archive storage $0 $60,000 Three year 24/7 support, four hour response $0 $61,200

AV/AS appliance/s $0 $30,000

Windows Server including Active Directory $0 $27,000 Microsoft Exchange CALs, x 1000 (apportionment of Core CAL licence) $0 $138,000 Software premium support fees (apportionment for Exchange) $0 $72,000

Enterprise back-up software licences (apportionment) $0 $50,000 Compliant email archive software licences $0 $180,000

FTE IT Tech/Admins ($100,000 gross avg salary growing at 5% per yr) 0.5 2.0 IT Admin cost (Year 1) $50,000 $200,000 IT Admin cost (Year 2) $52,500 $210,000 IT Admin cost (Year 3) $55,125 $220,500 Training, certification, recruitment at 15% salary $23,644 $75,660

24x7 Help Desk $0 $36,000

Back-up media (tapes or portable HDD) $0 $12,600 Offsite facility/contractor $0 $24,000

Hosted Exchange $720,000 $0

Hosted Compliant Email Archive add-on $360,000 $0

TOTAL THREE YEAR TCO $1,261,269 $ 1,873,960

TOTAL THREE YEAR TCO PER USER $1,261.27 $1,873.96

ANNUAL TCO PER USER $420.42 $624.65

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APPENDIX C

Email and AD server/s including redundancy $0 $69,000 Border Gateway/Firewall appliance/s $0 $60,000 SAN/NAS storage - production $0 $175,000 WORM Appliance/archive storage $0 $240,000 Three year 24/7 support, four hour response $0 $163,200

AV/AS appliance/s $0 $50,000

Windows Server including Active Directory $0 $36,000 Microsoft Exchange CALs, x 1000 (apportionment of Core CAL licence) $0 $690,000 Software premium support fees (apportionment for Exchange) $0 $96,000

Enterprise back-up software licences (apportionment) $0 $184,000 Compliant email archive software licences $0 $900,000

FTE IT Tech/Admins ($100,000 gross avg salary growing at 5% per Yr) 1.0 5.0 IT Admin cost (Year 1) $100,000 $500,000 IT Admin cost (Year 2) $105,000 $525,000 IT Admin cost (Year 3) $110,250 $551,250 Training, certification, recruitment at 15% salary $37,830 $236,438

24x7 Help Desk $0 $180,000

Back-up media (tapes or portable HDD) $0 $25,200 Offsite facility/contractor $0 $42,000

Hosted Exchange $2,880,000 $0

Hosted Compliant Email Archive add-on $1,800,000 $0

TOTAL THREE YEAR TCO $5,033,080 $ 5,486,688

TOTAL THREE YEAR TCO PER USER $1,007 $1,097

ANNUAL TCO PER USER $335.54 $365.78