Comparing Office 365 numbers to the total Exchange installed base

Figuring out just how successful Microsoft is with Office 365 is difficult because of the lack of published data. We have some data though and that can be used to compute some numbers and then compare those numbers to what we know of the total Exchange market. And so we come to a comparison between the success of cloud Exchange versus on-premises - which might be surprising.

I was struck by the many opinions expressed after I wrote a piece explaining why I do not think on-premises Exchange is dead. Some believed that I am mad and that Microsoft is busily killing one of its larger golden eggs in a rush to convince customers to embrace Office 365 and all things cloud-like. Others thought that my opinion was accurate and that on-premises Exchange would persist for many a long year into the future. Some more commentary seems appropriate, if only to explain why I came to my conclusion.

A well-expressed corporate strategy is a thing of beauty to the marketing profession. Greatest sweetness is obtained from a phrase that captures the strategy, such as “all in the cloud” in the case of Microsoft. The approved catchphrase is repeated ad nausem until no one in their right mind is left unconvinced that Microsoft is indeed serious about getting everything in the cloud. We therefore arrive at the situation where cloud, cloud, and more cloud is what you hear from Microsoft representatives and this is what has thrown doubt on the future of on-premises software.

The emphasis is particularly felt when discussing technology with Microsoft sales representatives. I have nothing against salespeople and have enjoyed many adventures alongside these professionals in the honest pursuit of sales opportunities. However, their behavior does tend to be affected by sales targets and bonuses (otherwise known as “spiffs”). If a salesperson is told to sell cloud, they will sell cloud. If that’s what they are selling, that’s what they will talk about to their customers. Thus, further confirmation is obtained that the cloud is the only topic worth talking about, even if it proves to be so much hot air.

Yet figures do not lie. Instead, they tell the true story to those who care to interpret and analyze the data. In this instance, we have the data provided by Microsoft to the financial analysts and, for Office 365, the data says that the current revenue run-rate is $1.5 billion. This is the figure provided by Microsoft CIO Kevin Turner in September 2013, a substantial improvement over the previously-reported $1 billion run-rate (April 2013) and in line with reports of large numbers of Office 365 subscriptions being taken out by customers. All good news for Microsoft.

So we know how much money flows into Microsoft coffers. However, this is a gross amount and doesn’t tell us how many seats generate this run-rate, nor what percentage is accrued by Exchange Online. To make the exercise easier, we can take an average amount paid per month (per user or per mailbox) and use that to calculate how many paying subscribers Office 365 has right now. The price per user depends on the plan to which they subscribe and varies from anything from $5 to $30 depending on the country where the user resides. Taking some level of discounts into account and the fact that higher-paying enterprises are typically more cautious (and harder to migrate) when adopting new platforms than their SME counterparts, I imagine that the average figure is closer to the lower end than high. Taking $10 per month as the average, $1.5 billion equates to 12.5 million paying users.

Sounds like a lot of seats and indeed it is – a hell of a lot of seats. Microsoft can be proud to have migrated so many users to Office 365 and to have kept the service running so well during this period.

You might dispute the $10 average. Feel free to do so because everyone gets to play the “how many seats has Office 365” game. You might say that the figure is lower to take account of the educational sector, say to $8/month. Adjusting to use that amount gives us 15.625 million users. I admit that even this number might be quite a bit lower than the total number of mailboxes deployed in Exchange Online. Microsoft is a great company at doing deals and the price paid by some customers could be far lower than those used in these calculations. Indeed, some customers, especially in the educational sector, might pay little or nothing in their initial contract period if this is what is necessary to convince them from using the Gmail alternative. 

Even accepting that many free or close-to-free mailboxes exist within Exchange Online, to put the data into context and be able to come up with an estimate for how far Office 365 has penetrated into the Exchange on-premises installed base, we have to compare the Office 365 data against what is known for the total Exchange market. Counting Exchange seats is somewhat of an exercise in futility because no one really knows how many people actually use Exchange day-in, day-out. Microsoft can probably compute a figure for sold licenses but not all of these licenses are actually used. So we need to look elsewhere for data.

I've elected to use data from the Radicati Group for this exercise because they have been in the business of measuring the email market for many years and therefore have a sporting chance of coming up with a reasonable estimate. Looking at their executive summary of the Exchange server market for 2010 to 2014, we find the statement:

In 2010, Microsoft Exchange Server will have a worldwide installed base of 301 million mailboxes, and is expected to reach 470 million by 2014

This data is as good as any to use, so if we compare the lower number (301 million) to the higher number computed for Office 365 (15.625 million), we find that only 5.19% of the Exchange market has moved to Office 365. And if you take the bigger figure cited by Radicati, Office 365 is only at 3.32%.

There are lies, vile lies, and then statistics. You can do anything you want with numbers and they provide a find basis to argue a point. Given the public data that’s available for Office 365 and the best guess of the total size of the Exchange market, do you think that Microsoft would kill on-premises Exchange just now? I don’t. Q.E.D.

Follow Tony @12Knocksinna

Discuss this Blog Entry 5

on Nov 5, 2013

I'm un-migrating a customer from the cloud to on-prem Exchange 2013 at the moment. The total volume of data to extract from the hosted service (not O365) is only 1.5TB. However, no tools (Quest or other) can be installed in the source Exchange hosted environment. There’s no-coexistence. This means getting 'our' data can only happen via PST export (big-bang approach), or a data copy tool which has no installation files (migrationwiz.com). It's shocking to report that it took 3 weeks to get 1.5TB PST data exported to disk. (The hosting company will not send an engineer to plug an external drive in locally to export the data…it goes over a slow site-to-site VPN link, where the external drive is then written to). Clearly 3 weeks is too long to wait and is a ridiculous situation. What if there were 10,000 mailboxes?

To add insult to injury, the source environment is heavily throttled, meaning we can only simultaneously migrate around 20 mailboxes at a time with our data copy tool. And did I mention that the target Exchange 2013 environment knows nothing about the source Exchange? The hosting company charges you $75 for a point-in-time CSVDE dump to Excel of all user settings. Everything single thing you can think of must be recreated from scratch to match the source environment. Then re-permissioned: who has FullAccess/SendAs etc…can you imagine the headache of trying to plan from a CSVDE, so that after cutover no one has any impact?

The point of my ramble here is that I have seen nothing written on any blog about what happens when you need to get OUT of the cloud. Mergers and acquisitions occur all the time. The more the online Exchange install base develops, the more chance there is of companies having to exit the cloud, whatever the reason. Can they get timely access to their own data? Is the source environment throttled? Is it a PST extract only? Can you lift the throttle policy temporarily to prevent timeouts with your migration tool? Sales people don’t talk about the SLA which applies to get your data out of the cloud. Probably because there are none. Do Office 365 customers have an agreed SLA for data extraction?

The on-prem install base is not dead: the reason my customer is moving OUT of the cloud is because they literally have no management capability of their own data. They are involved in mergers and acquisitions and cannot Federate or do any of the fun stuff with Lync/Sharepoint 2013 that they want to, when they are hosted in the cloud with a basic web GUI to manage Exchange mailboxes.

I think we need to see more written about this. Perhaps this is a job for the UC Architect’s podcast. It’d be an interesting question to ask some of your contacts at least, perhaps worthy of an article? I’m sure our experience cannot be unique – maybe we haven’t seen enough cloud adoption for it to become a big story yet. I’m sure it will be soon, if it’s as painful as this.

on Nov 5, 2013

Hi Stuart,

I think that I have been pretty consistent in terms of telling people who want to move to the cloud - to Office 365 or any other hosted platform - that they need to have a Plan B. In other words, if things don't work out as well as anticipated (for instance, the cost savings are not achieved, service or support are worse than expected), then they need to know - and have it documented - how to beat a graceful retreat from the cloud. I think that this is reasonable for Office 365 if you have a hybrid environment because you can use the same tools as you use to move mailboxes to the cloud to move them back to on-premises. It will be slow because (as you point out), the process is likely to be throttled and you're swimming against the migration tide, but it will work. I doubt that any provider will give you an SLA for data extraction or backward migration because a) it's not in their interest and b) not many people have done this yet. I imagine that more experience will be gathered as years go by because the cloud is not the right platform for everyone, which is why on-premises software remains important.

on Nov 5, 2013

The message you put out about a Plan B falls on the deaf ears of middle managers who assume an email migration is a one-time cost. They don't want to hear about a potential need to unmigrate from the Cloud, or fund the study of an exit strategy for Plan B, (in the same way noone wants to pay external consultants for Discovery time in a project, even though they know nothing about the environment but are supposed to implement a perfect architecture). I'd be interested in how many successful sales pitches have been made to an IT Director, with the idea that they might need to also include costing for Plan B in the same SOW.

I think with Exchange Online and O365 you have more granular control over management of your environment. With MS, you may already have a TAM or a similar relationship, where you can lift the phone to a helpful person and discuss options. I doubt that's true for many 3rd part hosting companies. Cheers.

on Nov 5, 2013

@Bill2, it's all about money - Microsoft has invested a terrific amount in their Office 365 datacenters and need to extract a return on their investment. Hence the pressure to sell, sell, sell. And when you are under pressure to sell, it's likely that some inaccurate statements will be made. Like on-premises is dead when it very much is not.

on Nov 6, 2013

@Bill2, "the best thing since sliced bread" is often stale soon after the salesperson leaves the building...

Please or Register to post comments.

What's Tony Redmond's Exchange Unwashed Blog?

On-premises and cloud-based Microsoft Exchange Server and all the associated technology that runs alongside Microsoft's enterprise messaging server.

Contributors

Tony Redmond

Tony Redmond is a senior contributing editor for Windows IT Pro and the author of Microsoft Exchange Server 2010 Inside Out (Microsoft Press) and Microsoft Exchange Server 2013 Inside Out: Mailbox...
Blog Archive

Sponsored Introduction Continue on to (or wait seconds) ×