Companies that run Microsoft Exchange Server 2003 or Exchange Server 2007 face an interesting choice as they consider their future messaging platforms. The traditional option is to continue with an on-premises deployment, upgrading the organization to Windows Server 2008 R2 and Exchange Server 2010 SP1. The alternative is to embrace the cloud and move some or all of the organization's mailboxes to a hosted platform. Microsoft has spent a lot of money (estimated at up to $2.5 billion) in building massive data centers around the world and in making server products such as Lync, SharePoint, and Exchange "cloud capable"—thereby forming the basis of its Office 365 offering, due for release in June 2011.

BPOS, the Predecessor to Office 365

Microsoft Business Productivity Online Standard Suite (BPOS) was released in November 2008 and was Microsoft's initial foray into the hosted market. Microsoft refers to Office 365 as the "technical evolution of BPOS." While BPOS is based on the 2007 versions of Exchange and Microsoft Office SharePoint Server (MOSS), Office 365 is based on the 2010 versions of these products.

BPOS includes Exchange Online, Office Communications Online, SharePoint Online, and Office Live Meeting, and it's available in standard (BPOS-S) and dedicated (BPOS-D) editions. The difference between the two is that BPOS-S uses a shared environment to host multiple companies, while a separate environment is created for each company that uses BPOS-D. Additionally, the dedicated versions of BPOS and Office 365 are intended to support businesses that have more than 5,000 users, which is the cutoff point that justifies the extra cost required to create a dedicated instance. The standard edition offers no room for a company to customize the services to meet its needs, as this is very much a utility service where you accept whatever the service provider delivers, just like electricity or water. There's more room to maneuver in the dedicated version, but you still have to accept that control rests in the hands of the service provider, and you can't customize Exchange or SharePoint as much as you can in an on-premises deployment.

Options to Buy Office 365

There's a wide range of options available to access Office 365. Microsoft breaks down the options into plans that are priced on a per-month basis. Prices quoted here are US baseline prices, which you should verify with your local Microsoft office. The plans are for standard versions of Office 365. Replacement Office 365 offerings for the dedicated and federal versions of BPOS will follow in due course with their pricing subject to negotiation between Microsoft and customers.

Options for Smaller Businesses. Plan P is designed to support small-business users (any business with five or more users). This is an ultra-competitive market because it's where Microsoft goes head-to-head with Google Apps. Microsoft charges $6 per month for a Plan P user, which includes the following:

  • A 25GB Exchange 2010 mailbox (including an online archive) with access via Outlook or Outlook Web App (OWA)
  • SharePoint 2010 team sites
  • Office Web Apps
  • A simple public website
  • Lync online meetings and desktop sharing
  • Multiparty IM and person-to-person calling
  • Self-help, and what's charmingly referred to as "community support" (the opportunity to use your favorite search engine to look for an answer)

There's a lot of good functionality available here, and companies that run one or two Exchange 2003 servers today could see Plan P as an obvious path forward. However, these companies will have to invest in some extra network capacity if they want to move to Office 365 because their users will now depend on fast, dependable bandwidth to get their work done. Third-party resellers will also find opportunity with Plan P because they'll be able to sell services to help companies move mailboxes to Office 365 and then use some of the new features to set up team sites, create a website (if the customer doesn't already have one), train users to use Lync, and so on.

Options for Larger Businesses. Large companies are more complicated to plan for because of how many users (and types of users) need to be accommodated. Large companies often have users in multiple locations in different countries, have multiple operating units, and must meet numerous functionality requirements to satisfy their industry's regulations. Factors that can complicate planning and deployment for large enterprises include the following:

  • Some enterprises might need to create a hybrid situation where some users connect to servers running in the company's own data center and other users connect to Office 365. Federation, or the ability of servers running in either environment to share information such as free/busy data, is critical to providing a single unified service for users.
  • Enterprises tend to use a wider range of devices.
  • Some applications might have a dependency on Exchange or SharePoint. For example, Exchange often acts as an SMTP server that allows applications to send messages as part of their processing. Office 365 doesn't support public folders, which will deter companies that still use them to distribute and share information within their Exchange deployment.
  • In an enterprise, actions that affect user productivity must be minimal. For example, restarting Outlook once after a mailbox is moved is acceptable, but components such as Autodiscover have to work flawlessly after they move to the cloud and must not generate calls to the Help desk because of connectivity problems.
  • Greater importance is placed on quick and accurate 24 x 7 support that is provided by competent support professionals.

These factors create a complex operating environment for Office 365, and the planning for its deployment is often long and detailed. The intricacies of federation, synchronization, security, and monitoring must be worked through to create a situation where on-premises and cloud servers work together to deliver a seamless service.

Microsoft divides enterprise users into two camps: kiosk users and information workers. Plan K is designed for employees who don't spend much of their time using a PC. Factory workers are a good example—they might need email and access to team sites to participate in company communication, but they are largely passive consumers of communications rather than generators of new information. Users in this category tend to use a shared PC in some common area to infrequently update themselves about company information. Therefore, Plan K provides the following:

  • 500MB mailboxes with access via OWA; alternatively, POP3 access is available, so some mobile clients are supported
  • Access to SharePoint team sites, but no storage allocation
  • Office Web Apps

Two variants are available. Plan K1 ($4 per month) is suitable for workers who need intermittent access to a company email system and only need to read Office documents. Plan K2 ($10 per month) includes Office Web Apps so that workers can edit documents.


Plan E is designed for information workers, who are the traditional consumers of Exchange and SharePoint. There are four variants (E1 through E4), which are priced from $10 per month to $27 per month. The top two variants (E3 and E4) include the right to install a copy of Office 2010 Professional Plus on a PC. All Plan E variants include the following:

  • A 25GB mailbox with access from Outlook or OWA or mobile clients (POP3/IMAP4 or Exchange ActiveSync—EAS).
  • 500MB of SharePoint storage.
  • Lync communications, including IM and presence.

Companies will probably spend some time planning how to split their user population across different combinations of K and E plans before they'll achieve the right balance of functionality and cost. This assumes that companies know their users and understand how they access and use existing on-premises services. But many companies don't understand who does what with Exchange, SharePoint, and other applications. It's easy to assign plans to obvious users—executives will all probably be assigned Plan E4 even if they don't use all of its features, while rpart-time staff might receive Plan E1 if all they need is access to email, a calendar, and IM. The users in the middle will provoke the discussions as planners seek the right combination.

Understanding the Real Cost of Deployment

It's easy to do the math and calculate a simple cost for Office 365. After all, you take the monthly cost of each plan and multiply it by the number of users that you assign to that plan and then total everything up. You might then tout all the savings that you can report to the CIO because you don't have to run expensive on-premises servers fully equipped with licenses and all the other costs that quickly mount up around a service such as email.

However, it's not quite as simple as replacing one big cost with a smaller monthly cost, or as the accountants say, transferring a lot of capital expenditure to ongoing operational expenses. Other costs lurk under the surface of a cloud transition. Network costs are a good example. Most companies today have networks that are designed for internal communications and that reflect the links between internal data centers and their users in offices and other company locations. But when you move to the cloud, you transform your network needs to be outward-facing because the communications are now from clients working inside the company to servers located in remote data centers that are connected by the Internet. You have to be sure that your network infrastructure can cope with the changing demand and perform as well when accessing cloud services as it does when using internally located servers.

The costs of monitoring and reporting are also often overlooked. It's easy to monitor servers when they run in internal data centers and are completely under the control of the IT department. It's more difficult when you have no control over servers that are located somewhere in the cloud and that must be accessed by a resource that no one controls (the Internet). Big hosting providers such as Microsoft do a good job of providing dashboards to report service availability and known downtimes, but they measure availability only in their terms—often at the boundary of their data center—and not as a user would understand it ("Can I access my email?"). Therefore, it's important to measure and analyze performance so that you can be proactive if problems occur and so that you can hold the hosting provider accountable if it doesn't meet the service level agreement (SLA).

Transition to the cloud will also add to the cost of deployment. There are many tasks involved in the planning and execution of the move, including setting up Active Directory Federation Services (ADFS), enabling single sign-on, making sure that mailbox moves go smoothly and don't affect the operations of the on-premises servers, and ensuring that information such as free/busy data for mailboxes on both sides of the hybrid divide are available to all users.

Every company is different when it comes to calculating a cost profile. Some will continue to have extensive on-premises services, some will operate a hybrid model, and some will use the cloud for everything. It's vital that you do sufficient up-front planning so as to understand all the cost buckets that exist for cloud services. Then, you can run an apples-to-apples comparison and fully understand where savings can be made and where new costs will be incurred. Equipped with this information, you'll make a better decision about if (or when) the time is right for your company to embrace cloud services.

Using Office 365

Administrators are always judged by the quality of the service they deliver to users, so it's important to know just how good Office 365 is in the eyes of a user. I've been fortunate to be an Office 365 user for the last few months and have accessed my mailbox using Outlook 2010, OWA, and my iPhone. Office 365 was in beta when I used it, but even so, the experience was very good. The only glitches occurred when I used OWA on the Chrome browser (IE 7 or later, Firefox 3 or later, and Safari 4 or later are fully supported) and when I had to configure email access for my iPhone through IMAP instead of being able to use the Microsoft Exchange (ActiveSync) account type offered by the iPhone. This second glitch was ultimately resolved, as I was able to configure my iPhone to use ActiveSync to connect to an Office 365 domain a couple weeks after my first attempt. And, ultimately, these are small issues that are of little importance in the real world.

From a user perspective, using OWA or Outlook works exactly like it does when you're connected to an on-premises server. You need Outlook 2007 SP2 or later to connect to Office 365; Outlook 2011 for Mac is also supported. Client platforms include Windows 7, Windows Vista SP2, Windows XP SP3, Mac OS 10.5, and Mac OS 10.6. Upgrading to suitable versions of the desktop OS and Office applications could present extra work for some companies, but the reality is that it's time to upgrade anyway if you're running older software.

As you can see from Figure 1, the only obvious difference you'll see after you connect through OWA is the Office 365 logo in the upper-left corner and some additional options (such as the Team Site option) on the top menu bar. Figure 1 also shows that different themes are available and that Office 365 supports access to archive mailboxes. All the features supported by Exchange 2010 SP1, including MailTips and online archives, are available.

Figure 1: The OWA interface in Office 365
Figure 1: The OWA interface in Office 365


Administrative Access

Administrators use a web browser or Remote PowerShell to access Office 365 and perform tasks such as creating new mailboxes. Tools such as Exchange Management Console (EMC) aren't available. Figure 2 shows the basic overview that an Office 365 administrator might see, and Figure 3 illustrates how a license is assigned to a user.

Figure 2: The Microsoft Online Services Admin Overview page
Figure 2: The Microsoft Online Services Admin Overview page

Figure 3: Reviewing license settings in Office 365
Figure 3: Reviewing license settings in Office 365

Exchange administrators in Office 365 use a modified version of Exchange Control Panel (ECP) and the Role Based Access Control (RBAC) feature introduced in Exchange 2010. In other words, ECP shows you the components that you're allowed to manage, as defined by the RBAC role groups to which your account belongs. Naturally, Office 365 uses different RBAC groups than those defined for on-premises Exchange 2010, so you'll see groups with names such as "Tenant Admin" (all-powerful for managing users for a specific tenant) and "Help Desk Admin." Remote PowerShell is also available, so you can run PowerShell cmdlets and scripts (also controlled by RBAC) to perform administration through the shell. Figure 4 shows how an administrator can set the properties of a user's mailbox. This interface should be very familiar to anyone who has seen the on-premises version of ECP.

Figure 4: Modifying user mailbox settings
Figure 4: Modifying user mailbox settings

Office 365 and Third-Party Companies

Third-party hosting providers have traditionally provided hosted Exchange, usually for small or medium sized businesses. Microsoft provides a special hosting mode in Exchange 2010 SP1 for these partners, but hosting mode does not deliver the same functionality as Exchange running in Office 365. Microsoft has some unique features in Office 365, but it's important that Microsoft not lose sight of the fact that hosting partners have been faithful to the company for many years. Microsoft should support these partners' ability to, at times, compete with Office 365 on a reasonably level playing field.

Third-party software vendors have filled many gaps in Exchange functionality, including antivirus protection and reporting. When you use hosted applications, you're less likely to need third-party products, if only because you usually can't install software to work with servers that run in a hosted environment. This creates a real business problem for third-party software vendors. They can concentrate on a smaller set of on-premises customers, refocus their business entirely, or develop solutions that work with Office 365, understanding that they can't expect to have any administrative access to the servers. The most successful vendors will find some new functionality niche where they can deliver real value to an Office 365 deployment.

Companies that specialize in consulting or outsourcing Exchange will not be excited by the range of Office 365 plans because Office 365 eliminates much of their traditional market. Companies that choose Office 365 won't need an outsourcing partner, and those that choose the standardized deployment used by Office 365 won't need consultants to help them design and deploy Exchange or SharePoint. However, companies that require large and complex deployments of Office 365, especially those that involve hybrid configurations, will need to bring in a consultant if they don't have someone in-house who has the expertise and knowledge to manage it. As always, shifts in technology direction and focus force the consulting market to evolve.

On-Premises and Cloud Hosting: A Balancing Act

Exchange 2010 is critical to the long-term future of Microsoft's hosted environment. Current indications are that Microsoft will continue along this track. This doesn't mean that Microsoft will ignore the needs of its on-premises customers, but it does mean that Office 365 will affect Microsoft's development priorities and its allocation of engineering talent for future versions of Exchange. Serving two masters is never easy, and Microsoft must conduct a careful balancing act over the next few years to develop and grow its hosted market without alienating its on-premises customers. Nobody likes to be forced into a choice, and customers won't be pleased if they perceive that Microsoft is pouring all its resources into an effort to serve its Office 365 base, thereby neglecting its on-premises Exchange market.

Office 365 now has a huge influence over Microsoft Office applications, and that influence will only increase as Microsoft engineers work to improve their ability to offer hosted server applications, making them a viable alternative to traditional on-premises deployments. Office 365 is a big improvement over BPOS, and despite its potential to suck profit pools away from third-party software vendors, consultants, and hosting companies, it also offers new opportunities for these third parties. These opportunities include consulting with customers about the full range of available deployment approaches—whether sticking with an on-premises approach, forging a hybrid approach, or soaring fully into the cloud.