Enterprise E-Mail Hosting is Poised for Explosive Growth, Says Gartner

By 2012, 20 percent of enterprise market and e-mail seats will be delivered via SaaS and similar models.

by / March 18, 2008

The market for hosted e-mail mailboxes is poised for rapid growth due to the economics of cloud computing and the entry of new vendors, according to Gartner. Analysts said that the move to a hosted-delivery model will change the face of IT architectures over the next decade and that e-mail will be at the forefront of this change.

"After a decade of treading water, a market which had been the province of small suppliers has been rapidly transformed into a market where the largest IT companies are aggressively competing," said Matt Cain, research vice president at Gartner. "The kinds of economies of scale that the likes of Microsoft, Yahoo and Google can offer with their tens and hundreds of millions of users will send e-mail prices plummeting over the next few years."

Gartner predicts that by 2012, hosters will offer enterprises with generic mail and calendar needs the opportunity to make significant savings on total e-mail operating costs with prices set to fall from the current average of $10 per user per month to $2 per user per month.

Cain said that the demand for e-mail storage will also create demand for hosted services. "Most organizations currently cap mailboxes at around 200MB and allow the creation of local archives to accommodate needs for more storage. However many organizations would like to move away from local archives and would be attracted to a more cost-effective hosting model, where one-gigabyte mail stores are now the starting point," Cain said.

The uptake of hosted e-mail will start with small companies, move through midsize companies and finally become an appealing model to the largest enterprises (more than 50,000 seats) by 2012. "Hosted economics are more appealing to smaller companies, who pay more per seat for e-mail services when deploying on premises and tend to have fewer customization needs," explained Cain. "Conversely, large organizations already have lower operational costs and have more-extensive needs for custom e-mail services, such as compliance and disaster recovery."

Microsoft and Google are already using the education community as a testing ground for their push into hosted enterprise e-mail, both offering no-fee services for students, staff and faculty. Microsoft recently extended its no-fee service to Exchange for students, which will be run on the hosted platform while staff and faculty use the on-premises version of Exchange. Gartner believes that this hybrid model (on-premises and hosted) will become increasingly popular for enterprises -- whereby certain populations of users (those without extensive e-mail and calendar needs) will use Outlook Web Access (OWA) "in the cloud" at a low price point, while the company maintains a population of Outlook/Exchange users at headquarters.

"E-mail is only the starting point for a vast move to hosted services," Cain said. "Hosting vendors will bundle instant messaging, presence and teamware services along with e-mail. E-mail will also be increasingly tied to social software tools, enabling the automatic insertion of social data into messages from previously networked senders, providing another competitive advantage to larger vendors which straddle the consumer/enterprise continuum, such as Google, Microsoft and Yahoo."