Updated July 8: the price changed slightly between when we were briefed and the announcement. 

On July 7 8, Microsoft formally announced its new Online hosted services. These are “in the cloud”, or software-as-a-service (SaaS) implementations of Exchange and SharePoint (not to be confused with Exchange Hosted Services, which is the hosted email security service formerly from Frontbridge).

The key new piece of information announced was the prices. As David predicted a typical small or medium business would pay $20 per user per month for the combination of Exchange, OCS, LiveMeeting, and SharePoint Online. However, Microsoft announced the price would actually be $15.

$15 is too expensive. Here’s two reasons why:

First, compare that price with Google Apps at $50/year ($4.17/month). At one fifth third the price, the combination of white-label Gmail, Google Calendar, Google Sites, and Google Talk may not provide 100% feature equivalence — but in most cases it will be more than good enough. Don’t forget that Google offers 25GB of email storage at that price, versus Microsoft’s 1GB, which is paltry by comparison. Some organizations may even find the free version of Google Apps is sufficient for their needs, assuming they can live with the lack of a service-level agreement.

Second, Microsoft doesn’t seem to have learned from the mistakes of others. Over the past ten years, we’ve seen vendor after vendor try to offer hosted Exchange — many of them backed by substantial Microsoft resources — but few have survived. Again, the problem is one of cost. Although the vendors would make a coherent, well-argued case that an organization should migrate to its hosted service, few IT managers believed it would save them money.

These vendors would tell potential purchasers that they could provide the service for less money than it was currently costing to run it in-house, but when it came time to actually quote for the service, most IT managers simply didn’t believe it cost them that much.

For fans of Economics 101, the hosted providers were charging more than the market would bear. Looks like Microsoft is making the same mistake. It’s a pity: Exchange 2007 is much more suited to offering the required economies of scale than previous versions.

… Richi Jennings