Constructing a Basic Cost Comparison Between On Premise and Office 365

We have lots of customers who want to understand the difference in pricing between what is offered as part of Office 365 and what they could have on premise.  The challenging answer is that Microsoft Licensing requires a massive degree of expertise, discount negotiations on both sides and alignment of different features available in different packages.

Most Microsoft on premise products have a combination of a server license and a user CAL license.  For Office 365, the licenses are monthly subscription priced on a per user basis.

So the key questions that need to be answered to create a comparison model are:

1. What features and services are we including to compare (e.g. Office, SharePoint, Exchange, etc.)?

2. How many users are we trying to support with these services?

3. Are there any extraordinary capacity needs, e.g. additional performance, storage, encryption, security, integration, etc.?

One of the Microsoft Cloud sales staff has put together a cost comparison excel sheet that can be used as a tool to compare different license configurations and scenarios.

As an example scenario, I used the spreadsheet to calculate a typical E3 Enterprise Office 365 scenario.  The Office 365 E3 subscription includes:

  • Subscriptions to Microsoft Office for up to 5 desktops
  • Email via Exchange
  • LYNC
  • SkyDrive Pro
  • Public Website Hosting
  • Spam and Malware Protection
  • SharePoint with Enterprise features such as BI, eDiscovery, and Social

Pricing Out the E3 Subscription for 300 Employees

For an organization of 300 employees @ $23.20 / month, the cost for all of that is $83,520 per year.

Let’s now price out the equivalent licenses for SharePoint, LYNC, SQL, Exchange and Office for 300 employees.  Let’s assume you have high availability setup and SQL running in high availability (since this is what you are getting as your cloud service).

CAL Licenses

For my 300 employees, I need the following CAL’s:

  • Exchange Standard + Enterprise
  • SharePoint Standard
  • Office Pro Plus
  • LYNC Standard + Enterprise

All of these should be priced with Software Assurance included since we get automatic upgrades as part of Office 365.

For 300 users, this is equivalent to $418,500 in one time costs at list prices. 

Pricing the Servers

A minimal high availability SharePoint farm is 6 servers: 2 web front ends, 2 app servers, and a SQL cluster with two nodes.  Each one requires Windows.  SQL is also required for the application servers to run Excel Services, SQL Server Reporting Services and PowerPivot Services.  Assuming each has a couple cores, our SQL costs get pretty expensive pretty quickly. 

LYNC requires similar front end servers and a back end SQL database for storage.  With high availability, we need another SQL cluster in the back end. 

Exchange requires client access servers and mail box servers. 

The Results of my Sample Comparison

The result of my high level license configuration was a chart that looks like this:


Note that this is just server and CAL licenses, and does not include any hardware pricing, storage pricing, services to maintain the infrastructure, backup and restore infrastructure, monitoring, etc. 

Conclusion: It All Depends on Your Needs

In doing a proper analysis of Office 365 and On Premise deployments, the cost comparison requires some deep comparison of a complete picture on both sides including software licenses, hardware, infrastructure, data center costs, monitoring, services, etc.  Depending on your organizational needs, the specific cost picture will vary considerably.  In addition, your organization will have different license terms with Microsoft depending on your size, your industry and geography.

Have a look at this pricing tool as a starting point…but in general look at the total cost of ownership of your Microsoft investments and you may find that an Office 365 subscription model represents a significant savings over an on premise implementation.