Study: Hosted E-Mail Growing Fast

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If your company hosts its e-mail outside of your organization, you’ve joined a fast-growing club.

A new study from research firm Radicati Group found that hosted e-mail is growing at a faster pace than in-sourced e-mail. The firm estimated that more than two thirds (67 percent) of all e-mail accounts are hosted.

In that total, Radicati split the hosted e-mail market into four segments: Hosted Business E-mail Providers, Managed Business E-mail Providers, ISP/Webmail Providers and Mobile Phone E-mail providers.

On the ISP/Webmail side, the research firm estimated 690 million mailboxes already in existence. That number is expected to balloon by 41 percent to 973 million by 2008.

In the hosted and managed e-mail services space, about 39 million accounts are in use, according to Radicati estimates. By 2008, it expects the market to hit 59 million accounts, or about a 51 percent increase.

For this year, the geographic dispersal of hosted e-mail accounts was closely split, with North America accounting for 32 percent of all accounts, Europe with 29 percent and Asia Pacific with 26 percent.

The factors driving the urge to outsource e-mail? Radicati cited storage pressures, compliance requirements and spam and virus problems.

The report also noted the release of Microsoft’s Exchange 2003 product as a driver for the hosted business e-mail market.

“Partly because Exchange 2003 makes hosting business e-mail more efficient and affordable, there has been an influx of new players in the hosted business e-mail market,” the report said.

“This has led to tight competition, lower prices, and a struggle for providers to establish differentiation.”

The reported noted the introduction of Google’s Gmail Beta service with 1 GB of free e-mail storage as a competitive driver in the ISP/Webmail side of the market. The move was also seen as “major blow” to the free-to-fee based revenue model since it no longer makes economic sense for an end user to upgrade to a paid premium account with more space when a free 1 GB account is available.

“Ultimately, ISP/Webmail providers understand that e-mail is a valuable tool to
foster customer loyalty, site traffic, and advertising revenue,” Radicati states.

On the question of whether enterprises are getting a better ROI by going to a hosted e-mail provider, Radicati analyst Marcel Nienhuis said there is no simple answer.

“For the most part, it’s an economies of scale issue,” Nienhuis told internetnews.com. “SMBs are often better off with a hosted solution. A simple $5-$20/user/month cost buys them enterprise class collaborative e-mail with anti-spam, anti-virus, guaranteed uptime, and plenty of storage. On top of that, they don’t have to worry about upgrading to the latest and greatest messaging system, because providers generally have to stay on top of that due to competitive pressures.”

In Nienhuis’ estimation such a system can be much more affordable for an SMB compared to installing an in-house system and hiring one or more administrators to manage and maintain the system.

For larger enterprises, the economics change. It generally makes more sense for them to have their own in-house system. It is cost-prohibitive to pay $10 a month for an organization of 10,000 employees, totalling a cost of $1.2 million per year for e-mail.

“Large businesses have a large enough user population to make in-house systems more financially viable,” Nienhuis said.

“Additionally, larger businesses are typically more sensitive about giving control of such a critical and sensitive application to a third party.”

On the other hand, spam and security related issues are drivers of hosted e-mail solutions as the complexity of in-house messaging solutions grows.

“Anti-spam, anti-virus, e-mail archiving, increasing storage requirements, compliance issues and other concerns are making e-mail more complex. So more and more companies are saying ‘forget it, let’s outsource all this,'” he said.