RESEARCH REPORT D42 | FOR USE WITH NUCLEUS FINANCIAL MODELING TOOL D42W

ROI Evaluation Report

Microsoft Exchange
Server 2003
THE BOTTOM LINE KEY RETURN AREAS
Microsoft Exchange 2003 delivers new features • Reduced hardware costs
that promise to reduce server utilization, lessen • Increased employee productivity
administrative burdens, and facilitate remote • Increased productivity for mobile workers
access. The final impact of Exchange 2003 on • Reduced IT administration costs
the bottom line will depend on current support • Reduced downtime
for communication and collaboration; • Reduced administrative overhead
reductions in IT costs are especially likely for • Increased profit on sales
companies upgrading from Exchange 5.5.

© 2003 Nucleus Research, Inc. Reproduction in whole or in part without written permission is prohibited.
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 Microsoft Exchange Server provides email, collaboration, and
administrative tools that support business communication. The
newest version of this solution is the Microsoft Exchange Server
2003.

Groups investing in Exchange 2003 receive three components:

• Microsoft Exchange Server 2003. Exchange Server 2003
provides SMTP, POP, IMAP, MAPI, and HTTP/HTML support for
email clients as well as xHTML and cHTML support for mobile
browser-based devices. It also provides services that enable
collaborative activities, including group scheduling, contact
sharing, and folder sharing, for Outlook 2003 users.
Additionally, its native integration with Active Directory and
Windows 2003 Server allows IT departments to leverage the
directory and security features that they provide.
• Microsoft Outlook 2003. Outlook 2003 provides the user
interface and user-facing productivity tools for e-mail
messaging, contact management, task management, group
calendars, and instant messaging. Companies investing in
Exchange are given an Outlook 2003 user license for every
Exchange 2003 client access license (CAL) that they purchase.
• Microsoft Outlook Web Access. Exchange 2003 supports secure
remote access from the Outlook client, which many companies
will prefer to a Web client with feature limitations. However,
organizations can still deploy Outlook Web Access (OWA) at their
discretion to support remote users or as an inexpensive way to
support groups of users who share a kiosk.

Together, these components deliver support for collaboration, task

management, and systems administration. Key areas of
functionality include the following:
• E-mail services. Exchange enables companies to create, set
policies for, and administrate e-mail accounts, while the Outlook
client provides end users with tools for composing, sending,
receiving, and organizing e-mail messages and attachments.
• Group scheduling and task management tools. Exchange 2003
allows users to schedule meetings and to create and monitor
task assignments through their Outlook calendaring tools. Users
can check to see when coworkers are free or busy before they
send invites or assign tasks.
• IT administration tools. Administration tools in Exchange 2003
enable IT staff to establish and move mailboxes, manage
distribution lists, view system queues and logs, and handle
backup and recovery.

Microsoft has tried to address customer concerns by adding new

features and options into Exchange 2003, so that companies
currently using Exchange 5.5 or Exchange 2000 may achieve
incremental gains that justify investment in an upgrade. Exchange
2003 introduces changes that may impact the following areas:

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 • Outlook client performance. Exchange 2003 uses a more
economical data compression algorithm to reduce the number of
bytes sent to clients, and the Outlook 2003 uses a new caching
mechanism to shield end users from network latency.
• Remote user access. OWA now supports almost all Outlook
features except for local storage, and new security features
enable Outlook users to connect through the firewall via an
ordinary Internet connection without a virtual private network
(VPN). Additionally, Exchange Server ActiveSync supports direct
synchronization to Pocket Outlook in Pocket PC 2002, Pocket PC
Phone Edition and Windows Powered Mobile Devices.
• Server utilization. Exchange 2003 subsumes the mobile support
features of the Mobile Information Server, which used to require
its own front end. Recovery Storage Group (RSG) capabilities
enable recovery without taking up a spare server. In addition,
Exchange 2003 inherits Exchange 2000’s ability to connect
multiple databases to a single server.
• Reliability. Exchange 2003 addresses virtual memory
fragmentation issues that had created occasional instability for
Exchange 5.5 users and early adopters of Exchange 2000. RSG
and Volume Shadow Copy Service (VSS) allow IT staff to recover
and restore data without taking down the entire system.
• IT administrative burdens. Exchange 2003 provides expanded
support for snapshot backups and new tools that can simplify
the management of distribution groups.

Companies considering an investment in messaging or collaboration

software will find that Exchange 2003 occupies a middle ground
compared with the coverage of the two most likely alternatives:
• “Free” e-mail. Consumer-oriented services like Yahoo and AOL
Instant Messenger provide users the convenience of access from
any PC with an Internet connection, and some even supply
simple calendaring solutions. Freeware applications such as
Eudora add a greater level of functionality and usability, though
they are e-mail clients and nothing else; Outlook Express’s
footprint is similar. For a company with 10 or fewer employees
and a tight budget, free tools may suffice. But for groups that
have two dozen or more members, group calendaring needs, a
low tolerance for security risks, or backup and restore
requirements, Exchange is likely to be a better choice.
• Groupware solutions. Solutions like Lotus Notes/Domino, Novell
GroupWise, and Oracle Collaboration Suite all include a level of
support for shared folders, discussion threads, and project
workspaces that Microsoft provides in products other than
Exchange. Versus these solutions, Exchange makes a strong
case for two types of IT decision makers: those who need only
e-mail and core collaboration tools, for whom groupware
solutions’ additional features would be superfluous, and those
who have made investments in a specialized collaboration
solution like OpenText’s LiveLink, Documentum’s eRoom, or
Microsoft’s SharePoint Server, who are likely to want an e-mail
solution that does not introduce overlapping features.

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 Among messaging solutions, Exchange 2003 is also distinguished
by a user-friendly interface and its ability to leverage other
Microsoft technologies, particularly Active Directory and Windows
2003 services. These characteristics may also weigh into the
decision-making process for groups comparing several alternatives.

This report explores the costs and benefits associated with a

Microsoft Exchange 2003 deployment. The associated Nucleus
Research financial modeling tool can be used to calculate the ROI,
TCO, payback period, and risk of an Exchange 2003 deployment in
a specific user environment.

KEY BENEFIT AREAS

In studying Exchange 2003, Nucleus has identified three key areas
where organizations are most likely to achieve bottom-line gains:
improved communication and collaboration, improved task
management, and improved communications infrastructure
management. IT decision makers who are evaluating the product
should enter specific calculations for the returns associated with
each benefit into the associated financial modeling tool.

Improved Communication and Collaboration

Exchange 2003’s support for communication and collaboration has
the potential to yield two kinds of returns: the indirect benefits
introduced by productivity gains and the direct benefits of reduced
operational costs and increased revenue.

Productivity gains are the first source of potential bottom-line

returns that companies should estimate when considering an
investment in Exchange 2003. The basic benefits of e-mail will not
be new to most businesses, but Exchange provides tools for
managing electronic communication that may lead to additional
time savings. Features that may reduce the time that workers
spend managing their e-mail include:
• Message indexing and searching capabilities
• Contact list management tools
• Configurable rules for incoming e-mail
• Minor improvements to the Outlook interface
• Outlook’s new caching mode (Cached Exchange Mode) and the
improved synchronization of Exchange 2003

For many organizations, Exchange’s expanded support for remote

users may be a source of additional productivity gains that should
be estimated. The improved OWA Web interface and tools and
ActiveSync will help employees recoup formerly idle time spent in
airports, hotels, and client lobbies. Roving employees can also use
Outlook to connect with the corporate Exchange servers via any
Internet connection. New compression ratios make connection
feasible even through a wireless card — a vast improvement for
groups using older versions of Exchange or mobile devices, who
may have been frustrated by synchronization lags that could make

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 remote access unworkably slow. To estimate the returns to be
gained through increased productivity, companies should project a
time savings for frequently repeated tasks and multiply that by the
number of times employees will perform those tasks annually.

Beyond increases in individual productivity, companies may find

other benefits that go directly to the bottom line. Companies that
project significant time savings may be able to directly reduce
personnel costs. Regardless, all of the features that help speed the
process of collaboration also shorten project timelines — creating
the potential for increased revenue — and reduce the amount and
cost of redundant project rework along the way. Put in the hands
of customer-facing personnel, better tools for managing
communication can lead directly to more new sales and more
repeat business as well. Companies that used e-mail sparingly in
the past may also expect to enjoy the obvious cost advantages that
occur when employees are able to collaborate without telephone
and in-person meetings.

The final impact of an Exchange 2003 deployment on the bottom

line will depend on current support for communication and
collaboration because this sets the baseline for future
improvements. Key returns from improved collaboration include
the following:
• Increased employee productivity
• Reduced travel and communication costs
• Reduced product engineering cycle time
• Reduced project rework
• Reduced administrative overhead
• Increased profit on increased sales
• Reduced cost of sales
• Increased mobile employee productivity

Improved Task Management

An investment in Exchange 2003 and Outlook 2003 can also bring
ROI through improved process management. Companies and
departments that have reached the limits of poster-board calendars
and word-of-mouth scheduling can enhance their ability to manage
time and projects with Exchange.

Productivity gains are again the first area organizations should

consider when evaluating the potential bottom-line returns gained
through improved process management; several features help
reduce lag time between tasks and cut down on the time many
groups expend simply keeping a calendar. Exchange and Outlook
provide user-friendly tools that simplify the maintenance of group
schedules and personal task lists; users can also check coworkers’
availability, send invites, and propose tasks, and they can also view
their own invites and tasks in a single pane. If used effectively,
these tools enable employees to be productive with time that used
to be spent attending to administrative details. Methods for

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 calculating productivity gains like these are included in the
accompanying financial modeling tool.

These changes also enable project teams to complete their work

designing new products, redefining marketing messages, or
establishing development plans in less calendar time. Faster time
to market in turn creates the possibility of additional sales;
organizations should use conservative estimates when projecting
the extent of revenue growth to account for the uncertainty of
these sales.

The exact returns that these improvements will bring to individual

companies will depend on several factors, including:
• The efficiency of the tools and processes that Exchange and
Outlook will replace.
• The necessary level of coordination among user groups. Time
savings among call center reps, data entry specialists, and other
employees who work independently through sequences of
unscheduled tasks typically won’t be as great as the gains
experienced by project teams.
• The distribution of users. The impact on productivity will be
magnified for users spread across several locations, for whom
the difficulty and cost of coordinating calendars and task
scheduling are typically greater.

Key returns from improved task management include the following:

• Reduced administrative overhead
• Increased employee productivity
• Increased sales through reduced time to market

Improved Communication Infrastructure Management

For organizations that are upgrading their Exchange messaging
solution or switching from another, the architectural and
administrative features of Exchange 2003 may bring positive
changes like reduced infrastructure costs and IT staffing needs.
These are the areas in which companies upgrading from Exchange
5.5 will likely find their greatest savings.

Many of the enhancements that Microsoft has introduced since

Exchange 5.5 are designed to reduce the cost of the infrastructure
needed to support messaging. Several of these improvements set
the stage for many organizations to achieve server consolidation,
including the following:
• Exchange 2000 introduced the ability to handle up to 20 mailbox
databases through a single server, which both lessened
hardware requirements and lifted administrative limitations.
• Exchange 2003 integrates the capabilities of Microsoft’s Mobile
Information Server so that Exchange users no longer need a
separate front-end server to support mobile devices.
One beta user reported that upgrading from Exchange 5.5 to
Exchange 2003 has enabled that organization to drop from six
Exchange servers to two. Server reductions should in turn enable

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 larger organizations to operate with fewer administrators; for every
10 to 12 servers eliminated, a typical IT group might need one less
administrator.

Network and Internet service costs may also drop following an

Exchange 2003 deployment. The new mode of compression used
by Exchange and Outlook should reduce bandwidth consumption,
and users’ increased ability to connect remotely via any Internet
connection can be used to reduce the expenses associated with a
VPN.

Exchange should also shrink the cost associated with backup and
recovery, for the following reasons:
• Microsoft’s RSG technology reduces downtime by permitting
administrators to recover a single mailbox, or even a single
message, without impacting other users.
• VSS enables faster recovery. The experiences of one beta user
have shown that in situations where recovery from a tape
backup might progress at 20GB per hour, VSS has enabled the
restoration of 300GB in six minutes.
These changes not only reduce the time that IT staff spend handling
backup and recovery but also reduce the amount of time that end
users spend waiting for interrupted services to return.

Exchange 2003 can simplify several other administrative duties

associated with e-mail as well:
• The newest version of Exchange makes it easier to move
multiple mailboxes from server to server and has greatly
simplified the creation of dynamic distribution lists, which can
now be based on Active Directory queries.
• Enhanced logging of Outlook client activity, supported by the
Microsoft Operations Management console, means that
administrators can see and address Exchange user problems
before calls flood the help desk.
• Secure Outlook hookups over HTTPS and expanded antispam
features may reduce security management burdens.

IT groups now using Exchange 5.5 will enjoy added bonuses if they
upgrade — Active Directory will remove the need to maintain
separate directories for Exchange and Windows, and IT staff gain a
single interface through which to handle user administration. One
former Exchange 5.5 and NT 4.0 user reported that the combination
of Windows 2003 and Exchange 2003 has cut user administration
time by 40 percent.

Overall, the exact savings enjoyed by individual organizations

deploying Exchange 2003 will depend on characteristics of their
current IT environment, staff, and procedures. Companies
considering a deployment should note that many of the benefits
discussed in this section presume a concurrent investment in
Windows 2003 Servers, which should be reckoned into the upfront
costs of any ROI estimate. Key returns from improved

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 communication infrastructure management enabled by Exchange
2003 include the following:
• Reduced IT administrative costs
• Reduced downtime
• Reduced hardware costs
• Reduced VPN costs
• Reduced training requirements
• Reduced deployment costs
• Reduced personnel costs

KEY COST AREAS

Deploying Exchange 2003 entails a number of one-time and
ongoing costs that organizations need to consider when evaluating
the potential impact of an investment. Specific calculations for the
expenses associated with each cost area should be entered into the
financial modeling tool tied to this report. IT buyers should note
that each company’s costs will depend on negotiated prices; review
teams should not rely on list prices when calculating the estimated
financial impact of a project.

Software
Companies deploying Microsoft Exchange will need to consider the
combined cost of Exchange 2003 Server licenses, CALs, and
licenses for supporting software.

Depending on their feature and performance requirements,

prospective buyers will need to choose between Exchange 2003
Server Standard Edition licenses and Exchange 2003 Enterprise
Server licenses. Both are priced on a per-server basis. Client
access licenses are required for each device that accesses the
server; each Exchange CAL includes user rights for the Outlook
2003 client.

Depending on the benefits that companies hope to achieve through

an Exchange 2003 deployment, they will also need to have
supporting software in place. Increasing uptime, for example, is
largely enabled by installation of Exchange on boxes equipped with
the Windows 2003 Server operating system. To maximize
reductions in IT administrative burdens, a company will need to
deploy Exchange 2003 into an environment along with Active
Directory and the Microsoft Operations Manager.

In cases where a company’s investment in these ancillary products

is driven in part by other projects, only an appropriate fraction of
the additional software cost should be figured into ROI calculations.
If any of these products have already been purchased for other
purposes, the cost should be omitted altogether.

Hardware
The number of physical servers needed to support an Exchange
2003 deployment will depend on the number of users, performance
goals, and the kind of hardware chosen to support Exchange.

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 As a starting point, prospective buyers can refer to the experience
of Microsoft’s own internal IT group, which has been able to support
6000 live users with one four-processor IBM x360. Companies that
have particularly high uptime and performance requirements will
want to consider investing in stouter hardware or clustered server
setups. Groups that elect to leverage the VSS functionality will
need extra disk space to accommodate it.

Organizations that are able to use hardware already on hand or

those that will reduce their total number of servers through an
Exchange deployment should not enter any cost into the hardware
section of the ROI workbook. Companies deploying mobile devices
for remote e-mail access should include at least part of this cost in
their ROI calculations.

Consulting
Companies whose IT staff have modest experience administrating a
Windows environment should still be able to deploy Exchange with
minimal outside help. However, several deployment scenarios may
entail a greater dependence on external consultants. Companies
deploying Microsoft technology for the first time, groups upgrading
from Exchange 5.5, and organizations that want to take advantage
of architecturally advanced features like Recovery Storage Groups
or server clusters should all expect to spend more on consulting.
Enabling mobile device access or implementing stronger security
features will also increase the potential cost of a consulting
engagement.

Ultimately, an organization’s spending on consulting will depend on

the deployment scenario, the level of internal expertise, and
regional variations in consultants’ hourly rates. In most cases,
consulting engagements should be less extensive than for other
kinds of software because Microsoft skills are so common and
because Exchange 2003 can be installed with relative ease.
However, because consulting has the potential to become a
substantial portion of the total budget, decision makers should not
make a purchase decision until gathering firm estimates from at
least two potential contractors.

Personnel
In addition to the IT staff time devoted to deployment, Exchange
2003 Server will require an ongoing administrative commitment.
The exact commitment will depend most on the number of users,
the volume of e-mail use, and the rate of mailbox turnover within
the organization.

As noted above, Exchange 2003 introduces features that should

reduce IT administrative burdens compared with the workload to
which users of Exchange 5.5 and Exchange 2000 are accustomed.
If a company currently uses Exchange 2000, experiences little
mailbox churn, and applies light backup and recovery requirements,

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 it might expect just a slight staff time reduction — perhaps 10
percent. On the other hand, an organization that uses Exchange
5.5, turns over a high volume of mailboxes, and adheres to very
conservative backup and recovery policies might find that its
ongoing administration burden is just two-thirds of what it used to
be. When projecting the future cost of personnel, decision makers
should estimate conservatively.

Training
Employees who have already been using Outlook should have little
difficulty learning Outlook 2003 because most of the client-side
changes impact performance rather than functionality. The learning
curve for Outlook Web Access and Pocket Outlook for mobile
devices should also be flat because both are based on the familiar
Outlook interface. As a result, user training costs should be
minimal, though employees using mobile devices to handle e-mail
and scheduling for the first time may need slightly more.

IT administrators’ training needs will depend on several factors.

Those who have worked with Exchange 2000, who have deployed
multiple mail databases for single servers, and who have used the
Microsoft Operations Management console will need to learn just a
few new features, like the Recovery Storage Groups and the
Volume Shadow Copy Service. Those who will be using the
multiple-database architecture for the first time or who have only
slight experience with the Windows environment may need several
days of formal training to make full use of the solution and
maximize its potential benefits.

Other
Organizations should include any other costs associated with a
planned Exchange 2003 deployment, including travel and user
incentives. The financial modeling tool provides a separate section
for these costs at the bottom of the Costs worksheet.

DEPLOYMENT STRATEGIES
Prospective buyers of Microsoft Exchange 2003 face different
deployment options, depending on their current environment and
requirements. Many companies will find that they can increase
their returns by deploying additional third-party applications along
with Exchange.

Upgrading
Companies currently using Exchange 5.5 or Exchange 2000 will be
seeking incremental benefits through a deployment of Exchange
2003. For those using Exchange 2000, the most significant bottom-
line impact should come from usability improvements for remote
users that lead to productivity gains, from the consolidation of
Mobile Information Server technology into the Exchange 2003
server, and from new features that impact Exchange administrator
burdens, particularly the Recovery Storage Groups and Volume
Shadow Copy Service. Companies upgrading from Exchange 5.5

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 will have additional opportunities for server consolidation because
of the changes to Exchange’s database structure.

Costs for companies that are upgrading should be considerably less

than those for organizations deploying for the first time.
Experience using Outlook will keep training costs very low;
experience using Exchange should decrease reliance and resultant
spending on outside consultants and will help reduce IT training
costs as well.

Switching from Lotus Notes or Novell GroupWise

Organizations using Lotus Notes or Novell GroupWise will most
likely spend more on an Exchange 2003 deployment than will
companies that upgrade. New licenses, new supporting software
like Windows operating systems, and the cost of training on a new
technology will all contribute to higher costs.

Benefits may also be greater. In addition to the savings of

maintenance costs for the discontinued software, organizations that
migrate can look to reduce costs in new user training, thanks to the
familiarity of the Outlook interface, and decrease spending on
custom development and customization. For companies that have
made significant investments in other Microsoft solutions, deploying
Exchange 2003 can present an opportunity to consolidate resources
and reduce IT staff requirements by standardizing on a single
platform. The impact on administration burdens for the messaging
environment will vary, depending on skill resources and many other
factors; companies should carefully compare their requirements to
the functionality of their current tools and of Exchange before
migrating.

Making Third-Party Enhancements

Companies deploying Exchange 2003 may want to consider
purchasing third-party products in order to enhance services like
antivirus protection, antispam filters, and e-mail archiving.
Deploying these add-ons simultaneously with Exchange 2003 may
be less expensive than deploying them as a separate project.
When these solutions are deployed simultaneously, their cost and
benefits can be included in the associated ROI financial modeling
tool for the Exchange deployment. Otherwise, their financial impact
should be calculated separately.

CONCLUSION
Exchange 2003, with its client partner Outlook 2003, provides tools
that enhance employees’ ability to communicate, collaborate, and
manage shared processes. New features of Exchange 2003 will
improve remote client usability and performance, increase server
utilization, and reduce IT administrative burdens. Companies that
can deploy Exchange 2003 on servers equipped with Windows 2003
server will enjoy these benefits to a greater degree, though they
will likely spend more as well.

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 Although Exchange 2003 can benefit an organization no matter
what its current messaging solution might be, those that currently
use Exchange 5.5 appear to be especially well positioned to achieve
positive ROI through incremental improvements. Basic familiarity
with Exchange and Outlook will help keep deployment costs down,
and the combined improvements of Exchange 2000 and Exchange
2003 should dramatically and positively impact infrastructure costs,
system uptime, and the efficiency of IT administration.

Organizations of all kinds considering an investment in Exchange

2003 should use the associated financial modeling tool to quantify
the potential costs and returns from a deployment in their
environment.

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