Skype for Business Server has one new version coming. After that, enterprises could get stuck between an economic rock & a financial hard place.

Skype for Business Server 2019 is coming. However, given all the pushes toward O365/Teams, it’s not unreasonable to presume that 2019 will be the last on-prem version of Skype for Business.

This presents a major problem for larger businesses. They will either have to move to Teams, or investigate another on-prem Unified Communications provider.

What’s wrong with moving to Teams? Nothing! …except possibly cost. When you scale up to enterprise-level user bases, a cloud service like Office 365 could really strain the budget. What if your business has 1,000 users? 5,000? 10,000+? Even if you’re paying a few dollars per user per month, the total monthly cost for all those O365 subscription licenses adds up fast!

Let’s look at the whole conundrum enterprises using Skype for Business will have to face. It’s a quiet, creeping financial snarl…and it’s coming in just a few years.

Does Teams Cost Less than Skype for Business Server? No, and Here’s Why.

First, let’s talk numbers. Microsoft touts Office 365 and Teams as its “Intelligent Communications” option for businesses, and wants everyone to move to the O365 platform. Okay, fine. How does that work out cost-wise for enterprises?

Let’s say we have three businesses—one with 1,000 users, one with 5,000 users, and one with 10,000 users. How much would these businesses spend if they all used Teams (and Office 365)?

I’ll use two subscription levels here: E1 and E5. Why these? Because we’re finding that our O365 customers, even smaller ones, need one of these two levels the most. They need the backend services E1-E5 gives them. If they already have Office licenses, they go to E1. If not, E5.

I am using the Office 365 ROI Calculator for the monthly cost per user. It gives slight discounts on the regular costs.

E1 Monthly Costs*:

  • $6.59 x 1,000 users = $6,590/month x 12 = $79,080/year
  • $6.38 x 5,000 users = $31,900/month x 12 = $382,800/year
  • $6.18 x 10,000 users = $61,800/month x 12 = $741,600/year

E5 Monthly Costs*:

  • $28.82 x 1,000 users = $28,820/month x 12 = $345,840/year
  • $27.93 x 5,000 users = $139,650/month x 12 = $1,675,800/year
  • $27.04 x 10,000 users = $270,400/month x 12 = $3,244,800/year

(*Monthly values do not include initial setup fees or hardware maintenance.)

These numbers quickly move from ‘doable’ to ‘ridiculous.’ Dropping 3 million a year for Office 365?

Let’s compare these numbers to the cost of an on-prem Skype for Business Server. I’ll use numbers from a previous post on this topic:

Skype for Business Server with 1,000 Users:

  • 1 Front End Server License (MSRP) – $3,646.00
  • 1,000 Standard User CALs – $36.00 each, or $36,000 total
  • 1,000 Enterprise User CALs (Conferencing & desktop sharing) – $124.00 each, or $124,000 total
  • 1,000 Plus User CALs (Voice & call management) – $124.00 each, or $124,000 total

Total: $287,646

Exchange Server (for voicemail):

  • 1 Exchange Server (Enterprise) License – $4,051
  • 1,000 Standard User CALs (MS Open License) – $5.00 each, or $5,000 total
  • 1,000 Enterprise User CALs (MS Open License) – $55.00 each, or $55,000 total

Total: $64,051

Grand Total for 1,000 users: $351,697
(This is a three-year cost, and assumes no discounts.)

 

Skype for Business License Cost
You’ll need a few stacks of these…

Photo by Pepi Stojanovski on Unsplash

So if an enterprise with 1,000 users opted for an on-prem Skype for Business Server, it would cost roughly the same as 1 year of Office 365 E5. Fair enough. But the Skype for Business Server has a three-year usability period…

Assuming a 5% maintenance cost (about $17,500) for Years 2 and 3, they would end up paying $386,697 over those three years. If they went with E5 and didn’t have any maintenance costs at all, they’d end up paying $1,037,520.

At enterprise-level, Teams actually costs more than its predecessor!

The Quagmire: Skype for Business is Going Away

This is a serious cost discrepancy. Big enough to push larger businesses away from Office 365, back to on-prem.

Now, some enterprises would have no problem paying these amounts. They also get additional value from the related O365 services (see Addendum below). If so, great, more power to them! However, Accounting usually likes to save money. These numbers may cause them to balk.

What will the enterprise do if they want to save money? At these user counts, an on-prem server actually saves money. Sticking with Skype for Business Server makes economic and organizational sense.

But what about after Skype for Business Server 2019? Microsoft has not clarified if another version is on the roadmap. Given their merging all Skype for Business tools into Teams, it does not look likely. If there’s no on-prem version coming after 2019, then enterprises are stuck! They’ll have three choices:

  1. Move to Teams anyway,
  2. Keep their Skype for Business Server running as long as possible, and/or
  3. Switch to another on-prem Unified Communications provider.

On-Prem Skype for Business Alternatives for Future Succession

I cannot accurately speculate the Unified Communications landscape in 2020 and beyond. All I can do is look at what’s available now, and prognosticate their future offerings.

 

On-Prem Unified Communications Choices
2019 is coming fast.
Photo by Eric Rothermel on Unsplash.

If all you need is video conferencing and the cloud is OK, you should still have alternatives like Join.me, Appear.in, Workplace, or Slack. I don’t think any of these will go anywhere.

If you’ll need an on-prem, full-capability Skype for Business Server successor, I expect the following will still be around:

I’m NOT saying these solutions are better than Skype for Business Server (or Office 365 for that matter). Just presenting alternatives that have staying power.

Enterprises: The Time to Start Thinking about your On-Prem Skype for Business is Now

Microsoft’s push away from on-prem to the cloud has merits, in many respects. That said, just because a larger business has the budget to spend on lots of cloud services, doesn’t mean it’s the best use of the money. Office 365 may just not be the choice for them.

Unfortunately that presents a serious financial quagmire. It’s not here yet…but it’s coming.

(By the way, we will gladly support on-prem Skype for Business Servers into 2020. And beyond!)

Enterprise IT employees, what’s your Unified Communications outlook for the future?


ADDENDUM 5-17-18: As Mark pointed out in the comments, I didn’t factor in other Office 365 services as a pricing justification. This is true, and a good point for him to make. Office 365 does come with more than Teams – Exchange, SharePoint, OneDrive, etc. It also reduces the need for on-prem hardware and staff.

I don’t want to minimize the value here. O365 can be a huge help for businesses who need full-fledged IT infrastructures, and may not have the budget to build them on-prem. That said, I’m still not sure enterprises would gain financially from an Office 365 move as opposed to on-prem. At least as far as Skype for Business is concerned.

(I may do a follow-up post to address this part of the situation in more detail. Stay subscribed!)


The Skype for Business Quagmire Creeping Up on Enterprises
Facebooktwittergoogle_plusredditlinkedinmail

8 thoughts on “The Skype for Business Quagmire Creeping Up on Enterprises

  • May 16, 2018 at 5:29 pm
    Permalink

    Apologies if i’m incorrect here, but you didn’t factor in the other benefits you get from the Office 365 Enterprise licenses, such as Exchange, Sharepoint, OneDrive etc.

    So even though it’s costing $6.59 per month per user, only a fraction of that is attributed to Skype for Business, or Teams. Yes it wouldn’t make sense if SfB/Teams was the only O365 service they used, but the idea is to have all services in O365 when you’re on an E license.

    Even $3.2mil per year for 10,000 E5 licenses is quite reasonable when you factor in all the technologies that it covers. That company is no longer going to need to pay for a couple of exchange admins, skype for business admins and Sharepoint admins just to manage the infrastructure and make sure its running day to day. Even the costs of setting up that infrastructure on-premises probably far out-weigh the cost of Office 365 when you consider HA/DR server/network infrastructure and data storage.

    Reply
    • May 17, 2018 at 7:15 am
      Permalink

      It’s a fair point to make Mark. I’ll have to put up an addendum here.

      That said, I’m still not sure the savings from letting on-prem admins go would help justify. That’s assuming the enterprises will do so…I do recall a larger customer who began moving to O365 last year. With no plans to ditch their Exchange admin. And contracting us for ongoing support.

      Hmmm, this would make a good follow-up. Could I email you?

      Reply
  • May 17, 2018 at 5:40 am
    Permalink

    Good article, but correct calculation for E1 5000 users : $6.38 x 5,000 users = $6,380/month x 12 = $382,800/year and E1 10000 users :$6.18 x 10,000 users = $6,180/month x 12 = $741,600/year

    Reply
    • May 17, 2018 at 7:01 am
      Permalink

      How did I miss that?! Thanks Quillet; post updated with correct math.

      Reply
  • May 17, 2018 at 5:42 am
    Permalink

    Your math is wrong in the E1 section. Looks like you kept multiplying the cheaper cost by the 1000 base users instead of * 5000, or *10,000.
    E1 Monthly Costs*:

    $6.59 x 1,000 users = $6,590/month x 12 = $79,080/year
    $6.38 x 5,000 users = $6,380/month x 12 = $76,560/year
    $6.18 x 10,000 users = $6,180/month x 12 = $74,160/year

    Should now be:
    $6.59 x 1,000 users = $6,590/month x 12 = $79,080/year
    $6.38 x 5,000 users = $31,900/month x 12 = $382,800/year
    $6.18 x 10,000 users = $61,800/month x 12 = $741,600/year

    Reply
    • May 17, 2018 at 7:01 am
      Permalink

      Thanks Sam. Don’t know how that got by me, but it’s all fixed now!

      Reply
  • May 17, 2018 at 10:00 am
    Permalink

    As pointed out, E5 also includes the complete Microsoft Office Suite so you can subtract those costs. You can also purchase an E3 license and just add on the Cloud PBX license as an uplift if you don’t need all the other E5 services, which also reduces the monthly cost. I didn’t see anything in your calculations to factor in administrative staff, server hardware costs, and maintenance, redundancy, data center costs (power, cooling, space), backup costs (software, hardware, off-site storage), SAN costs, etc. Add to this the cost to support this in multiple locations and any business continuity costs.

    Reply
  • May 22, 2018 at 1:54 am
    Permalink

    Also….. When you scale users you are also going to be getting massive discounts by way of Enterprise agreements!

    And yes, this article takes into consideration only exchange and Skype.

    What about Microsoft Office licensing? SharePoint, OneDrive, yammer, flow, etc etc … All included within the sku’s.

    On prem Skype will be dead in the water as soon as pstn calling features meets parity with s4b on prem.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *