Technology maturity and cost advantages are spurring the growth of hosted email services among enterprise users, including firms in the securities industry, according to a report released today by business consulting and research firm Frost & Sullivan, titled “North American Hosted Enterprise Email Markets.”  

The report says hosted email market revenues of  $319.1 million in 2008 could nearly double to $604.4 million by 2015.

The entry of large cloud-based providers and on-premise email vendors has lent credibility to the Software as a Service (SaaS) delivery model, the report says.

"Email is still one of the most critical communication tools available to business users," said Frost & Sullivan industry analyst Subha Rama. "Though the technology itself is not new, innovative delivery models are evolving rapidly." One of the major drivers for this change is cost, closely followed by the growing complexity of email systems, the report says.

Asked about hosted email use in the securities industry, Rama said in an interview that “While large cloud-based email providers offer best-of-breed security, compliance and data integrity features, enterprises -- especially those in the financial services industry -- do have persisting concerns about replacing their on-premises email with a cloud service.”

The entry of large cloud-based providers has brought in a fair level of comfort with the technology, and has helped address some of the security-related questions associated with entrusting a mission-critical application such as email with a hosted provider, the report says.

In such a scenario, they test the waters by using a hybrid model – deploying hosted email for their boundary workers (temporary employees and contract staff), who may not require the full functionality of on-premises email platforms. This would result in immediate cost savings and also increase the comfort-level with the hosted model, which is critical for a more enterprise-wide adoption, says Frost & Sullivan.

The report explained that compliance issues mandate that businesses – and particularly heavily regulated securities firms – archive their emails, requiring investment in expensive storage area network (SAN) architectures. In addition, firms need to closely monitor rapidly evolving virus and spam threats, which are major causes of distraction from their core business focus.

On-premise email platforms are complicated, expensive, and require a certain level of expertise and investment capabilities. Increasing email sizes and larger storage requirements have also contributed to escalating costs. Email archiving (online backup and recovery), compliance, and security (filtering, spam control) add layers of complexity to the email environment, especially for securities firms.

The hosted enterprise email market is evolving continuously, with new competitors entering the market and business models undergoing transformation. While established hosted email providers are offering integration capabilities and tools to differentiate themselves in the market, email software vendors have launched cloud-compliant email and collaboration solutions. Pure cloud-based email providers are leveraging their low-cost delivery model to encourage migration from on-premise platforms, the report says.

"In such a highly competitive market, hosted email providers can achieve cutting edge by offering exceptional service levels that focus on uptime, scalability, and application bundles," adds Rama. "Email-related management services represent another unique value proposition offered by service providers."

This article first appeared in Securities Industry News.


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