Office 365 vs in-house exchange server: which should you use?

In Financial Services Technology, Technology by Matsco Engineering Team

From email to productivity apps, choosing the right solution can result in a long list of pros and cons, and depends entirely on your organization’s specific needs. Office 365 (O365) and an on-site Exchange Server, both developed by Microsoft, offer excellent examples of how you can organize your business email, calendar, and other productivity apps in the cloud and on-site, or a combination of the two.

While Exchange Server still maintains a decent chunk of market share, Office 365 now has over 200 million active users worldwide. The following explores key details about Microsoft Office 365 and an in-house exchange server, as well as their key differences to help you determine which is better for your organization.

What is Office 365?


Microsoft Office 365 is a cloud-based line of subscription services modeled after the Microsoft Office Suite. Microsoft Office apps like Outlook, Word, and Excel, with the ability to install across multiple platforms and devices as well as 1 TB of OneDrive cloud storage, are some of the many reasons why Office 365 is one of the most reliable productivity suites worldwide.

Advantages of Office 365

The following are the key benefits your enterprise stands to gain if you opt for Office 365.

Reduced on-site expenditure

With O365, your cloud servers are hosted by Microsoft in any part of the world and as a result, ensure that you don’t have to service any on-site costs towards maintaining them.

A suite of essential services and apps

Apart from email (Outlook), Office 365 offers a lineup of essential services like Skype for business, OneDrive for business, Word, Excel, and SharePoint. These services allow you to improve collaboration and increase employee productivity organization-wide.

Low maintenance costs

Subscribing to Office 365 can help keep not only your capital expenditure (CAPEX) low but also your operational expenditure (OPEX). It offers budget-friendly subscription plans, as well as the absence of on-site costs.

Free updates forever

Well, not exactly forever. As long as you have a valid subscription for Office 365, you’ll continue to receive free and automatic updates and upgrades to the latest version.  Consequently, you’ll always have the latest version of Microsoft Office.

Disadvantages of Office 365

Here are some of the drawbacks associated with using O365:

Limited customization

Microsoft Office 365 offers relatively limited options for customizing the service to suit your unique business needs.

Data migration complexities

Manual data migration to Office 365 is usually complex, time-consuming, and requires third-party support.

Lack of control over data and security

One of the biggest concerns large enterprises may face with using Office 365 is the lack of control over how your data is stored and security enhancements.

Also, in the past, it may have been impossible to meet certain compliance standards while using Office 365. However, it’s worth pointing out that O365 has made efforts to overcome its compliance issues in the past to become HIPAA compliant.

What is an in-house exchange server?

Also developed by Microsoft, Exchange Server is primarily built for the management of emails, messages, calendars, and tasks. Microsoft Exchange Server has long dominated the market until the emergence of Office 365 nearly a decade ago. Enterprises who use Exchange Server could either host it in-house or opt for the cloud. Does this messaging and calendaring platform still hold relevance in today’s business world or has it been relegated to the backseat? Read on to find out.

Advantages of in-house Exchange Server

The following highlight some of the benefits of using an in-house exchange server:

Data control and security

Since you have complete authority over the Exchange Server hardware and software, you’re able to effectively modify or upgrade security settings and specifications to suit business needs. You’re also completely responsible for system updates, backups, and data restoration while using an in-house Exchange Server.


The proximity to your in-house Exchange server means that since the throughput and mailbox access time is increased, overall reliability is enhanced.

Reduced downtime

Proximity to the in-house Exchange Server allows for the swift restoration of a failing network, thereby improving overall uptime.

Disadvantages of in-house Exchange Server

Let’s explore some of the drawbacks of using an in-house Exchange Server.

Setup and maintenance costs

The biggest drawback for small businesses interested in using Microsoft Exchange server in-house is the initial capital expenditure it normally requires. There are also concerns associated with the cost of maintaining the servers on an ongoing basis, such as a UPS battery, electricity, and air-conditioning. However, there are arguments that having an in-house Exchange Server may prove to be cheaper than hosting in the cloud over a long period of time.

Advanced IT expertise

Setting up and maintaining an Exchange Server is never a walk in the park. It usually requires advanced IT expertise initially and on an ongoing basis.

An on-site administrator may be required

The complexities of managing the Exchange Server in-house mean that you will most likely need an administrator present at all times. For instance, managing the mailboxes, preventing unauthorized access, and aiding the recovery of deleted files and messages all require the presence of an in-house admin.

Patching an in-house Exchange Server is expensive 

This is perhaps one of the biggest drawbacks of using an on-site Exchange Server. With an in-house Exchange Server, the overall responsibility of installing updates, upgrading versions, or patching vulnerabilities is yours. These activities come with additional costs for your company both in terms of their expenses as well as the downtime experienced.

Key differences between Office 365 and in-house Exchange Server

The following are highlights of the key ways in which Office 365 differs from an in-house Exchange Server.

Pricing and costs

In terms of pricing, Office 365 offers budget-friendly subscription plans which may be upgraded at any time. These subscriptions may also increase depending on add-ins purchased. Meanwhile, Exchange Server may be capital intensive to set up and may lead to additional costs that are relatively less budget-friendly. While there may be no maintenance costs associated with Office 365, in-house Exchange Server users can expect to be responsible for ongoing maintenance and the associated costs.


Every business is unique and productivity apps must reflect this. While O365 offers a standard environment with varying capabilities for different business users, an in-house Exchange Server environment generally allows you to customize the service to your unique needs.


Office 365 is easily scalable as plans could be upgraded for improved capabilities or to accommodate more users. However, Exchange Server users may need to purchase additional hardware in order to scale upwards.

Disaster recovery 

In the event of a disaster, an in-house Exchange Server is more susceptible to data loss because of its on-site location. In the absence of a proper disaster recovery plan, you may lose your emails and servers. Generally, it’s a lot more complex and costly to plan for business continuity with an in-house Exchange Server. 

Meanwhile, Office 365 offers a reduced risk of losing data to security mishaps or disaster. In fact, Microsoft guarantees against data loss to disasters like fire, power outages, and flood. Generally, cloud providers may provide backups for your data to ensure business continuity regardless of what happens.

High availability 

With an in-house Exchange Server, you’re responsible for setting up local clustering and high availability, mailbox recovery system, as well as mailbox replication. This can be very overwhelming for small businesses. Meanwhile, Office 365 provides high availability and business continuity features such as mailbox replication at data centers and deleted mailbox or item recovery as standard.

How does Office 365 compare to Google’s G Suite?

Microsoft Office 365 and Google’s G Suite offer very similar yet different services to businesses. In the world of cloud-based productivity suites, there are no bigger names than these two. Their differences are highlighted below.


Microsoft Exchange Online offers capped email storage of up to 100GB for its highest-priced plan whereas G Suite provides unlimited email storage for its business and enterprise plans.


G Suite’s productivity apps are wholly browser-based whereas Office 365 offers desktop apps in addition. These desktop apps are fully featured and are essential for businesses that are concerned about Office document formats and features surviving the export process from G Suite.

Cloud storage

While OneDrive for Business offers 1TB storage for users on its Business plan, Enterprise users benefit from unlimited storage. G Suite, on the other hand, offers unlimited storage to its Business and Enterprise users.


Both G Suite and Office 365 offer a rich array of communication and collaboration apps to choose from. From simultaneously editing documents on Google Docs or Word to having meetings on Google Hangouts and Skype for Business, these two providers offer similar levels of reliability when it comes to communication and collaborations.

Despite the similarities between these two services, many businesses will ultimately choose the one that best suits their existing and future needs.

The bottom line 

Office 365 and In-house Exchange Server both offer immense benefits and some drawbacks. While smaller organizations may be best suited to the lower overall costs of Office 365, larger organizations may ultimately benefit from the enhanced control over data and security that an in-house Exchange Server offers. However, in terms of pricing/costs, scalability, and disaster recovery/high availability, O365 beats out the Exchange Server.

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