What are the pros/cons of running your own Exchange system vs. paying for a hosted solution
I have gone on both sides of this debate, and I have come to grips with the idea that there is no one-size-fits-all answer to the question. There is more discussion in this question, focused on custom built apps.
Were I starting from scratch, I would likely host email externally until I got to 200-300 mailboxes, then I would crunch numbers and analyze the issues. I would not replace an existing installation unless it were very dated.
Cost - I think this favors external hosting
An externally hosted solution will generally have a very predictable, steady, constant costs .. so much per user per month. For all but the largest installations, it will be lower than what a company can do itself. Also, costs for internally hosted solutions tend to fluctuate and be irregular and somewhat unpredictable.
Reliability - favors external hosting
Almost certainly, economies of scale allow hosting companies to build a much more reliable system than a non-huge normal company will be able to afford on it's own.
Accountability - agnostic I'm not so sure I buy the argument you make. Generally, it is easier to fire a vendor than an employee. And (frankly) you are no less responsible for the solution because it is being delivered through a vendor. You are still the "one throat to choke" internally, and instead of running to the server room to check on things, you contact the host.
Security - IMHO a wash - depends on what the company fears most The data is safer from external threats when internally hosted. But the risk is equal for internal threats, which are nastier. And the hosting company will almost certainly have a better reliability and backup/recovery processes, again because the economies of scale will allow them to do so.
History - depends on the company If the internal IT has done a good job and is well regarded, changing to an external provider will be perceived as higher risk. The flip side is also true .. if IT has been mediocre, an external provider can likely improve things.
Flexibility - favors internal most of the time As the OP noted, internal deployment can typically be more flexible in terms of configuration, and in terms of what services can be offered to the organization.
I would agree with statements made by other posters stating that there is no "one size fits all" solution. Having said that, I tend to think that on-premise hosting of Exchange is a "fits most" solution.
My experience is mainly working with small Exchange installations (up to 2,500 mailboxes) and I've yet to see the "TCO horrors" that I read about in trade rags (mainly ads, really) re: Exchange. Properly configured on solid and reliable hardware, w/ a tested and reliable backup scheme, Exchange has worked very well for me. W/ that in mind, I'd be hard pressed to outsource email for any Customer who was large enough to afford an on-site server computer at their office. Windows SBS 2008 sets the financial barrier to entry pretty low (i.e. not a lot of months of recurring per-mailbox charges to break even).
Assuming I've got an on-site server computer, it seems silly to me to ship all my internal user-to-user emails out to a server on the Internet, only to bring the right back down again. OST files in Outlook certainly help, but the message still has to fly out to the "cloud" and back again for no good reason.
For my Customers, Internet connectivity typically comes in the flavors the local monopoly cable provider, or the local monopoly telco. Connectivity with any sufficient upload bandwidth to handle even tens of users is going to cost a pretty penny, since the local ISP service offerings are stilted heavily toward consumer-style (cable, xDSL) service offerings that have assymetric bandwith.
I'd like to crunch some numbers, but I'm pressed on time this morning. If I can remember, this evening I'll take a recent (last week) Customer deployment of SBS 2008 and break down the costs for the installation and migration to Exchange, and we can see what the break-even looks like for a hosted solution. (Given that this server will be doing more than hosting Exchange I do think it's a bit unfair, but I'll accept that handicap and we'll see what it looks like.)