Cost savings or not? Crunching the numbers on server virtualization

Server virtualization is supposed to save buckets of cash, largely from server reduction. After all, consolidating some 20 physical servers to three host servers means less hardware and reduced power and cooling, not to mention less management overhead.

But wait! The math is much trickier than that — and unless you’re a large business, there’s a good chance it’ll cost you more than you save, at least from the outset.

“Probably 50% of the small and [midsize] business virtualization implementations I see are not cheaper than simply replacing the physical servers already there,” says Matt Prigge, a virtualization consultant and InfoWorld Test Center contributor.

Let’s do the math. If you buy 20 spanking-new servers at $5,000 each, to grow your data center or replace your current boxes the traditional way, that’s a $100,000 outlay. Server virtualization’s cost equivalent: three powerful host servers with hardware memory chips from the likes of Advanced Micro Devices or Intel at $16,000 each, a SAN at $40,000, and assorted costs in staff training, management software, virtualization licenses and consultants.

That’ll all run about $100,000 as well. (Operating systems and apps aren’t included, but their costs are the same for either approach.)

Shared-storage investments and new Intel or AMD servers, along with redundant network connectivity upgrades, constitute the lion’s share of the cost of virtualization.

Software licenses from vendors such as EMC, VMware, Microsoft and Citrix — though several thousand dollars per host server — pale in comparison with these infrastructure costs, though you do have to factor in ongoing maintenance costs.

What all this means is that if you’re building a 20-server data center from scratch or adding to or replacing one, then the cost of going with physical servers vs. virtual ones is largely a wash. But given the many benefits of server virtualization — notably business-continuity gains — the virtualization route is a wise choice.

If you’re setting up more than 20 servers, the case for virtualization gets easier. “Server virtualization is an absolute no-brainer for organizations with 50 or more servers,” says Chris Wolf, an analyst at Burton Group Inc. “In such environments, an eight- to 18-month ROI is easily achievable.”

Conversely, virtualizing most environments with fewer than 20 servers will cost you more than it’s worth. A SAN is overkill for most small shops, in terms of both sticker price and capability, says Prigge, who wrote a “virtual” virtualization case study detailing everything from pricing and products to technical and skills requirements.

You’ll need another reason than strict cost to justify going the virtual route if you have fewer than 20 servers.

Server virtualization costs in the real world

Of course, these figures assume that you are starting from scratch. But hardly anyone is starting from scratch nowadays. So what’s the cost and ROI to virtualize an existing data center?

If you have a 20-server data center with a two-to-three-year server-refresh cycle and upgrade the existing physical servers with new physical servers, you’re buying eight physical servers every year at a total cost of $40,000.

Virtualizing all your servers instead costs $100,000, taking two and a half years to recoup the initial virtualization investment — the same as your refresh cycle. “Of course, organizations don’t want to see an ROI that equals their hardware refresh cycle,” Wolf says.

If you don’t have to invest in a new SAN, then the recoup time is just more than a year. Indeed, the single largest outlay for virtualization is shared storage — a virtualization requirement. If you don’t have shared storage, you have to build an iSCSI SAN, a Fibre Channel SAN or a network file system.

You’ll need to refresh your host servers every two or three years, but you can keep the other SAN hardware longer. So, over time, your refresh costs per year will be lower in a virtualized environment than in a physical one.

How much depends on a bunch of factors specific to your environment, but it’s a safe bet that you won’t refresh your SAN any sooner than every five years, and likely less often.

Virtualization’s costs aren’t so predictable

Even if the basic numbers tell you that virtualization’s return on investment is neutral or positive, note that the actual cost of virtualization varies greatly on the path you choose.

Costs that get short shrift in the financial forecasting process include software and hardware management. Because virtualization changes the management scenario, you might need different life-cycle management tools.

Many companies also upgrade to Windows Server 2003 or Windows Server 2008 Data Center edition when they virtualize, says Burton Group’s Wolf. “That has to creep into the equation.”

Also, you’ll likely need to bring in a consultant to review the virtualization architecture, no matter what size the deployment. And then there’s the cost of actually migrating physical servers. Consulting and migration fees vary widely.

The good news is that after everything is up and running, a 20-server virtual environment probably won’t need a special virtualization staffer who commands at least $80,000 or even an additional systems administrator.

Virtualization vendors understand that small and midsize businesses often employ a single admin who wears many hats, so they’ve made their tools as easy as possible to learn. “One admin could get up to speed on virtualization,” Wolf says. “Often, small organizations will develop their own talent there.”

But the larger your virtualized environment, the more you will need such experts. You might recoup their costs by needing fewer server admins, but you might not. After all, you also have a SAN to manage.

Another cost that can be hard to estimate is virtualization training, warns Prigge. The admin, for instance, will need to know how to reboot a virtual machine without restarting the whole host.

“In some situations, the customer’s inability to dedicate time to learn how to use a system suggests that sticking with physical servers with all of their limitations is actually a better course of action,” he says.

Many but not all these costs can be inputted into good ROI calculators for server virtualization from VMware Inc. and Microsoft Corp. These calculators can bring some clarity to a potential investment. Moreover, their predictions are often on the money with the actual ROI, says Wolf.

Virtualization’s elusive ROI

If your reason to invest in virtualization is just about the numbers, you may be disappointed — especially if you’re a smaller business. Consultant Prigge figures that many smaller businesses that adopt virtualization pay 10% to 15% more when all is said and done.

But this extra cost, he says, “is justified by the increased capability to recover from a hardware failure. If you’re not paying attention to business-continuity gains, of which server redundancy is just one, you’re sort of missing the boat,” says Prigge.

After all, virtualization’s greatest benefit is flexibility and simplicity of business continuity for the entire data center — it’s not about merely the reduction in server boxes.

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Jim Love, Chief Content Officer, IT World Canada

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