Server virtualization has been in the last few years and still is a main IT trend on which firms are focusing their attention and their investments. There are many good explanations for this interest that we analyze in this brief article. We shall classify the benefits of server virtualization in two broad categories:
financial benefits (e.g., reduction of server HW maintenance costs);
intangible benefits (e.g., increased flexibility).
We shall see that while the latter are the most important long-term benefits, the former are those that typically play a main role in the investment decision process because they are easier to quantify and their value can therefore be better grasped.
As every other investments those in server virtualization have their own risks. Although we recognize their existence and their importance we will not analyze them in this article.
Most of server virtualization projects are also server consolidation project in the sense that one of the main project results is an impressive reduction of the number of servers. Clearly there are server virtualization projects (e.g., desktop virtualization) that do not aim at reducing the number of servers, but those that focus on server consolidation produce impressive reductions of the number of servers. With current technologies it is common to see 30:1 (or even higher) consolidation ratios. The net result is that large server farms consisting of hundreds of servers are replaced by very few servers hosting hundreds of Virtual Machines (VMs).
We made recently for one of our clients an in-depth analysis based on real costs of the benefits of a server virtualization project. The most striking result of the analysis is that the sheer savings due reduced server HW maintenance costs offset all the other project costs (including new servers purchase, project implementation) over a four year time horizon when tax shield is taken into account. Let further clarify this point. One of the most reliable criteria used to assess whether it makes sense to invest money in a project is the computation of the Net Present Value of the project. The Net Present Value is a simple formula that takes into account the simple fact that 1$ now values more than 1$ in one year by discounting the future costs and benefits by means of the so called opportunity cost of capital. In our project we computed the Net Present Value of the project over a four years time horizon, namely by taking into account costs and benefits for the subsequent four years. We also took into account the fact that future costs and benefits need to be discounted; and that if you invest your money in a project you will have tax savings (tax shield) that partially offset your costs. Taking all that into account we realized that the HW maintenance savings were enough to make the Net Present Value positive.
Clearly this is striking because all other financial benefits can be summed up the HW maintenance savings thereby further improving the Net Present Value of the project. This is exactly what happened when we added the other main categories of financial benefits:
Floor space savings
Power consumption savings
SW licenses savings
These latter benefits are largely latent in the sense that they are accrued under specific circumstances. For instance in a server virtualization project that is also a server consolidation project you may end up with significant datacenter floor space utilization reduction but that does not necessarily mean you have any savings. If your datacenter occupation rate is close to the maximum this may become a real, very important benefit that translates in significant savings; if not, its usefulness is disputable.
By the same token, while you will likely have an impressive reduction of power consumption, the IT department may be uninterested to these savings for the very simple reason that these costs are often not charged to the IT department. Although that may seem strange to someone, this is what we see most of the time with our clients.
A server virtualization project entails new SW licenses costs, e.g., for the Virtual Machine Monitor SW, but under some circumstances it can also deliver a significant reduction of SW licenses costs. In a sheer server consolidation project with no consolidation of OS or application instances this reduction is clearly not due to the simplification of the SW stack but on the contrary to the specific features of the SW licensing rules. Licensing rules in virtualized settings are particularly complex and it may therefore happen that the net result is not a reduction of SW licenses costs but actually an increase of SW licenses costs. In our project there were on the contrary significant savings for a specific set of important SW applications. It is important to emphasize that these benefits were latent in the sense that given the SW license contract the client could not get his money back for the already paid SW licenses; nonetheless the client would be able to increase the number of deployed application instances at no additional cost.
Accountants classify assets in three broad categories: financial, tangible and intangible. The first category contains cash, stocks, shares, etc. The second category contains assets that can be touched like buildings, plants, etc. The last category contains all other assets like for instance patents, business processes and so on. Clearly the last category is so broad to make analysis and valuation very challenging. At the bottom of this article you will find references on where you can find further analysis of the intangible assets with specific focus on those that play a main role in an IT investment project. Let now focus on those assets that play a main role in server virtualization project.
According to CIO surveys one of the top rationales for investing in server virtualization is the increased flexibility. Server virtualization makes the process of deploying new OS instances extremely faster because you do not need any longer to procure a new server before the deployment. That means IT departments can respond much faster to requests coming from business lines by adapting their infrastructure to new needs (e.g., new marketing campaigns). This benefit is clearly important but it is very difficult to quantify. Valuation is possible but very few IT departments would be keen on spending time in such a quantification and very few CFOs would rely on the figures obtained through this valuation process.
Nonetheless benefits like flexibility are much more important than financial benefits in the long term. If IT assets are considered a strategic resource rather than a commodity it is important to pay close attention to the intangible benefits. Firms for which IT is a strategic resource need to focus on those assets that are not only valuable but also difficult to imitate. In a server virtualization project assets like servers, virtualization SW, or more generally anything you can procure on the market is not difficult to imitate and therefore delivers little strategic benefit. On the contrary business processes implemented by the IT department to manage efficiently the virtualized server farm (e.g., to prevent VM sprawl) being a complex combination of SW applications, application configurations, in-house developed scripts, skills and knowledge are far more difficult to imitate. These intangible assets can turn a virtualized server farm in a strategic firm asset.
Increased flexibility is of course not the only intangible benefit delivered by server virtualization projects. Another very important benefit is increased dependability. On a non-virtualized server the only technology that you can buy to improve the dependability of your system is all in all a high availability cluster. Unfortunately these clusters are expensive, complex to maintain and moreover to have full support they entire solution must be certified by the SW vendor. Clearly that makes such an approach not viable for many applications. For years we have seen clients implementing Microsoft Clusters only for important applications like DBMSs and e-mail servers; and having no protection at all for most of the other SW applications. Virtualization makes it possible a completely different approach. Protection can be delivered at the Virtual Machine Monitor level rather than the application level. This is somewhat less appealing because there is no protection in case of application failure or freezing when the hosting operating system is up and running. But on the other hand it is a very simple to implement, application-agnostic technology that makes it possible to improve the dependability of all the servers in the server farm. This is not only important in case of system failure, but perhaps even more important for planned outages.
Accurate testing of a SW application (resp. combination of applications) requires the availaibility of a system that is identical to the production system on which the application (resp. combination of applications) will be running. As every tester knows even small differences may make the test unreliable. In a non-virtualized server farm testing is very expensive because you need to have for each production system an exact copy of this system; and complex because you need to keep synchronized the production and test systems. This even more complex for mission critical applications requiring High Availability clusters. A reliable test requires your test system to be on a High Availability cluster as well which can be prohibitively expensive. With virtualization it is possible at any time to take a copy of the production instance and conduct accurate tests using that copy. This paves the way to the creation of virtualized test server farms which improves not only the reliability of the tests but also the overall test process efficiency.
Server virtualization projects can deliver significant financial and intangible benefits. Although the former are enough to justify the project, and are those to which CFOs most often focus, intangible benefits are those that really matter for those firms that think of their IT infrastructure not as a commodity but as a strategic resource to improve business competitiveness.