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Virtualization by the numbers: ROI not just about hardware

Linda Tucci, Senior News Writer
NEW YORK -- It's not your daddy's virtualization anymore. That was the message at last week's Virtualization Forum 2.0 in New York. In the space of just two years, virtualization has morphed from

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a tactical technology deployed mainly to consolidate infrastructure to a tool that increasingly is used to test and run mission-critical applications.

"It is extremely eye-opening to see how quickly this technology has progressed and how deeply it has penetrated the organization," said John Humphreys, program director for enterprise platforms at Framingham, Mass.-based research firm IDC, which hosted the one-day conference.

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A survey conducted by IDC in December shows that more than 50% of all the virtual machines at roughly 500 organizations in North America are running production-level applications. Survey respondents said that nearly half of all the servers in their organizations will be virtualized by the end of 2007. Moreover, most new applications deployed going forward will run on virtualized servers, respondents said. Those that don't will be required to make "a strong business or technical case" for getting a dedicated physical device.

Proponents of virtualization like to point to its ROI. As recently as 2005, the business case for deploying virtualization was two-fold, Humphreys said: cost savings on hardware, as well as the energy and real estate costs related to operating those assets.

"So you had the capex side and opex side," Humphreys said. "When we talked to customers then, the return on investment was roughly 25%, and that primarily was driven by the number of servers they had to maintain and the ongoing costs associated with power and cooling of those physical assets." Of the dollars saved, about half were returned to the company and half reinvested in other projects in IT.

Bottom line takes center stage

But the reasons for deploying virtualization are changing rapidly. While consolidation is consistently cited by 45% as the major impetus for going virtual, high-level business services, including business resiliency, disaster recovery and availability, are coming to the forefront as reasons for going virtual, accounting for about 25% of spending today, according to IDC data.

As CEO and founder of Data Guard Systems Inc., Timothy Maliyil's interest in virtualization is all about the bottom line. Started five years ago, the Cambridge, Mass., company develops and sells business software applications for the retail industry. The company experienced tremendous growth between 2004 and 2005.

"We were to the point where we were adding servers almost very other week, and our data center was getting out of control," said Maliyil, a panel speaker at the conference. The company is in a hosted data center. Rather than running fiber all over the building to all its cages, and buying 60 new servers, the company invested in four large VMware ESX boxes and a storage area network, saving $12,000 a month in data center expenses, on top of numerous other savings. "We increased profit margins tremendously. The investment paid off in about 18 months."

For David Rossi, managing partner and co-founder of Sapien LLC, virtualization is a revenue driver. Sapien, based in Morristown, N. J., delivers enterprise human resource management systems and human capital management solutions as Software as a Service. Rossi said the company considered virtualization as a cost-saving measure but quickly came to see it as a "vital component of our business model" to grow the company. "I'm sure it saved us gobs of money in terms of availability or duplicating our infrastructure rather than buying it," he said. Rossi emphasized that vitalization's real value has been in improving customer service, including economically developing new delivery models for customers by trying them out in a virtual environment.

Manpower and mobility

Going forward, IDC predicts that "virtualization 2.0" will focus on reducing manpower costs and increasing application mobility. The number of servers worldwide has exploded, from 6 million in 1996 to an estimated 45 million servers by 2010. The increase is driven by the proliferation of both the number of applications needed to support today's economy and the new technologies used to do business. Most servers are being used at only 15% to 20% capacity.

"Virtualization will be used to drive automation and to drive down the cost of managing and administering" those large environments, Humphreys said. Interest in using virtualization for application mobility is rising dramatically already, according to IDC data. In 2005, 25% of all customers surveyed by IDC identified live migration as the primary reason they were purchasing vitalization. Just 12 months later, Humphreys said, that percentage jumped to 44%.

Application migration today is primarily used for planned downtime, but that will change, Humphreys said. The IDC data predicts that the technology will be used for unplanned downtime.

But Humphreys cautioned that going virtual brings its own set of challenges, many of them related to the managerial cost and political fallout of deploying a virtual environment.

The time, effort and energy to transform an organization -- not just to lay down the hypervisor layer, but changing processes to accommodate virtualization, Humphreys warned -- is a major hurdle. Saving on manpower means lost jobs. Budgeting for virtualization projects is a challenge, both in terms of getting the funds and figuring out how to charge for the services, as applications are shared between departments. Training the staff to manage this abstract environment, including assigning responsibility and authority for managing virtual machines, is another challenge.

Let us know what you think about the story; email: Linda Tucci, Senior News Writer


This was first published in February 2007

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