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Budgeting for virtualization solutions

Although virtualization solutions offer many benefits, they come with a price. In this podcast, find out how to minimize the cost of virtualization and still reap the benefits.

The benefits of virtualization include better manageability of IT infrastructure and cost reduction. However, midmarket CIOs are still having to spend a substantial amount of money upfront on new hardware -- including memory, basic power upgrades and new servers -- to reap those benefits. In this podcast, learn about the best ways to budget for virtualization so you can get in on the cost-cutting benefits sooner rather than later.

In this podcast, SearchCIO-Midmarket Executive Editor Karen Guglielmo interviews industry analyst and consultant Laura DiDio about ways midmarket companies can make smarter decisions when it comes to spending and budgeting for virtualization solutions. She offers tips on how to cut costs and renegotiate your virtualization contracts.

SPEAKER'S BIOGRAPHY: DiDio is a high-tech industry analyst and consultant, a professional writer and a former reporter. She is also principal at Information Technology Intelligence Corp., a company she founded. Prior to this role, DiDio spent more than six years at Yankee Group, a Boston consultancy, where she held the title of research fellow. She has expertise in a wide range of topics, including virtualization, desktops, server operating systems, OS security, hardware and business intelligence.

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Budgeting for virtualization solutions

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Hello. My name is Karen Guglielmo, the executive editor for SearchCIO-Midmarket.com, and I'd like to welcome you to today's expert podcast on budgeting for virtualization.

I'm joined today by Laura DiDio, a high-tech industry analyst and consultant, a professional writer and a former reporter. She is a principal at Information Technology Intelligence Corp., a company she founded. Prior to this, Laura spent more than six years at Yankee Group, a Boston consultancy, where she held the title of research fellow. She has expertise in a wide range of topics, including virtualization, desktop, server operating systems OS security, hardware and business intelligence.

Welcome, Laura.

DiDio: Hi, Karen. It's a pleasure to be here.

As I mentioned earlier, we're here today to talk about budgeting for virtualization. I'll spend the next 10-plus minutes asking Laura to answer a number of questions about today's topic. So let's get started.

What are the biggest costs of virtualization?
DiDio: Without a doubt, it's up-front licensing costs, and the cost for the service and support contracts. Those will vary by vendor. There's also ongoing management and maintenance costs, and of course, some equipment costs, but licensing has to be No. 1.

In light of the economic downturn, what have you found -- are firms attempting to renegotiate the terms, conditions or licensing agreements for their virtualization contracts? 
DiDio: Astonishingly, the answer is no. What we found in polling 700 corporations worldwide was that only 7% had attempted to go back to their vendors and renegotiate their existing licensing contracts to get better deals on pricing or support costs and training or their planned contracts. Sixty-six percent, two-thirds, flat out said no, and 27% said they're studying the issue, but they hadn't done anything about it. That's amazing because in this day and age, with the tough, harsh economic climate, there are certainly deals to be had.

Where are the areas that midmarket CIOs can cut corners on virtualization purchases and still reap the benefits?
DiDio: Good question. First of all, they need to do a feature-by-feature comparison comparing the same premier, or entry-level, or midlevel offering from each vendor to see what the costs are. So, for example, what you can do is put together a list -- I have done this and it's amazing how the money adds up. You need to know what you're getting, and what you're paying for it. So, for example, a company like Citrix, their XenServer enterprise edition might cost list price $2,500 for an annual subscription -- and typically companies will get a two- or a three-year licensing contract term. However, a perpetual license, a one-time fee from Citrix for that same thing might be $3,000. So, for the extra $500 that you spend for a perpetual license, you could save $5,000.

Now, you also have to take into consideration if you're not using Windows, or one of the Linux distributions like Novell, SUSE or Red Hat Enterprise Linux, that if you're buying from a VMware, an Oracle, one of those companies, you will have to pay the incremental cost for what they call the Guest OS Licenses, and those can range, again depending upon your configuration, anywhere from $799 to $3,500 per server. So, what you will want to do there is go back to your vendor, no matter who it is, whether it's Microsoft, one of the Linux distributions or a Citrix, or an Oracle, and try to renegotiate the cost of those licenses and get a discount.

Now, the other big area you can cut corners, again, if you try, is on service and support. That's one of the things that's under the table. You want to go back and look at your licensing contracts and look at the terms and conditions, the fine print if you will, to see, "What am I paying, and what are the terms and conditions?" In some cases, if you've got a three-year agreement, there might be a provision in the contract that specifies that for each year of the term of the contract you will pay an additional 5%, 3%, 10%, whatever for the cost of the license. You can go back and negotiate and say to your vendor -- even if you're in the middle of the contract -- "Hey, these are tough times. I want you to put a cap on that, so it does not go up for the term of my agreement, so that you fix the price." That's very, very important. That can save you tens of thousands, hundreds of thousands, or even millions of dollars, again, depending upon the size and scope of your organization. The other thing is, you can also negotiate for other things, like training and tech support and even some on-sight support as a condition of renewal.

Another big area is, especially in these tough economic times, there is almost no company around that has not undergone a reduction in workforce. The terms and conditions of many of the virtualization and overall licensing contracts specify that you purchase up front, you agree to purchase, say, 700 licenses over the next three years. However, if you had a reduction in force you're not going to need as many of those licenses. You could be penalized for that, under the terms and conditions of your licensing contract. So you need to go in, take a look and say, "Is there is a penalty if I downgrade and don't live up to the terms of my agreement?" Chances are, there will be, but that's another item that you can renegotiate and say, "Look, these are tough times, I want to stick with you as a vendor, but you need to help me out here and work with me. I've had to cut 200 people off my roster of 700, so I'm only going to be buying 500 licenses. Please don't penalize me, and please don't lower the rate of my discount." Nine out of 10 times, what you'll see is companies that do attempt to renegotiate the terms and conditions of their licensing contract to get better deals, even in bullish markets, do manage to come out and get something. You just have to go in and be specific and be willing to negotiate. Everything is on the table, for negotiation.

CEOs and CFOs are asking their CIOs to possibly reduce the number of servers without buying bigger, more powerful servers. Is this possible?
DiDio: Yes, but it depends. It will depend upon the individual server configuration. It will depend upon the applications that you're running and how new or old your server is. For example, if you are trying to virtualize your environment, let's not forget what virtualization is: You are putting multiple instances of an application under the hood of a single, physical server. That means it's going to require more power. If you have a lot of older servers that are more than 3 years old and they were not robust configurations, you will have to bite the bullet and buy new servers. However, if you've got a server that's 2 years old or 18 months old, you can retrofit and upgrade that server with new dual-core, quad-core, or even the new six-way processors, which will give you performance boosts of anywhere from 20% to 50%.

Also, memory is very cheap. Another area where you can cut corners is -- and this is a mistake that many organizations make -- is in trying to get fault tolerance. They buy too much redundancy. Most of the high-availability solutions we see today in software have some built-in redundancy already. So there may be instances where you can cut costs by taking a server right now that is being used as a redundant server and using it for something else. Or taking it out of service completely and just using it as a cold backup server -- that can also help. By the way, in the process, if you take a server out of service as an ongoing production server and you're using it as only a cold backup, you will also cut down on your utility cost.

Before budgets are cut even more, what is your advice on how CIOs can present cost-cutting suggestions for virtualization solutions?
DiDio: What they need to do is run the numbers. They need to know how much they're spending now, they need to know what's operating efficiently, and what isn't. Cut where it's necessary, but don't cut into the lean muscle tissue. You want to avoid cutting back things that are important, such as training, your IT department. Because that will only cost you more in the end. But you want to cut things out that you don't need. For that, you need to go back and do a thorough assessment of your enterprise.

And on that note, that concludes today's podcast on budgeting for virtualization. Thanks again to Laura DiDio for speaking with us today, and thank you all for listening. Have a great day!

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