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The payback from virtualisation

Organisations looking to introduce virtualisation should look at timescales to implement projects as it will take longer to achieve any return on investment.

That’s according to IT services company Computacenter who surveyed IT senior staff in the US about their experience with virtualisation and found only 4% of companies who had installed desktop virtualisation (VDI) projects had experienced the expected ROI. The situation wasn’t much better for companies that had installed server virtualisation, with just 6% achieving the expected results.

The survey also highlighted other misconceptions with 83% claiming that VDI would make it easier to manage and support desktop applications, something that Computacenter pointed out was not necessarily the case.

“Organisations need to be more realistic about virtualisation projects,” said Paul Casey, Computacenter’s Datacentre platforms practice leader. “A lot of the people didn’t achieve ROI but that’s because they were mainly working with hypervisor vendor’s own tools and they didn’t paint a realistic picture – they’re naturally biased.”

Additionally, customers were not using the tools accurately. “They’d be optimistic when they plugged the figures in,” said Casey. “We would use the same tools and get a different figure – for example, the customer might have an ROI within six months, while we’d say 12.”

Across the industry, there is confusion with widespread benefits not being achieved. The reason, many believe, is that it’s one thing bringing desktop virtualisation in, but quite another to manage it properly.

It’s not just about tools, however. Instead, organisations have to take a longer view of virtualisation and the ROI that you get from it. There are some things that aren’t easily measured. The whole ROI case is based around cost savings and that’s where the ROI struggles. The real benefits are more flexible – for example, it could be that a company moves from a 1,000 seat building to a 500 seat building. And that sort of calculation is not so easy to work out.

Server virtualisation 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.

Simple, right? No, not really the maths 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 virtualisation implementations I see are not cheaper than simply replacing the physical servers already there,” says Matt Prigge, a virtualisation consultant.

It works like this. If you buy 20 spanking-new servers at $5,000 each, to grow your data centre or replace your current boxes the traditional way, that’s a $100,000 outlay. Server virtualisation’s cost equivalent: three powerful host servers with hardware memory chips from the likes of AMD or Intel at $16,000 each, a SAN at $40,000 and assorted costs in staff training, management software, virtualisation licenses and consultants. That’ll all run about $100,000 as well. Note: 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 on-going maintenance costs.

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

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

Conversely, virtualising 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’ virtualisation 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.

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 virtualise an existing data centre?

If you have a 20-server data centre 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. Virtualising all your servers instead costs $100,000, taking two and a half years to recoup the initial virtualisation investment – the same as your refresh cycle. “Of course, organisations 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 virtualisation is shared storage – a virtualisation 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 virtualised 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.

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

Costs that get short shrift in the financial forecasting process include software and hardware management. Because virtualisation 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 virtualise, 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 virtualisation 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 virtualisation staffer who commands at least $80,000 or even an additional systems administrator. Virtualisation 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 virtualisation,” Wolf says. “Often, small organisations will develop their own talent there.”

But the larger your virtualised 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 virtualisation 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 virtualisation from VMware and Microsoft. These calculators can bring some clarity to a potential investment. Moreover, their predictions are often on the money with the actual ROI, says Wolf.

If your reason to invest in virtualisation 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 virtualisation 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, virtualisation’s greatest benefit is flexibility and simplicity of business continuity for the entire data centre – it’s not about merely the reduction in server boxes.

Despite setbacks, there’s little evidence that companies are holding back on virtualisation rollouts, although there may be some rethinking to do of both management and technologies. Planning from day one is key – thinking about platforms, size and scale of virtual machiness, implementing management tools and working out how to form teams – there’s a need to look at the bigger picture, not just at individual projects.

The analyst view

 If we can’t trust vendors’ ROI analysis, then should we listen to the honest brokers of the IT industry, the analysts? CNME sat down (virtually) with Navreen Mishra (Senior Analyst, Gartner) and Chris Voce (Senior Analyst, Forrester Group) to get an objective view.

 CNME: Let’s start by taking virtualisation as a good thing and ROI achievable, whether we’re talking the desktop, server or storage spaces. What is your view of the state of this market?

Mishra: We see virtualisation as a technology gaining significant acceptance across the IT stack, especially in mature markets. We’re also seeing good traction in developing markets, especially the Middle East.

Voce: Large organisations – 20,000 employee and above – will move aggressively ahead on this in 2010.

 CNME: What’s driving the uptake?

Voce: A couple of years ago, we saw a focus on server TCO leading to consolidation. Last year that evolved into a shift for more efficient shared IT structures, based on a realisation that early hardware consolidation still left a very siloed approach with stacks of operating systems and tools. To attack that problem, we’re seeing more dynamic scheduling and provisioning. People are now asking: What other neat things can we do?

Mishra: It’s being driven by cost efficiencies via consolidation os servers and storage. The first wave was cost focused but now many customers are leveraging an agility and responsiveness to customers by taking virtualisation to the next level across the organisation. Others are evaluating the technology as a key element of their disaster recovery strategy.

 CNME: So is virtualisation a way station, after consolidation?

Mishra: Yes, I think for large, mature corporations it’s increasingly being seen as a stop on the way to cloud deployment, especially the private cloud. And it’s a big starting point on the road to real time infrastructure.

Voce: Many customers seem to be in the position of just keeping the lights on in their silos, maintaining systems. Short-term they’re focused on the bottom line; longterm, they need to think of business flexibility. The cloud is coming. VMWare is enabling the integration of the cloud and virtual systems so, yes, I think virtualisation is a warm up for cloud computing and the burstable infrastructure.

 CNME: What can inhibit the adoption of virtualisation?

Mishra: I think, in emerging markets, that there are several inhibitors, starting with a lack of awareness or perception of the technology. More serious, perhaps, is that the technology is not yet mature enough across the whole stack – that means roll-outs as tests not production. Linked to that is the fact that the management stack still needs a lot of work, especially change management tools in the 100-300 virtual machine space. Lastly, security is an issue – what is the impact of virtualisation on policy?

Voce: We recently did an informal study looking at the financial justification for virtualisation. Just ahead of the pack was TCO analysis, but almost as important was short-term – lessw than a year – ROI. We see customers prioritising investments for high impact results.

CNME: How do you advise your customers on calculating ROI?

Voce: Look for independent analysis.

Mishra: ROI is quite tricky to calculate, as vendors do design their ROI tools to suit their own products. So my advice is to focus on and ensure short-term ROI. Exploit virtualisation within 12 months in order to justify the business case. Go slow – don’t get carried away by vendor claims. And mission critical applications should be the last ones seen as suitable.

CNME: Are ROI claims realistic in any sense?

Mishra: Look, they change from organisation to organisation – some can achieve 60% cost savings but others only 15%. There’s no single solution. One thing is sure – match your virtualisation initiative with your hardware refresh for better ROI.

Voce: We’ve put a lot of effort into looking at vendor provided tools and, yes, they do need some scrutiny because some do emphasise particular features which are benchmark friendly rather than production focused. The reality can then be very different.

CNME: Finally, the year ahead?

Mishra: We see the virtualisation market picking up as the economy improves. I think it will be the number one priority for large companies and, increasingly, for medium sized one. Every CIO should have it in the brain this year, together with the cloud and Web 2.0.

Voce: I think the tipping point for virtualisation is market momentum – as businesses grow, they need the extra flexibility.

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