Server virtualization has been in recent years and continues to be a major IT trend that companies are focusing their attention and investments on. There are many good explanations for this interest that we discuss in this short article. We will classify the benefits of server virtualization into two broad categories:

• financial benefits (eg, reduced server hardware maintenance costs);
• intangible benefits (for example, greater flexibility).

We will see that while the latter are the most important long-term benefits, the former are the ones that typically play a major role in the investment decision process because they are easier to quantify and therefore their value can be better understood.

Like any other investment, server virtualization investments come with their own risks. Although we recognize their existence and their importance, we will not analyze them in this article.

financial benefits

Most server virtualization projects are also server consolidation projects in the sense that one of the main results of the project is a dramatic reduction in the number of servers. Clearly, there are server virtualization projects (eg, desktop virtualization) that do not aim to reduce the number of servers, but those that focus on server consolidation produce impressive reductions in the number of servers. With today’s technologies, it’s common to see consolidation ratios of 30:1 (or even higher). The net result is that large server farms consisting of hundreds of servers are being replaced by very few servers hosting hundreds of virtual machines (VMs).

We recently conducted an in-depth, real-cost analysis of the benefits of a server virtualization project for one of our clients. The most striking result of the analysis is that the absolute savings due to reduced server hardware maintenance costs offset all other project costs (including the purchase of new servers, project implementation) over a four-year horizon. when tax shelter is taken into account. Let’s clarify this point further. One of the most reliable criteria used to assess whether it makes sense to invest money in a project is the calculation of the net present value of the project. Net Present Value is a simple formula that takes into account the simple fact that $1 now is worth more than $1 in a year by discounting future costs and benefits through the so-called opportunity cost of capital. In our project, we calculate the net present value of the project over a four-year time horizon, that is, taking into account the costs and benefits of the next four years. We also took into account the fact that it is necessary to discount future costs and benefits; and that if you invest your money in a project you will have tax savings (tax shield) that will partially offset your costs. Taking all of that into account, we realized that the HW maintenance savings were enough to make the net present value positive.

Clearly this is surprising because all other financial benefits can be summed up in HW maintenance savings, 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 saving
• saving energy consumption
• SW license savings

These latter benefits are largely latent in the sense that they increase under specific circumstances. For example, in a server virtualization project that is also a server consolidation project, you may end up with a significant reduction in data center floor space utilization, but that doesn’t necessarily mean you have any savings. If your data center occupancy rate is close to maximum, this can be a very significant real benefit that translates into significant savings; if not, its usefulness is questionable.

Similarly, while you are likely to see an impressive reduction in power consumption, IT may not be interested in these savings for the simple reason that these costs are often not charged to IT. Although it may seem strange to someone, this is what we see most of the time with our clients.

A server virtualization project implies new SW license costs, for example for the Virtual Machine Monitor SW, but in some circumstances it can also lead to a significant reduction in SW license costs. In a pure server consolidation project without OS or application instance consolidation, this reduction is clearly not due to the simplification of the SW stack, but rather to the specifics of the SW license rules. Licensing rules in virtualized environments are particularly complex, and therefore the net result may not be reduced SW license costs, but increased SW license 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 agreement the client could not recover his money for the already paid SW licenses; however, the customer may increase the number of application instances deployed at no additional cost.

intangible benefits

Accountants classify assets into 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 such as patents, business processes, etc. Clearly, the latter category is so broad that it makes analysis and valuation very challenging. At the end of this article, you will find references to where you can find a more detailed analysis of intangible assets with a specific focus on those that play a major role in an IT investment project. Let’s focus now on those assets that play a major role in the server virtualization project.

According to CIO surveys, one of the top reasons to invest in server virtualization is the increased flexibility. Server virtualization makes the process of deploying new OS instances extremely faster because you no longer need to purchase a new server prior to deployment. That means IT departments can respond much faster to requests coming from lines of business by adapting their infrastructure to new needs (for example, 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 interested in spending the time on such a quantification, and very few CFOs would trust the figures obtained through this valuation process.

flexibility

however, benefits such as flexibility far outweigh the long-term economic benefits. If IT assets are viewed as a strategic resource rather than a commodity, it is important to pay close attention to the intangible benefits. Companies for which IT is a strategic resource must focus on those assets that are not only valuable but also difficult to imitate. In a server virtualization project, assets like servers, virtualization software, or generally anything you can get on the market are not hard to imitate and therefore offer few strategic benefits. Conversely, the business processes implemented by the IT department to efficiently manage the virtualized server farm (eg, to avoid VM sprawl), as they are a complex mix of SW applications, application configurations , internally developed scripts, skills and knowledge that are much more difficult to implement. imitate. These intangible assets can turn a virtualized server farm into a strategic business asset.

Confidence

Of course, increased flexibility isn’t the only intangible benefit that server virtualization projects provide. Another very important benefit is increased reliability. On a non-virtualized server, the only technology you can buy to improve the reliability of your system is usually a high availability cluster. Unfortunately, these clusters are expensive, complex to maintain, and to be fully supported, the entire solution must be certified by the software vendor. Clearly, that makes such an approach unfeasible for many applications. For years, we’ve seen customers deploy Microsoft Clusters only for critical applications like DBMSs and email servers; and not having any protection for most other SW applications. Virtualization makes a completely different approach possible. Protection can be provided at the Virtual Machine Monitor level instead of at the application level. This is somewhat less attractive because there is no protection in case the application crashes or freezes when the hosting operating system is running. But, on the other hand, it is a very simple to implement application-agnostic technology that improves the reliability of all servers in the farm. This is not only important in case of system failure, but perhaps even more important for planned outages.

reliable tests

Accurate testing of a SW application (resp. application mix) requires the availability of a system that is identical to the production system on which the application (resp. application mix) will run. As all testers know, even small differences can 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 production and test systems in sync. This is even more complex for mission-critical applications that require highly available clusters. A reliable test requires that your test system also be on a highly available cluster, which can be prohibitively expensive. With virtualization, it is possible to take a copy of the production instance at any time and perform accurate tests using that copy. This paves the way for the creation of virtualized test server farms that improve not only test reliability but also the overall efficiency of the test process.

recommendations

Server virtualization projects can generate significant financial and intangible benefits. While the former are enough to justify the project, and are the ones that CFOs focus the most on, the intangible benefits are the ones 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.