To “V” or not to “V” – the economics of 100% data center virtualization


Data center virtualization still has a long way to go. Gartner estimates global virtualization penetration to hit 20% this year. But now that the combination of VMware vSphere and the Intel Nehalem chip (5500 series) enable 100% virtualization, controversy is swirling around whether or not organizations are ready to go there. One well-known technology magazine editor recently sent me the following email:

"I disagree with the statement that IT managers are looking for 100% virtualized infrastructures. It's actually quite the opposite. Many large companies with thousands of applications have divided their server farms into targets for virtualization with strict guidelines on what will remain on physical servers. Maybe smaller shops will eventually be 100% virtual, but you're looking at a 10 year roadmap for the majority of companies to get there."

Many IT industry players share this opinion. A recently circulated IDC white paper from last year, for instance, defines advanced virtualization as "25% server penetration and at least some storage virtualization". Organizations are nonetheless increasingly virtualizing their entire data centers. Examining the economics quickly reveals why.

SampleCo Virtualization Platform

SampleCo has virtualized 50% of its servers – the virtualization penetration percentage that IDC projects within the next year. The low-hanging fruit of 110 test/development servers and lightly used (non-mission critical) production servers are VMs, while 110 production physical servers remain. A 5-year savings projection from completing SampleCo's data center virtualization follows along with the required investment.

With an ROI of 512% and only a 9.8 month payback, it clearly makes sense to complete the data center virtualization even if these numbers are widely off the mark. And the ROI only includes certain easily quantified areas of cost savings. Other common benefits include:

  • Staff savings
  • Potential elimination of planned data center expenditures such as PDUs, A/C units, expansion, etc.
  • SQL Server license savings (this can easily amount to hundreds of thousands of dollars)
  • Windows Server license savings (this number can be significant depending upon the licensing needs)
  • Elimination of server downtime
  • Significantly enhanced DR capabilities
  • Laying the virtualization foundation for embracing cloud computing
  • Potential for improved security and management
  • Establishing the infrastructure to facilitate a virtualized desktop environment – and a lot more savings

5-Year SampleCo Savings


Even higher-end production servers generally cost under the $10,000 figure used, but it includes costs such as shipping, tax, administrative time, rack & stacking, rack space, cabling costs, SAN switch ports, network core switch ports, network distributed costs, share of the UPS and generator costs, etc. We assume a 5-year server refresh cycle meaning that all of the existing servers will be upgraded sometime in the 5-year ROI analysis period.

vSphere Hosts

We will refresh the vSphere hosts according to manufacturer best practices of 3 years, and therefore include replacement costs for the 10 vSphere hosts.

New Servers

The physical scenario assumes SampleCo continues purchasing roughly 10% of its physical server base annually – or around 10 servers per year. Purchase of additional ESX hosts is not required because as the existing units are refreshed, the replacement models will handle far more virtual machines.

Power/Cooling Servers

We did extensive analysis to come up with a $75 monthly utility cost for powering a server. This figure also reflects the cost of cooling a server, which can be 2 – 3 times higher than the cost to power it depending upon the efficiency of the data center. It also reflects allocated portions of power for the switches, UPS, generator, etc.

Power/Cooling New Servers

If SampleCo continued purchasing physical servers, we assume that on average – half will be on-line for the ROI analysis period.


Since the 110 remaining servers are the more mission critical, we assume they are on a $1,000 annual maintenance contract for each of the two years past the manufacturer 3-year warranty expiration.

SampleCo Virtualization Expansion Investment

Despite the buzz around the hypervisor becoming a commodity, today we are at the stage where it is imperative that we choose the best virtualization platform in order to enable 100% data center virtualization. Although Burton Group recently included Citrix XenServer 5.5 plus Citrix Essentials 5.5 Platinum Edition as one of the two enterprise production-ready virtualization platforms, Only VMware vSphere Enterprise Plus is used in the ROI model for the following reasons:

  1. VMware vSphere Enterprise Plus is the only hypervisor today that resolves the network concerns around the inability to effectively establish network and security policy at the VM level, enable policy live migration, isolate a VM at the physical port level for troubleshooting, and control and audit VMs as they move between physical hosts. Additionally, vSphere support of the Cisco Nexus 1000V enables the network administrators to maintain configuration responsibility for the vSwitches with aggregated management of the vSphere hosts. And they can do so using familiar Cisco tool sets.
  2. VMware vSphere has more enterprise capabilities than any other hypervisor such as storage vMotion, management, security and storage APIs, hardware hot add, Chargeback, etc. It integrates both with additional enterprise products such as Site Recovery Manager and Lab Manager as well as with a huge array of third-party products.
  3. VMware vSphere enables more VMs per host, meaning that the associated cost of hardware, power, rack space, network ports, etc. is reduced – making vSphere the most cost-effective solution for a 100% virtualized environment.
  4. While Microsoft is shooting for a 50% internally virtualized IT environment, VMware is already at 100%.
  5. Gartner says that VMware's market share is 90% – making it reasonable to assume that our sample organization is already running VMware and will want to continue with the platform.


Many factors go into estimating the storage required to virtualize the 110 new servers. For instance, as larger servers – many of them will likely already be SAN attached. The existing SAN, the type of storage and available capacity all affect projected storage costs. Using the thin-provisioning features of vSphere for the existing hosts will likely free up capacity as well. For purposes of the ROI, we use a cost of $50,000 which is both the figure our experienced engineers estimated, and the rough number calculated by assuming 100GB of added storage at $5/GB for each of 110 of the new VMs.


We assume rack-mounted servers rather than the Cisco UCS (which is an option we certainly evaluate in a real deployment). Ron Oglesby, Virtualization Practice Executive for Dell, gave a presentation at 2009 Virtualization Congress showing that the Dell R710 (with two Intel 5500 Series CPUs) handles 24 VMs – more than twice the virtual machines as the 7400 Series R910. Since the 110 remaining servers to virtualize are the more resource-intensive machines, we'll use a more conservative ratio of 12 VMs per R710 host. This means that we'll need ten 2-CPU servers including redundancy. At a street price of around $13,500 per R710 with 96GB, we'll round up to $15,000.

Vsphere & Nexus 1000V licensing

While the Nexus 1000V is not required and doesn't directly impact ROI savings, the cost is included because of its pivotal role in enabling 100% virtualization. At a street price of around $3,600 per CPU for the vSphere 4 Enterprise Plus/Cisco Nexus 1000V bundle, SampleCo will need to purchase $72,000 of software along with an annual Platinum Subscription & Support averaging around $18,000 per year.

IT Staff Training

Since the staff is already trained on ESX and very comfortable with the technology, we'll just send a few staff members to a 2-day vSphere 4 training class ($1,050).

Professional Services Implementation

This figure will vary widely depending upon the consultants utilized and the amount of work the internal staff does, We assume a cost of $50,000 for assistance with assessing the existing physical environment and planning the vSphere/Nexus implementation including networking and security best practices.

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