The tricky math of server virtualization ROI

Server virtualization 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, power and cooling, and management overhead.

But wait! The math 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 percent of the small- and medium- business virtualization implementations I see are not cheaper than simply replacing the physical servers already there," says Matt Prigge, a virtualization consultant and InfoWorld Test Center contributor.

[ Check out virtualization's gotchas and dirty secrets | Get a hands-on look at the technology and project implementations in the InfoWorld Test Center's special report on server virtualization. ]

Let's do the math. If you buy 20 spanking-new servers at $5,000 to grow your datacenter or replace your current boxes the traditional way, that's a $100,000 outlay. Server virtualization'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, virtualization licenses, and consultants. That'll all run about $100,000 as well. (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 ongoing maintenance costs.

What all this means is that if you're building a 20-server datacenter from scratch, or adding to or replacing one, then the cost of going with physical servers or virtual ones is largely a wash. But given the many benefits of server virtualization -- notably business continuity gains -- the virtualization route is a wise choice.

If you're setting up more than 20 servers, the case for virtualization gets easier. "Server virtualization is an absolute no-brainer for organizations with 50 or more servers," says Chris Wolf, an analyst at the Burton Group. "In such environments, an 8- to 18-month ROI is easily achievable."

Conversely, virtualizing 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 sticker price and capability, says Prigge, who wrote a "virtual" virtualization 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.

Server virtualization costs in the real world
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 virtualize an existing datacenter?