At its core, Xserve is a two-socket Core microarchitecture Xeon (Woodcrest) rack server. As I wrote in my review, in hardware design, Xserve lives up to market standards. Some touches, like the SAS/SATA drive bays, a PCI-X slot for existing expansion cards and the SuperDrive dual-layer DVD burner, help tip the scale in Xserve's favor. But the reason to buy Xserve is OS X Server: No other server app platform rivals it, and no other server system runs it. If you want OS X Server, you need a Mac, and Xserve is the only Mac that's equipped with external drive bays and a baseboard management controller.
It is an absolute sin to let any of that firepower and capacity go to waste. There are all kinds of ways to shuffle and reconfigure for load balancing and fail-over. If you play it right, bringing in a new server means knocking out an older, slower server. Maybe more than one. Or buying a faster server in the first place obviates the need for the second or third server that would have been required based on old school rules of thumb.
A constant trend of doing ever more work while reducing the number of power supplies used to do it is my definition of consolidation.
Virtualization is a key enabler in consolidation because migration is done on a whole-server level, not at the granularity of application, configuration or content. In the ideal, a physical-to-virtual (P2V) migration is a blip on users', administrators' and partners' radars. The old server machine dies, and its virtual clone rises up, indistinguishable from the box that you just offed. Not one hair is out of place and neither users nor other servers need to change their ways. That ideal is attainable for most existing Windows Server users; Microsoft gives its virtualization software away. It altered its license policy to allow one authorized key to cover multiple virtual machines on the same host. Say what you will about Microsoft and Windows, but Redmond has done the right thing on the virtualization tip so far.
However, Xserve owners miss out. The Mac platform won't virtualize in the traditional sense of hosting a virtual instance of itself. That's a real pity, especially for those of us holding last rites for PowerPC servers. But there is a silver lining: Xserve is now an x86 rack server. It can't take on the distinct personalities of two OS X Server machines, but it can show Windows and Linux servers the door. My focus is Windows. The specific enabler for using Xserve to consolidate Windows Servers comes from Parallels. Parallels Desktop is best known as the $80 software add-on that allows you to run Windows XP or Vista on your Intel Mac. Fewer know that Parallels Desktop runs most other x86 operating systems as well. And I haven't met anyone yet who has tested Parallels Desktop's fitness for server virtualization on Xserve.