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Virtualization: Smart IT Investment in a Tough Economy

January 27, 2009

By Dave Trowbridge

Given today's weakened economy, CIOs are naturally reconsidering their IT budgets, wondering if the spending priorities they set earlier in the year are still appropriate. But if the CIOs interviewed for the Goldman Sachs IT Spending Survey of July 2008 are representative, those priorities make even more sense now than they did before the recent downturn.

They identified their top three spending initiatives over the next 12 months (in order of priority) as server virtualization, server consolidation and cost cutting.

Considering the well-known advantages of data center virtualization, which arise in large part from its ability to support server consolidation and reduce operating expenses, there's certainly no reason to reprioritize that spending mix.

But CIOs who focus solely on those aspects of virtualization could still find they have the wrong investment mix after the economy emerges from its slump. That's because consolidation and cost-cutting are just the first step in the virtualization journey that leads eventually to cloud computing: a completely abstracted, highly flexible and agile IT infrastructure that can deliver any content to any device (servers, storage, applications) anytime, anywhere.

Streamlining IT Operations

That's still a ways off, but it is coming – and appropriate investments now can not only save money in the present, but also set up an organization to reap big benefits down the road with an infrastructure that's ready for the future.

 "The biggest mistake CIOs are likely to make about virtualization is to think of it only in terms of getting more out of the physical infrastructure," says James Urquhart, Market Manager for Cloud Computing and Virtualization in the Data Center Solutions Group at Cisco.

Virtualization: Smart IT Investment in a Tough Economy

The consolidation that virtualization makes possible, putting 25 to 40 servers or more on a single physical box, can help businesses make better use of physical resources.

Although that's definitely an advantage – without server virtualization, businesses must overprovision compute resources to handle peaks, operating below capacity the rest of the time – it's only a starting point.
Virtualization can dramatically simplify and streamline IT operations. "You can create a standard server in software which has been tested against the applications you typically use, so rolling out a new server is just a software installation," says Andreas Antonopoulos, an analyst at Nemertes Research. "This produces a staggering reduction in operating expenses by increasing the number of servers each administrator can handle. You free up headcount, make fewer mistakes, deal with fewer exceptions, and generally increase reliability and stability."

Network Designed for Virtualization

But Urquhart points out that realizing this gain in efficiency requires a network infrastructure optimized for virtualization.

The Cisco Nexus family of data center-class switching products aims to provide this capability "We're getting strong feedback from our customers that the Nexus switches are not only a step towards virtualization, but a big part of their strategy to reduce device count in the data center, and along with it, both capital and operating expenses."

And, in fact, says William Charnock, Vice President of Technology at the global hosting provider ThePlanet.com, that's where his company has started. "While our internal IT department is aggressively evaluating virtualization, it's not yet a big part of our business model.

"For us, the high port density of the Nexus switches gives us a highly efficient use of our bandwidth resources, flattens and simplifies our network, and cuts down our device count, all of which reduces our capital investment and cuts our operating costs."

More Services for Customers

But Charnock agrees that this is just the start of benefits ThePlanet.com expects to see from the Nexus line.

"Once we have that kind of network density and flexibility, virtualization will be much easier to accomplish when customers demand it. We'll make virtualization tools available to our traditional customers as an add-on, giving us a lower price point for our services, while we build a virtualization platform to support more complex needs."

Bill Williams, Senior IP Architect at Terremark, a leading global provider of managed IT infrastructure services, sees similar benefits from the Nexus line. "The Cisco Nexus 5000 and 7000 serve as the foundation architecture of Terremark's Data Center managed services portfolio, and will help us reduce costs while providing customers greater bandwidth and services."

Infrastructure Urquhart notes that a lot of the impetus for hosted virtualization – virtualized data center infrastructure offered by a third-party service provider – is coming from smaller companies rather than large enterprises.

Infrastructure on Demand

 "There's what I call a 'barrier to exit' in the enterprise, which tends to have a huge investment in traditional data center models – not only in terms of capital, but in operational processes and even the business model. Smaller firms don't have that, and tend to be more open to hosted virtualization."[

Charnock agrees. The bulk of his company's customers are small businesses – more than 20,000 small companies, many with no more five employees.

"They come to us for infrastructure on demand, and we end up being almost a lending arm for them, offering a month-to-month model that lets them get in easily without a huge investment," he says. "Virtualization is just more of the same, in some sense."

But, he notes, there's still a barrier, in terms of trust. "Customers like the idea of the 'locked cage,' and they're still wary of sharing resources, despite the price advantage it might offer." As well, in some cases, regulatory compliance forbids the kind of resource sharing that comes with virtualization.

Low Cost, High Quality

Charnock expects those barriers to fall, and says that for ThePlanet.com, virtualization is a necessary technology, one that the company will adopt due to both customer demand and business issues.

"It's a perfect fit with our fundamental business model: very low-cost, high-quality services for customers that can't afford the kind of infrastructure we offer," he says.

And he points out that such services are precisely what victims of the down economy who've lost their jobs may need if they jump into entrepreneurial mode. "Month-to-month infrastructure rental lets entrepreneurs get started proving their big idea, and it's our foot in the door when they succeed. Virtualization will make it easier for us to work with 'the next YouTube' and grow with them – that's the real bottom line."

Dave Trowbridge is a freelance writer based in Boulder Creek, CA.

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