Market
Report
Best Practices and Cost Reduction
Strategies for Today’s Virtualized
Data Centers
By Mark Bowker
August 2009
© 2009, Enterprise Strategy Group, Inc. All Rights Reserved.

Market Report: Best Practices and Cost Reduction Strategies for Today’s Virtualized Data Centers 2
Contents
Introduction .................................................................................................................................................. 3
Virtualization: Problems and False Promises ............................................................................................... 4
Creating Momentum .................................................................................................................................... 6
The Phases ................................................................................................................................................................ 6
Establishing Optimization Practices from the Beginning ............................................................................. 7
Maintaining Operational Efficiency .............................................................................................................. 8
ESG’s View................................................................................................................................................... 10
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© 2009, Enterprise Strategy Group, Inc. All Rights Reserved.

Market Report: Best Practices and Cost Reduction Strategies for Today’s Virtualized Data Centers 3
Introduction
Volumes have written, researched, and tested regarding the benefits of server virtualization and the positive impact
it is having on both IT and business operations. This paper is by no means an attempt to diminish the success the
technology is having and will continue to have in the data center. In fact, in engagements with IT professionals,
business executives, and technology leaders, ESG recommends server virtualization as a key component of a highly
automated data center that greatly improves operational efficiency.
The goal of this paper is to address the fact that server virtualization is still a relatively new technology undergoing
rapid development and innovation. While creating a virtual machine is relatively simple, the underlying complexity
of the infrastructure and IT processes cannot be ignored. Without the proper tools and processes in place,
extending the value of virtualization can be extremely complex. Businesses have done a tremendous job achieving
the initial benefits of the first wave of virtualization, but are quickly being challenged by the road blocks and
intricacies that are stalling further implementation and even negating some of the benefits that virtualization had
promised from the beginning.
Server virtualization is a high-priority technology and, as shown in Figure 1, ESG survey respondents indicate that
their top 2009 virtualization goals are consolidating more physical servers onto virtualization platforms (39%) and
expanding the number of applications running on virtual machines (38%). IT organizations are increasingly making
virtual machines the standard platform for all new applications, a trend previously documented by ESG.1 Simply
put, existing virtualization customers gained confidence with the technology and migrated basic IT infrastructure
(Web servers, file servers, etc.) to virtual platforms; they are now ready—and willing—to move the next tier of
applications and IT services to a virtualized environment.
Figure 1. Top Server Virtualization Initiatives for 2009
Which of the following would you consider to be your organization’s top server
virtualization initiatives for 2009? (Percent of respondents, N=327, multiple responses
accepted)
Consolidate more physical servers onto virtualization
39%
platforms
Expand number of applications running on virtual
38%
machines
Make use of virtual machine replication for disaster
31%
recovery
Improve backup and recovery of virtual machines 24%
Improve operational processes for managing virtual
21%
environments
Move more applications from test/development to
21%
production environment
Implement virtual machine mobility / HA (high
18%
availability) functionality
Integrate virtual environments into existing management
17%
software frameworks
Deploy a storage virtualization solution to support virtual
16%
server environment
Purchase third-party management software for virtual
12%
environments
0% 10% 20% 30% 40% 50%
Source: Enterprise Strategy Group, 2009.
1
See: ESG Research Brief, Recent SharePoint Adopters More Likely to Use Server Virtualization for Deployments, December 2008.
© 2009, Enterprise Strategy Group, Inc. All Rights Reserved.

Market Report: Best Practices and Cost Reduction Strategies for Today’s Virtualized Data Centers 4
The operational complexity created by full-scale deployment of emerging infrastructure technologies is quickly and
fundamentally changing the status quo among IT management organizations. As shown in Figure 2, over one-third
(38%) of survey respondents state that they expect server virtualization to extensively impact their organizations’ IT
management strategy in the next 24 months.
Figure 2. Expected Impact of Server Virtualization, Web 2.0, and SOA on IT Management Strategies Over the
Next 24 Months
To what extent do you expect these technologies to impact your IT management
strategy over the next 24 months? (Percent of respondents)
Extensively Moderately Limited Basis Not at all
Server virtualization 38% 39% 20% 3%
Web 2.0 31% 37% 27% 4%
SOA-based applications 24% 41% 30% 5%
Green computing 22% 44% 29% 5%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Enterprise Strategy Group, 2009.
Now, more than ever, it becomes critical to understand the potential shortcomings of server virtualization—and
their solutions—as virtualized environments quickly scale. It will be a combination of server virtualization,
integrated infrastructure, and management tools that ultimately accelerates the benefits of virtualization and helps
IT lower both capital and operational costs.
Virtualization: Problems and False Promises
Utilizing a TCO (total cost of ownership) calculator for server virtualization, it quickly becomes clear that the results
boil down to either a cost per virtual machine or a cost per application workload—which really means the same
thing. Simple math proves that the more virtual machines you can run on the fewest number of physical servers
equates to the lowest cost per virtual machine. Of course, this is assuming that all the related IT infrastructure,
management, and service costs related to the virtualization platform were factored into a TCO calculation. This
quick calculation can yield impressive results, but in practice, the number of virtual machines per physical server
remains relatively low.
In reality, business risk rises as companies optimize their virtual environments to achieve higher density, which
equates to more VMs relying on a single server—often referred to as “all your eggs in one basket.” Optimization,
efficiency, and cost per VM improve, but risk grows as well, as illustrated in the Figure 3. ESG finds that the typical
consolidation ratio of VMs per physical host is typically 4:1. Even if the hardware can support more VMs, IT is
© 2009, Enterprise Strategy Group, Inc. All Rights Reserved.

Market Report: Best Practices and Cost Reduction Strategies for Today’s Virtualized Data Centers 5
hesitant for fear of a physical server failure, a lack of visibility, or an unclear picture of capacity allocation and
utilization.2
Figure 3. Virtual Machine Density Results in Increased Risk
Source: Enterprise Strategy Group, 2009.
The truth is that businesses are falling short of their initial goals and finding their virtualization deployments have
stalled. The initial wave of server virtualization implementation that virtualized the low hanging fruit was relatively
simple, but even achieving the next 5% and including more mission critical and business critical applications is
proving to be extremely difficult. As previously mentioned, one of IT top priorities of 2009 is to expand the number
of applications running on virtual machines, but many lack the tools and best practices needed to measure
efficiency—or a lack thereof. Additionally, IT wants to leverage existing virtualization investments and avoid
incurring the compounding expenses of IT infrastructure to support the virtualized environment.
The costs of server virtualization extend well beyond the expense of licensing and maintenance. Server
virtualization deployment is acting as a catalyst for change, proving to be the ideal opportunity to refresh, evaluate,
and adopt new technology. The computing platform—which includes standard x86 servers, blade servers, and
additional newly spawned architectures designed specifically for highly virtualized environments combined with
networking infrastructure, storage, and services—quickly grow in complexity and add up in terms of cost. Once
purchased and deployed, it is now IT’s role and responsibility to prove the value of virtualization and demonstrate
its benefits, which include peak utilization of resources, rapid consolidation of workloads, reduced utility
consumption, and improved application availability.
In order to seamlessly transition to the next phase of virtualization and break through existing barriers, IT
organizations must arm themselves with tools that enable administrators to monitor, tune, and optimize virtualized
infrastructure. These tools have to act as a lens into the virtual world and provide the visibility IT operations needs
to extend current investments, plan for the next wave of adoption, confidently run at high utilization, and
proactively identify risks and inefficiencies. These tools enable IT operations to instantly respond to change,
seamlessly scale, and deliver agreed upon service levels back to application and line of business owners.
2
ESG Research 2009
© 2009, Enterprise Strategy Group, Inc. All Rights Reserved.

Market Report: Best Practices and Cost Reduction Strategies for Today’s Virtualized Data Centers 6
Creating Momentum
Businesses typically take a “crawl, walk, run” approach when deploying server virtualization. It takes some time for
IT and the business to see its full potential as well as develop comfort and confidence in the technology. Figure 4
depicts how server virtualization is being used today, with a vision of its potential for the future.
Figure 4. Data Center Evolution
Source: Enterprise Strategy Group, 2009.
The Phases
1. Test and development is often overlooked, but is a critical stage when deploying server virtualization. IT
will run POCs (proof of concept), measure performance, test application response times, and evaluate
stability. It’s during this phase that IT operations works with the application owner to determine if a
workload is a candidate for virtualization and, if so, what resources need to be allocated to the workload.
Careful planning at this phase yields favorable results across the entire maturity curve.
2. Consolidation involves the migration of physical servers to virtual machines—typically referred to as P2V.
At this point, IT rapidly moves workloads that have been identified as viable candidates and gives them the
green light for production usage on the virtualized infrastructure. IT and the business will see a steep spike
in the value of virtualization and start creating policies that call for virtual machines as the standard
platform for all new applications.
3. The Enterprise phase is a significant milestone where the business chooses the virtualization platform for
mission critical applications, standardizes data protection, implements disaster recovery, automates routine
tasks, confidently delivers SLAs, and is near reaching the goal of a 100% virtualized data center.
© 2009, Enterprise Strategy Group, Inc. All Rights Reserved.

Market Report: Best Practices and Cost Reduction Strategies for Today’s Virtualized Data Centers 7
4. The Dynamic phase is when IT operations starts firing on all cylinders and the business has high confidence
in the platform. IT infrastructure is tightly integrated and, as administrators apply security, performance,
and availability policies, the virtualization platform automatically responds without manual interaction.
5. The Cloud is a consumption model that transforms how IT operations delivers services to application and
line of business owners. At this phase, business owners only pay for what they consume and can quickly
provision and decommission resources as needed. Control shifts into the hands of the application owner,
allowing for management of an extremely fluid environment that instantaneously responds to change and
distributes resources, regardless of whether they are owned or leased from/hosted by a third party. This
entire process is completely transparent to the application and its administrators.
The key to seamlessly transitioning from one phase to the next is to consider optimization from the beginning and
to arm IT with analytics, reports, and optimization techniques that can carry virtualization to the next level. In the
physical environment, there is some wiggle room when it comes to accommodating changes in business demand
thanks to the common practice of building in a great deal of compute, network, and storage overhead. In a
virtualized environment, the thinking is quite contrarian. Virtualized environments are designed, architected, and
deployed to run at peak optimization all the time with standby capacity available if necessary. In essence, the
environment is the right size all the time. The trick to making this goal a reality is having the tools in place to do so.
Establishing Optimization Practices from the Beginning
The mindset of many IT and business professionals is to hit the ground running and rapidly deploy virtualization.
Since virtualization is, relatively speaking, so simple once it is up and running, virtual machines are spun up at a
rapid pace. This creates what has become a well known problem: VM sprawl, the rapid creation and proliferation of
virtual machines without any control or visibility. By the time it is recognized as an issue, VM sprawl has become
too widespread to efficiently react and quickly resolve. This creates a plateau effect in server virtualization
initiatives and organizations run the risk of stalling new deployments or, worse, affecting current workloads by
negligently running too many virtual machines on a single server or running the wrong mix of workloads on a single
server. Luckily, both dangerous scenarios can be avoided.
There are three key criteria that ESG recommends businesses establish from the very first phase of server
virtualization adoption. It is crucial that these points are kept in mind during each transition to the next level of
efficiency and optimization.
1. Visibility beyond basic CPU and memory utilization. This includes visibility across the entire
infrastructure—including server, networking, and storage—that rolls up into an easy to consume dashboard
showing potential bottlenecks, end to end performance, and capacity utilization. Capacity, in this sense,
refers to the aggregate collection of memory, CPU, storage, network bandwidth, and even application
response times. When businesses have this level of visibility into their virtualized environments, they can
confidently operate at high utilization.
2. Performance monitoring in real time The goal is to always operate at peak performance with a high
utilization rate. Understanding how resources are being shared across the virtualization platform,
understanding virtual machine workload profiles, and having knowledge of peaks and valleys are very
important to maintaining efficiency and peak optimization. The difference between allocated capacity and
actual usage is imperative if businesses expect to run a highly tuned environment that wastes nothing and
delivers expected results.
3. Tracking and monitoring virtual machines for unauthorized usage of resources. Monitoring consumption
of resources that are not being fully utilized and changes in the environment that could potentially impact
performance and stability is crucial. Some businesses also are regulated by compliance and corporate
governance mandates that will impact how virtualization is deployed and managed. Tracking, monitoring,
and reporting are essential during times of auditing and justification of running business applications on the
virtualized platform. Tracking and monitoring will also help IT predict and avoid any future problems—
before they occur.
© 2009, Enterprise Strategy Group, Inc. All Rights Reserved.

Market Report: Best Practices and Cost Reduction Strategies for Today’s Virtualized Data Centers 8
Utilizing management tools to quickly respond to the following list of questions will rapidly build confidence in the
virtualization platform and help accelerate the usage and success of virtualization in any business:
Table 1. Critical Virtualization Questions
1. How much capacity (CPU, memory, network and storage) is available for new virtual machines?
2. Where is the optimum place to run the new virtual machine?
3. Where will bottlenecks develop and what can be done to avoid them before they happen?
4. Can you view all the resources at a data center level?
5. What are the top VM resource consumers of resources and of which resources?
6. Are there offline VMs or VM snapshots that are consuming valuable storage capacity?
7. Can you model a change and see how the environment will react?
8. Can you easily search across the virtualized environment to quickly perform queries?
9. Do you have a means of chargeback?
10. What changes can be made to reduce the cost per VM?
Building the answers to the above questions into everyday IT operations will yield significant results that can quickly
return value to the business and extend the usage of virtualization. Avoiding, neglecting, or having to jump through
hoops to answer any of these questions will have the potential to stall the success of virtualization, invoke the
request for unnecessary new IT infrastructure purchases and, in some cases, could introduce risk to the businesses.
Maintaining Operational Efficiency
ESG’s research clearly indicates that server virtualization remains a high priority for IT organizations of all sizes.
Overall usage (whether in test or production) now exceeds 50% of organizations in both the midmarket and
enterprise market segments and is becoming near ubiquitous in some market segments. Given that it is such a high-
priority technology, organizations are more likely to justify IT investments based on cost reduction strategies and
business considerations such as reduced time-to-market for their products and improved security and risk
management (see Figure 5). IT can be a source of real competitive advantage (via improved time to market, for
example); it is not simply a cost center whose funding should be cut at every turn when economic times are tough.
Figure 5 also shows a close alignment in investment priorities, starting at the test and development stage and
moving into production.
© 2009, Enterprise Strategy Group, Inc. All Rights Reserved.

Market Report: Best Practices and Cost Reduction Strategies for Today’s Virtualized Data Centers 9
Figure 5. IT Investment Justification Among Server Virtualization Users
Which of the following considerations do you believe will be most important in
justifying IT investments to your organization’s business management team over
the next 12-24 months? (Percent of respondents)
Reduction in operational costs 67%
50%
Reduction in capital costs 41%
39%
Organizations
37% using server
Business process improvement virtualization in
38%
a production
33% environment
Speed of payback (N=214)
24%
Improved security / risk management 31% Organizations
26% using server
virtualization,
26% but in a test
Improved regulatory compliance
12% environment
only (N=113)
Reduced time-to-market for our products or 19%
services 20%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Source: Enterprise Strategy Group, 2009.
Business want to avoid delaying purchasing decisions due to poor visibility, analytics that only consider a small
piece of the entire infrastructure, and a lack of process in place to make timely business decisions. They need tools
that allow them to proactively make business decisions without further investment. If that’s not possible, there
should at least be enough visibility in place to avoid surprise investments. There is no hiding the fact that
virtualization requires capital. Companies are purchasing high density computing platforms that include blades as
well as some new computing architectures with an increased cost that is associated with the advance in technology.
Server virtualization is also acting as a major catalyst for networked storage. Networked storage purchases,
additional capacity, and replication software will be significant parts of any virtualization investment.
Since networked storage is such a costly piece of the virtualization puzzle, understanding which workloads are
consuming which tier of capacity and whether or not that is the right match becomes more important. A virtualized
environment also must make the most efficient use of capacity while still holding some in reserve should an
application require rapid growth. Once visibility is achieved, IT organizations can start making intelligent decisions
based on the information they now have at their fingertips. It may be as simple as finding the top three VMs
underutilizing their assigned capacity and freeing that capacity for other VMs or snapshots of VMs. The ability to
view capacity utilization, reclaim unused capacity, and assign it to where it is needed most should immediately
drive improved operational efficiency.
Most capacity planning exercises are lengthy and are rarely completed correctly, which often results in the over
provisioning of assets. In a virtualized environment, resources can be added or taken away without impacting
application availability, making resource distribution and allocation a “good enough is OK” exercise when assigning
resources to virtual machines. If the workload demands more resources, they can be dynamically added. Of course,
this assumes that the resources are available and tools are in place to ascertain the optimum usage of the
resources. The same holds true when an application is idle. Capacity can be returned to a pool, to be handed off to
another virtual machine later. This entire process happens transparently, without impacting the application, and
© 2009, Enterprise Strategy Group, Inc. All Rights Reserved.

Market Report: Best Practices and Cost Reduction Strategies for Today’s Virtualized Data Centers 10
enables the business to make maximum usage or IT investments and allows IT to operate at high utilization rates
with high confidence.
ESG’s View
It wasn’t long ago that companies faced the question of if server virtualization was a viable technology for
production workloads inside the data center. This mindset has certainly shifted. Now, it is just a matter of when
companies will deploy and how fast they can move to a platform that offers operational efficiency, improved
availability, and a smarter way of computing. The benefits are so great that virtualization is creating a giant boom in
the industry and helping businesses improve IT as a service.
Server virtualization has yielded fantastic results, but its impact on the interdependencies of other technologies and
existing IT infrastructure investments has not gone unnoticed. Server virtualization requires investments in time
and money—both of which are in short supply. It’s been said by many that the ROI of server virtualization can be
figured out on the back of a napkin and while there is truth in that statement, businesses also have to recognize
that new tools and IT processes will be required in the new virtual world. For example, having the right tools in
place can help delay costly infrastructure purchases and enable the business to extend virtualization initiatives
without the need to purchase additional IT infrastructure.
Migrating four physical servers to four virtual machines running on a single physical server does, in fact, yield
impressive results from the very beginning, but IT needs to maintain visibility into the virtualized infrastructure to
further scale the environment and maintain efficiency and optimization from test and development to cloud
computing. Visibility is key to maximizing all the investments required for server virtualization to continue to be the
success it has been in today’s data centers. Avoiding wasted capacity from the beginning and always operating at
peak capacity enables IT to continually optimize utilization and align tiers of servers, network, and storage to match
business requirements.
One of the constants in a virtualized environment is change. With change comes the ability to constantly adjust and
rapidly scale without incurring a parallel increase in costs—assuming visibility, performance, and monitoring are
maintained to confidently meet business goals and encourage the migration of more mission critical workloads to
the virtualized platform.
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© 2009, Enterprise Strategy Group, Inc. All Rights Reserved.