Many Hosting companies operate on razor thin margins trying to capture as much market share as possible. Over the long haul, many $99/month dedicated servers can be absorbed into your existing bandwidth commitments without any incremental cost. Early on, one dedicated hosting provider dumped servers on the market for $99 with 700gb/transfer per month. At the time, they were undercutting hosting providers and it was deemed impossible that they could be able to fulfill the hosting world’s needs. In reality, they knew that their average client used 2.5gb of transfer per month, so, what difference did it make if they handed their average client 700gb. By having an ‘enormous’ cap, the average consumer wouldn’t be scared about overage charges, but, there were companies that knew they would exceed that cap and the penalty rate structure forced them to go elsewhere. That hosting provider cherrypicked the clients that would make the most money, even though they were a budget provider.
Later, they offered upgrades to the hardware and bandwidth commitments leaving many of those initial customers stuck on older hardware. There was no upgrade path to get from one machine to another except for the client moving the data themselves. The hosting company was only responsible for making sure the machine had power and network. However, there needs to be an upgrade path and there needs to be enough margin in the equation to facilitate hardware and network upgrades over time.
At some point the useful life of a machine is exceeded and one is faced with upgrading the machine, or, replacing components if the machine fails. Typically, CPU fans and hard drives will fail since they are moving parts. Other times, the client installs applications that require more CPU horsepower or runs into a situation where a machine needs more RAM. Depending on the age of the machine, those upgrade costs might exceed installing a new chassis.
With today’s hardware replacing yesterday’s hardware, often times there is quite a disparity between the computing power of the existing machine and the replacement. Virtualization can allow you to put in a powerful machine and replace multiple older machines, sometimes at a much lower TCO than maintaining the older machines.
That conversion isn’t without its issues though. If you are measuring bandwidth, you can no longer use the SNMP statistics from your switch, you must use something to count the flows. Device naming becomes an issue because you need to identify the virtual machine and the physical chassis that the machine is on in case there is a hardware issue. Clients don’t always understand virtualization and want a ‘dedicated’ server, even though their CPU core can be pinned to their exclusive use. If they need extra capacity, and it is available on the chassis, they can utilize it. As a result, Virtualization of a data center can significantly decrease power consumption. An older Pentium 4/3.0ghz CPU can easily reside on a single core of a 2.4ghz Xeon with room to spare. Considering the older infrastructure, you could easily fit 8 Pentium 4/3.0ghz machines with 2GB ram on a single dual CPU Quadcore Xeon with 16gb RAM. An 8:1 consolidation considering the lower utilization machines can result in considerable density increases. Replacing those eight machines might result in using roughly one sixth the power of the previous eight, so, you can still increase the cores per rack which can increase profitabilty. Provided with a mixed infrastructure where you might be replacing single and dual core machines, again, you might lose some of the economies of scale, but, the consolidation will still ultimately increase core density.
Intel has an interesting blog post about Optimizing Costs within the Data Center that talks about a 10:1 reduction in hardware replacing singlecore machines with virtualized instances.
In addition to the cost and power savings, they saw a processor savings as well. If you’re selling dedicated servers, it might be difficult to give someone less than a whole processor if they had been sold a single processor, but, in a corporate environment, as long as the machine has enough CPU horsepower to do its job, more than one virtual machine can be assigned per core. For example, you can install ten Virtual Machines on an eight core machine and probably still have excess CPU.
However, applications are taking more CPU time than they used to, so, even if you are able to keep a 4:1 ratio, you’re still ahead of the game.