ESX 3.5i for free and the impact on Hyper-V and the SMB (my thoughts on Mike’s post)

So finally it happened. Hypervisors are (essentially) free. I remember the very first engagement I had with VMware technologies some 8 years ago; that was the 1.1 (beta) time frame: we did a Proof of Concept and closed the deal with a very satisfied customer... While they were very happy about the achievements they have always taken the opportunity to remind me how expensive VMware (i.e. ESX 1.1) was. Well, time goes by I guess and what used to be a large chunk of the project expenditure it is now a piece of (business) commodity. "Business commodity" meaning that hypervisor vendors are no longer going to make money out of it, which is different than being a "technology commodity". Well I guess I will save the "control point concept" for another post: it's a long discussion - interesting though.

Back on track.

I am currently doing some research on virtualization vendors positioning in the x86 space and on July 24th Mike DiPetrillo posted a very interesting thought about the implication of making ESXi (yeah Mike, it's ESXi, no longer ESX 3.5i) free of charge. I suggest you read it carefully, along with all the interesting comments, on line here. It's a long thread but if you are among the 99.99% of x86 customers in the SMB space wondering "should I use VMware or Microsoft technologies to virtualize my datacenter?" I strongly suggest that you go through it. Mike did a great job (well other than getting the official brand name of his flagship product wrong... ;-) sorry Mike, I had to say that) in setting the stage.

I am not going to repeat what's in the post (as I have assumed you read it at this point) but this is what he came out with (in blue pen) in order to virtualize some 30 Windows servers on as few as 3 physical hosts.

1Need:
2Microsoft -- VMware

1Basic Consolidation: 
2$3,000 -- FREE

1Centralized Management: 
2$3,500 -- $2,995

1Basic Advanced Features (Backup and Patching):
2$7,260 -- $2,995

There have been a number of comments regarding the fact that Mike used additional fee-based products (for for example) whereas many customers would be fine with free tools such as WSUS (Windows Software Update Services). Many might also argue that you can't buy VMware products without software subscription and support (which I think Mike didn't take into account) whereas you can buy MS products without those. I am not interested in this micro-level details since, at the end of the day, getting to an apple-to-apple comparison is going to be impossible given the fact that both software vendors have offerings that can hardly intersect with each other: it would be like to try to find the face of a sphere... the sphere has many faces... actually an unlimited number.

I am probably one of the most agnostic persons around when it comes to the virtualization software to be used as I don't have any vested interested in any of the parts involved. As long as customers and end-users can get "the most for the cheapest" I am the happiest person on this earth that's why I welcome so much VMware and Microsoft engaging at this level to provide more value at a more reasonable cost.

Having this said there is something in this analysis that I want to challenge (and not necessarily to put either one vendor or the other in a bad light - I want to do that based on my experience and for the sake of customers). Specifically I want to challenge the assumption that High-Availability should be taken out of the picture. I have always advocated that one of the primary reasons for which customers virtualize is for easy HA and DR. I have written about this feeling many times; here and here for example. So I wanted to re-run Mike's number taking into account Windows Server 2008 Enterprise Edition (which includes MS Cluster Server) and VMware VI3 Standard Edition (which includes VMware HA). I am not a master in pricing but I understand from Mike's post that Win 2008 EE is $4,000 so that's the number I am going to re-work with. On the VMware front things start getting a bit cumbersome. The best option (I think - other suggestions?) would be to use the "Standard" Accelerator Kit which is the counterpart of the "Foundation" Mike used. The "Standard" Accelerator Kit comes at $5,995 but it includes VMware Virtual Center Foundation and "only" 4-sockets VI3 Standard licenses (the "Foundation" Accelerator Kit has 6-sockets licenses). So I have to add another $2,995 for the additional 2-sockets VI3 Standard license a-la-carte (yes apparently, by chance, the 2-sockets "VI3 Standard" license comes at the same price of the "VI3 Foundation" Accelerator Kit).

So the new table, which includes High Availability functionalities, would look like this:

1Need:
2Microsoft -- VMware

1Basic Consolidation: 
2$12,000 -- FREE --> Win 2008EE x 3 -- ESX 3i

1Centralized Management (includes high availability):
2$12,500 -- $8,990 --> Win 2008EE x 3 + Systems Center VMM Workgroup -- VI3 Std Accelerator Kit + VI3 Std 2-sockets

1Basic Advanced Features (includes high availability):
2$16,260 -- $8,990 --> Win 2008EE x 3 + Systems Center Suite Enterprise -- VI3 Std Accelerator Kit + VI3 Std 2-sockets (Backup and Patching)

So even if you add the mandatory subscription and support costs to the VMware column they continue to lead (substantially?) in terms of price / features. I want to underline again that someone might argue that some of the fee-based MS features are not strictly needed as the same result can be achieved paying less compared to what's in the table above. I'll leave it to you to work out the micro-details and perhaps you might find out that the MS stack might make more sense to you and your specific situation.

I have also to say however that many people have mentioned that Mike didn't take into account the soon to be released stand-alone Hyper-V version for $28. While it's true that this version can change the dynamics of the first table above, it is my understanding that this specific version will not support Enterprise features such as MS Cluster Server so it cannot be used to alter the pricing dynamics of the second table.

However, what I struggle to fully get is related to the last comment Mike did on the post:

NOTE: Windows licenses were not calculated into the costs since we assumed that the average SMB customer will continue to use and run their existing Windows Server 2003 installations which they already own the licenses for. Based on lots of conversations with analysts, press, bloggers, and customers this is a safe guess for the next 1 - 2 years as Windows Server 2008 gets adopted. If you were to calculate in licenses costs then the best license to use would be Windows Server 2008 Datacenter which allows for unlimited VMs no matter which solution you use. You should then subtract $12,000 $3,000 from the Microsoft column in each example and add $6,000 to BOTH columns (Microsoft and VMware) to get the cost for early adopters of Windows Server 2008.

And then again in the comments section:

Good point about OEM licenses. I tried to keep most of the complexities of Microsoft licensing out of this post, but yes, if you have an OEM license then you cannot reassign it to another server unless you bought Software Assurance for that license within 90-days of original purchase. I will make a note of this in the blog. I will also put on the to-do list to provide some insight into the complexities of Microsoft licensing.

The OEM licenses could impact the cost model in 2 ways: 1) If you decided you were going to stick with Windows 2003 for some time to come then you would purchase new Windows 2003 licenses for your VMs. You would still end up purchasing Windows 2008 licenses as well for the Hyper-V hosts and not for the VMware hosts. The only exception would be if you purchased Software Assurance with the Windows 2008 licenses in which case you get downgrade rights and could run Windows 2003 in your VMs. All of this gets complex since Software Assurance is only available through certain Microsoft license agreements which are not always present with SMB customers (our target example in this post). 2) If you decide to go ahead and upgrade to Windows 2008 then the note at the end of the blog post still holds true on the impact to both columns. Thanks again for pointing this out. I for one really do hate OEM licenses since they're so restrictive. Cheaper - yes, but restrictive.

Mike is right to assume that most customers would continue to use Windows Server 2003 for some time to come. He is also right that, assuming a complete re-licensing needs to be done, Windows Server Datacenter is the best option given its "unlimited VMs policy". Last but not least he is also right in mentioning that usually these "upgrades" paths for the OEM versions are not available for the SMB customer set.

I think he is missing some specific scenarios and he has some wrong assumptions though . When you license a host with Windows 2008 Datacenter not only you have unlimited virtual machine licenses, but you also have license entitlement for the underline virtualization technology (i.e. Hyper-V / Parent Partition). This means that, if for some reasons (see below) the customer needs to re-license all the 30 Windows instances he is virtualizing, he is going to license everything with Windows 2008 Datacenter which includes both virtual machines and Hyper-V entitlements for the host. Notice that the customer could then install Windows 2003 guests as you have downgrade rights. This is an intriguing scenario because basically you are buying one (Datacenter) license from MS that entitles you to use both the virtualization layer as well as the guests. For the VMware scenario in parallel the Datacenter license is still the one that makes more sense but the problem is that VMware wants his piece of the pie now (in addition to the piece customers have to buy from MS). This makes essentially the MS hypervisor solution REALLY FREE in the comparison of the two technologies.

So assuming to take into account the Guests licensing, in specific situations where you have to re-license them, we are looking at:

1Need:
2Microsoft -- VMware

1Basic Consolidation (includes Guests licensing through Windows 2008 Datacenter - 6 sockets x $3,000 each):
2$18,000 -- 18,000

1Centralized Management (includes high availability):
2$18,500 -- $26,990

1Basic Advanced Features (includes high availability) (Backup and Patching): 
2$22,260 -- $26,990

You can also normalize this chart removing the $18,000 price for the Windows Datacenter licenses and the table would end up in listing only the "virtual infrastructure" costs:

Need: Microsoft -- VMware

Basic Consolidation (assumes but does not include Guests licensing through Windows 2008 Datacenter - 6 sockets x $3,000 each): FREE -- FREE Centralized Management (includes high availability): $500 -- $8,990 Basic Advanced Features (includes high availability) (Backup and Patching): $4,260 -- $8,990

Again, based on my (limited) licensing know-how, these two new tables hold true for:

1. Customers that cannot re-use OEM licenses
2. Customers deploying a new virtual infrastructure, only have older Windows versions (i.e. Windows 200) and want to use newer versions in the guests (i.e. Windows 2003 and Windows 2008)
3. Customers deploying a new infrastructure from scratch

So basically the two statements above made by Mike do not always hold true:

• You would still end up purchasing Windows 2008 licenses as well for the Hyper-V hosts and not for the VMware hosts

• If you decide to go ahead and upgrade to Windows 2008 then the note at the end of the blog post still holds true on the impact to both columns

Assuming my understanding is correct (but I might be missing something) under these assumptions the MS solution stack comes in at a much cheaper price (especially if you account for mandatory VMware subscriptions and support fees). So the first question that needs to be answered is: does this analysis make any sense?

If it does, then the second real question that needs to be answered is... how many customers fall in the 3 scenarios described above that favor the MS licensing model?

How many faces does a sphere have?

Massimo.