With the announcement of vSphere 5, and more importantly it seems, with the change in the way that enterprise licenses are sold and managed, there has been a lot of talk (here and elsewhere) about how the cost of virtualizing, especially in a dense fashion got more expensive. I won’t bore you with a rehash here, because all my readers are brilliant and can use a calculator, but there’s one thread that’s been lost in all of the noise that I want to dig into here: what about service providers?
Since the service providers use a different licensing model from the enterprise-based ELA and socket-licensing model, it was expected that there would be changes for them as well. Speculation ranged all over the board as to what the changes would be, but after getting my briefing from VMware I’m happy to announce that it’s better than I could have imagined. Seriously. Sound interesting? Put simply, VMware is making the overall value proposition so enticing to Service Providers that it’s going to be hard to ignore. The barrier to entry for creating a business model has always been first, the cost of the hardware and second, the cost of the licensing. Both barriers are falling rapidly, and the new VSPP details show that clearly.
(Note: All of these scenarios use the “new” vSphere5 licensing rolled out on 8/3/2011 with the increased vRAM entitlements.)
As some background, I have a long and (sometimes) glorious history with the VSPP program. I worked for a VMware vCloud partner for years, and got to see the good, bad and ugly of the evolution of that program, along with the joys and heartaches of building a business around it. All of you reading this who work for service providers are probably nodding your head right now… With VCE, I’ve seen the ups and downs from the other side of the table as well. The goal of the program, much like the Microsoft SPLA, was always laudable: create a way for SPs to “lease” licenses on-demand and provide those to their customers. With each change to the program, VMware tried (I’ll give them credit) to identify more and more with their SP customers, and starting in late 2010 it seems like the feedback they were getting from customers started to sink in.
For those unfamiliar with the VMware Service Provider program, Mathew Lodge has posted a very good overview of the program and the recent changes on the VMware vCloud Blog. VSPP is one of the few VMware products that isn’t actually licensed directly to the customer. VMware uses a series of “aggregators” to resell the program, the customer signs a contract with these aggregators, and the contract includes both a “point” cost and a point commitment level that the service provider promises to pay. The “retail” price of a point is $1, and the higher the commitment (generally) the lower the point cost. By default, each bundle has a corresponding point value. The point values of the bundles has stayed the same with the move to vSphere 5, with the Standard bundle having a value of 5 points and the Premier sitting at 7. Both include vSphere, vCloud Director, vCenter Chargeback, vCenter Server and Production SnS. The Premier bundle also includes the full version of vShield Edge as well, which adds VPN and load balancing.
In the most recent version of the VSPP program before vSphere5 was announced, VSPP points were calculated based on allocated RAM (just like the new vRAM pricing on the Enterprise side) per powered-on VM, per month. If you were a Premier partner, had 100 VMs with 4GB each powered on and a point value of $1, you would pay $2,800/mo, as an example (100*4*7=2800). If you made a commitment of 2800 points per month, maybe you could get your point value down and that would carry through to the bottom line.
With the release of vSphere5, VMware have made some huge changes that are really, really going to help Service Providers. First, they have changed the measurement from allocated RAM to reserved RAM. You read that right! If you give a VM 8GB of RAM but only reserve 6GB of it, you are only going to pay for the 6GB. There is a requirement included in the small print that 50% of all committed RAM must be reserved (from a licensing standpoint, not from an operational one), but even there it puts the virtualization of tier 1 apps and over-commitment of RAM back on the table! Next, VMware has capped the amount of billing at 24GB of RAM per VM versus 96GB for enterprise customers. Finally, like with the enterprise licensing, there’s no charge for powered off VMs which is also a welcome change from previous versions.
Let’s look at an example that is close to my heart: a VCE Vblock, building off of the numbers that Aaron Delp generated for his scale-up vs. scale-out discussion. VMware has been adamant about making sure we don’t use single server examples when discussing licensing, so we’ll use a couple pretty standard builds that customers are putting into production everyday.
First, we’ll look at the low end: 8 hosts, 96GB of RAM each, dual CPU. First, let’s look at the setup:
In this example, we’ve allocated for N+1 protection on the environment, meaning that we’ll have 672GB of RAM to allocate to VMs once the environment is full. Yes, I’m assuming that the customer will end up using all of the capacity their hardware provides, at least over time. One of the nice things about the new vSphere5 licensing is that, unlike vSphere4, customers can ramp up their licensing as they go, rather than having to license everything up front, so as we continue please understand that these numbers are based on RETAIL costs assuming a FULLY POPULATED ENVIRONMENT. In this example the average VM has 2GB of vRAM allocated, and 50% of that vRAM is reserved. The reservation level doesn’t matter for the enterprise licensing, but it definitely does for VSPP, as you’ll see. With that (extended) caveat in place, let’s look at the licensing cost of this environment with vSphere5:
OK. So over three years (the “refresh period” I chose) you will pay $97,872 in total (retail) cost for the vSphere5 licensing at the Enterprise Plus level. We took the total allocated RAM and divided by 96 (the amount of RAM entitlement at the Enterprise Plus level) to get the number of licenses needed, rounded it up, and then multiplied by the $3495 retail cost to get the license cost. For SnS we take the retail cost ($874), multiply it by the number of licenses purchased and then multiply that by 3 years. In straight vRAM we only needed 10 licenses thanks to the new upgraded 96GB entitlement that is included, but we had to purchase 16 licenses anyway to cover the number of sockets in the cluster.
So now that we know what the costs are on the enterprise side, let’s look at VSPP. Again, we are going to assume the environment is full and at a steady state for the sake of an apples-to-apples comparison, and we are going to assume full retail pricing. Please note that I fully understand both of these assumptions are unlikely to be found in the real world, but we have to put a stake in the ground somewhere, right?
Let’s talk about how we came up with the “Premier Bundle Points Used” value. The “cost” for the Premier Bundle is 7 points, per GB of RAM reserved, per VM, per month. It’s OK, we’ll walk through it! :-) If you look at the setup at the top, you’ll see that we have an average of 2GB of allocated RAM in our cluster, with a 50% reservation rate. These numbers are 100% variable from environment to environment! The VSPP program puts a lower limit on reservation percentage at 50%, so that’s the lowest we can go there, but we can always go up, even reserving 100% of the RAM if we wanted to. In this example, we end up with a total of 672 VMs running, or 11 VMs per core which is pretty high for an SP environment, depending on the service being offered. With 672 VMs, at 1GB reserved each, multiplied by 7 points each comes to $4,704 a month or $169,344 over three years. That’s a 73% premium over the “new” vSphere5 licensing. Fortunately, there’s more to look at…
Looking at just the licensing head-to-head leaves out all of the extra goodness that the VSPP program includes:
- vCenter Server for free
- vCenter Chargeback for free
- vShield Edge for free
- vCloud Director for free
All of those have a $$ that can be tied to them if the customer chooses to use them, right? What kind of value? Using the retail enterprise licensing and previous VSPP license costs, here’s my estimation:
- vCenter Server Standard + 3yr SnS = $8179.95
- vCenter Chargeback + 3yr SnS = $2,048.15 per 25 VMs/yr
- vShield Edge + 3yr SnS = $6,141.90 per 25 VMs/yr
- vCloud Director = $3,750 per 25 VMs/yr + $937.50/yr SnS
If we plug those in and add them to the enterprise licensing costs, here is what it looks like:
Holy schnikes, Batman. We end up with $1,051,252 in additional “licensing benefits” in this environment (assuming you are using all of them), which means if you are using all of the additional features, that the VSPP program ends up giving providers MORE in free licensing than they actually collect in costs by a factor of 10. Because vCloud Director and vShield Edge are licensed by VM, the value here is going to scale with the number of VMs. In total, when compared to the vSphere5 license costs, we end up seeing the VSPP cost being 1001% cheaper over three years. Ladies and gentlemen, that’s officially ridiculous.
There is a LOT of opportunity here for SPs who understand the licensing model and can leverage it for customer-facing services. As you start to scale your infrastructure out, the additional value of the VSPP program tracks almost directly with the number of VMs you have in production. If you have large, fully-reserved VMs, the VM count comes down and so does the value of the additional licensing. This actually makes me happy from a Service Provider standpoint, since it puts the business decisions back in the hands of the provider. Here’s what I mean:
Every VM in production at a service provider is simply a math equation. One one side, we have the costs; capital equipment purchases, refresh and depreciation rates, staffing costs, marketing, licensing and the rest. On the other side we have the revenue being generated. Some SPs do revenue as a two-factor equation. First, you have the direct revenue, usually the resources that can be directly tracked back to the capital and staffing that was invested in the platform. Of course every SP wants to try and drive “attached” services such as backup, disaster recovery, OS and application management, professional services and maybe even co-location and data center services. Each of these offerings has its OWN equation for cost and revenue, but since they are “attached” to the VMs being provided, you track that revenue in a separate column. It’s important to understand the whole revenue ecosystem in play so that you can be responsive to customer trends!
Each object on the cost side also has a possible multiplier: risk. If an SP wants to go cheap on the infrastructure or staffing investments they can, but each of those carries risk that may increase the cost of the service, or worst case bring the revenue down as customers leave. The same goes for oversubscription and VM density. The more VMs you have on a host, the more exposure you have during an HA event, and the more you oversubscribe resources the more you risk impacting customer performance. Both oversubscription and density also drive more staffing since you have to keep a closer watch on things from an operational standpoint. Are we all seeing the complexity here yet? :-) Math is sexy, kids. It makes the world go round.
All that to say this: every running VM has at least one actual, real dollar figure attached to it. Way back in the early days of VMware hosting when everyone was using perpetual licenses with a EULA amendment, the business could determine how much risk they wanted to introduce (and how much additional revenue they wanted to realize) while being able to keep the licensing costs flat. I think it’s safe to assume those days are over, but this is the first version of the VSPP program that gives the business the possibility to increase the number of VMs supported without increasing the licensing costs! If I decide to move my reservation level from 100% to 50%, I have the ability (although I may not choose to) increase the number of VMs by 50% at no additional licensing cost. Since the SP is the one making the capital and staffing investment and managing the offering on the open market, it’s only fair that they have the ability to choose their own risk/reward levels, and now they can do that with their VM licensing again!
So why is VMware doing this? I don’t know, they haven't told me! I have some opinions though, and I’ll be happy to share them if you ask. :-)
Where are you on the continuum? Here is a link to an Excel spreadsheet that I’ve put together to help my SP customers figure out where their “sweet-spot” is, and help position the costs to the business development side of the house. I’ve tried to be thorough and make sure my math is correct, but please let me know if you find any issues. I’ve protected the sheet to only allow editing in the appropriate fields, and I want to give a shout-out to Kendrick Coleman who made it “pretty” for me!
At the end of the day, I think this is a huge break for the Service Providers, many of whom have been waiting for a long time for VMware to give them one. The VSPP licensing model is definitely trying to drive behavior with the SPs, and we are going to see more and more IaaS environments that heavily utilize memory oversubscription in order to drive as much value as possible out of the program. It’s also going to drive adoption of the “extras” that are included, namely vCloud Director and vShield Edge. You can’t argue with free, and even though there are other options out there in both of the spaces these products live in, it’s going to make SP customers think twice about paying for alternatives. In particular I think that the Cisco VSG product is going to take a hit seeing how it largely competes directly against the vShield Edge product. It also means that VMware is going to have to step up to the plate with features and functionality in those products, but if they do so they'll have a huge install base to leverage as they start moving more of the application and database services to the cloud.
Hopefully this has helped you understand more about the VSPP program, the recent changes that were made and how they relate to environments large and small from a licensing cost standpoint. If you have any questions, comments or suggestions for the calculator tool, polite comments by readers who are willing to disclose their vendor affiliations are welcome!