VMW_09Q3_LGO_PARTNER_ENTWith 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 this morning I’m happy to announce that it’s better than anyone could have imagined.  Seriously.  Sound interesting?

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 vCloud Director, vCenter Chargeback, vCenter Server and Production SnS.  The premium bundle also includes the full version of vShield Edge as well.

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 $400/mo, as an example.  If you made a commitment of 1200 points per month, maybe you could get your point value down and that would carry through to the bottom line.

VSPP vRAMWith 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.  You remember that 1TB VM that was touted in the release of vSphere5?  I bet you that the only place those will EVER run is at a Service Provider, since it’s the only way it’ll ever make financial sense.  $75,000 in licensing on your own hardware, or $168/mo to license on a provider system?  It’s a no-brainer.  Finally, like with the enterprise licensing, there’s no charge for powered off VMs which is also a welcome change from previous versions.

So enough with the prose, what does this mean from a cost standpoint?  Put simply, it just became up to 149% less expensive to license workloads in the cloud versus licensing them directly.  No, that’s not a made up number!  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 last week.  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, 128GB of RAM each, dual CPU.  First, let’s look at the setup:

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In this example, we’ve allocated for N+1 protection on the environment, meaning that we’ll have 896GB 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 license cost assuming a FULLY POPULATED ENVIRONMENT.  With that (extended) caveat in place, let’s look at the licensing cost of this environment with vSphere5:

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OK.  So over three years (the “refresh period” I chose) you will pay $116,223 in total (retail) cost for the vSphere5 licensing at the Enterprise Plus level.  We took the total allocated RAM and divided by 48 (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.  Overall, we had to purchase four additional vCPU licenses to give us the entitlement we needed to cover the environment.

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?

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Let’s talk about how we came up with the first value, “Premier Bundle Points Used”.  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 reserved RAM in our cluster, with a 50% reservation rate.  In practice that would mean each VM could have 4GB of RAM allocated to it, with a 2:1 oversubscription.  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 have 2GB on average reserved, with a 50% reservation rate so that translates to 224 running VMs. With 224 VMs, at 2GB each, multiplied by 7 points each comes to $3,136 a month or $112,896 over three years.  That’s over $3,000 cheaper than licensing the VMs directly!  But wait, there’s more…

Looking at just the licensing head-to-head leaves out all of the extra goodness that the VSPP program includes.  Things like:

  • vCenter Server
  • vCenter Chargeback
  • vShield Edge
  • vCloud Director

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 = 314 points/mo
  • vCenter Chargeback = 47 points/mo/CPU
  • vShield Edge = 5 points/VM/mo
  • vCloud Director = $3,375.00 per 25 VMs/year

If we plug those in, here is what it looks like:

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Holy schnikes, Batman.  We end up with $169,416 in additional “benefits” in this full environment, which actually 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!  When compared to the vSphere5 license costs, we end up seeing the VSPP cost being 149% cheaper over three years.  I told you the number wasn’t made up, didn’t I?

So that’s a small environment, with small servers and lots of oversubscription, but what happens when (as Chad Sakac likes to say) we dial things up to 11?  Here’s a new setup to look at:

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MUCH bigger.  64 hosts, 512GB of RAM per host, broken up into 4 clusters with N+1 redundancy each.  The VMs are bigger too, with 8GB of RAM each, all of it reserved.  Let’s call this our “worst-case” scenario.  What would this cost with vSphere5 licenses?

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Over three years the cost for this environment is $3,914,880 in enterprise licenses.  We had to purchase a total of 640 CPU licenses to cover the 128 physical sockets because of the high-density RAM config.  So how does this look with VSPP?

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Yikes.  That’s a LOT of VMs, and the cost shows it.  Over three years, the cost of this environment is going to be almost twice as expensive, just in terms of licensing.  What about if we add in the extra benefits?

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Now that’s better.  With the add-ons accounted for, the VSPP plan is 35% more expensive than enterprise licenses.  In my mind, that’s pretty much where I’d expect it to be, especially when compared to the Microsoft SPLA program.  A premium of one-third of the retail cost of the licensing in order to get the benefit of the pay-as-you go model rings “fair” to me based on my experience.

Where are you on the continuum? Only you know.  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.

VSPP Calculator v0.1

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.

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!

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