Server virtualisation is supposed to save buckets of cash, largely from server reduction. After all, consolidating some 20 physical servers to three host servers means less hardware, power and cooling, and management overhead: right?

But wait! The maths is much trickier than that - and unless you're a large business, there's a good chance it'll cost you more than you save, at least from the outset. "Probably 50 percent of the small- and medium- business virtualisation implementations I see are not cheaper than simply replacing the physical servers already there," says Matt Prigge, a virtualisation consultant .

Let's do the maths. If you buy 20 spanking-new servers at $5,000 to grow your data centre or replace your current boxes the traditional way, that's a $100,000 outlay. Server virtualisation's cost equivalent: three powerful host servers with hardware memory chips from the likes of AMD or Intel at $16,000 each; a SAN at $40,000; and assorted costs in staff training, management software, virtualisation licences, and consultants. That'll all run about $100,000 as well. (Operating systems and apps aren't included, but their costs are the same for either approach.)

Shared storage investments and new Intel or AMD servers, along with redundant network connectivity upgrades, constitute the lion's share of the cost of virtualisation. Software licences from vendors such as EMC VMware, Microsoft, and Citrix - though several thousand dollars per host server - pale in comparison with these infrastructure costs, though you do have to factor in ongoing maintenance costs.

What all this means is that if you're building a 20-server datacentre from scratch, or adding to or replacing one, then the cost of going with physical servers or virtual ones is roughly equal. But given the many benefits of server virtualisation - notably business continuity gains - the virtualisation route is a wise choice.

If you're setting up more than 20 servers, the case for virtualisation gets easier. "Server virtualisation is an absolute no-brainer for organisations with 50 or more servers," says Chris Wolf, an analyst at the Burton Group. "In such environments, an 8- to 18-month ROI is easily achievable."

Conversely, virtualising most environments with fewer than 20 servers will cost you more than it's worth. A SAN is overkill for most small shops, in terms of sticker price and capability, says Prigge, who wrote a "virtual" virtualisation case study detailing everything from pricing and products to technical and skills requirements. You'll need another reason than strict cost to justify going the virtual route if you have fewer than 20 servers.

Server virtualisation costs in the real world
Of course, these figures assume that you are starting from scratch. But hardly anyone is starting from scratch nowadays. So what's the cost and ROI to virtualise an existing data centre?

If you have a 20-server data centre with a 2- to 3-year server refresh cycle and upgrade the existing physical servers with new physical servers, you're buying 8 physical servers every year at a total cost of $40,000. Virtualising all your servers instead costs $100,000, taking 2.5 years to recoup the initial virtualisation investment - the same as your refresh cycle. "Of course, organisations don't want to see an ROI that equals their hardware refresh cycle," Wolf says.