1. The rate of virtualization (number of servers and / or number of instances per server) has hit a plateau.
2. The total number of virtual instances will be greater than physical servers in 2011.
3. Because of virtualization, the number of new servers shipped is declining.

 Well, almost – it’s actually two Myths and a Truth …

1. Myth. Virtualization continues to grow in terms of servers virtualized and instances per server. Leading analysts suggest 21% of new servers are virtualized with 6 instances per server.
2. Truth. The cross over will happen (based on current projections) this year.
3. Myth. The number of new servers in the market continues to grow.

Let’s dive in to #3…

At last week’s Hosting Summit, Bob Kelly, Corporate Vice President, Server & Tools (and my boss) talked about the server market and the transition we’re seeing customers and partners make to cloud computing.  One of the specific areas he covered was what appears to be insatiable demand for computing as evidenced by year over year increases in customer acquisition of servers. While some might guess that faster, more capable hardware means that overall, fewer servers are going to be needed by customers.  But despite that intuition, almost anyone on the server-side of technology will tell you that even with predictable increases in capacity, demand for new servers continues to grow. 

The simple reality is that computational demand is growing faster than increases in server capacity. Thus, more servers… In fact, leading analysts project over 9 million new servers will ship in 2014 reflecting this steady year over year increase. 

Physical and Virtual Instance Proliferation

As mentioned in the “Truth” above, research indicates that this year the total number of virtual instances will be larger than the number of physical servers.  This is an amazing number for lots of reasons not the least of which is that is effectively doubles the number of instances. What’s even more interesting is that forward projections suggest we will see a 3X increase in instance density (# of VMs per physical server) and a 10X increase in effective computational power (through increases in clock-speed / core density / utilization).  And yet, we still anticipate that over the next 3 years the number of servers will increase significantly.

Simultaneous Proliferation and Consolidation

Since the dawn of distributed computing, the balance between server proliferation and consolidation has been hard fought. The growth of virtualization has re-fueled speculation that organizations are freshly empowered to reduce servers. While virtualization gains are different than gains derived from hardware improvements, hardware consumption tells us that virtualization will not cover demand. The biggest factor is and remains the rate of application (and therefore IT) growth. 

Which Means…

Virtualization will continue to help IT reduce time to solution though improvements in elasticity, scale, management, monitoring, etc.  What’s not likely to be on the list in a meaningful way is net server reduction.  In the end, it allows us to do more with existing assets which reduces application backlog and allows us to add additional functionality.  The strongest correlate to server consolidation is lack of application growth which is correlated more strongly to business health (in the long term) rather than IT discipline. So virtualize early and often, and order more hardware.  If you are growing, you’ll need it.

The rest of the story…

The three most important assets in a software company are people, intellectual property and price integrity.  The third one might stand out as an odd item on the list but it is far more critical than most people would think.  Far too many software companies take what I call a “cash-ectomy” approach to selling. Loosely defined, a “cash-ectomy” is the removal of as much cash as possible from a customer regardless of the volume of the sale.  That approach rarely works for very long as customers compare notes and quickly realize that the price they paid was far more correlated to their budget than it was to their volume. 

Microsoft takes a different approach. Our prices reflect what we charge.  We don’t uplift by 50% so those brave enough to ask feel like they are getting a “deal”.   Going a step further, we attempt to normalize the Microsoft server product portfolio prices between channels to help reduce conflict and drive consistency. On January 1^st, 2011, changes in SPLA pricing will take effect which to better align SPLA prices with subscription prices.  For the most part, SPLA prices drop 21%.  The one exception is Windows Server 2008 R2 Datacenter which has unlimited virtualization rights.  That product increases by 30% over the current price, this only applies to the SPLA program, not other volume licensing agreements.

Why is the price of Windows Server 2008 DataCenter (WS DC) for SPLA providers going up?  Truth be told, it’s going down.  That’s not PR spin or some hocus-pocus math factoring Moore’s Law.  The current price for SPLA on WS DC is a limited promotional price.  The original announced price was almost double.  MSFT deferred the implementation of the full price in 2009 and again in 2010.  As we have moved closer to January 1, 2011, feedback on the implementation of the full price was as consistent as it was intense.  That feedback compelled us to look at the non-promotional WS DC price again. 

After a lot of math, a lot of feedback, and more math, we made a decision to lower the January 1st price on DC. Specifically, instead of retiring the promotional price and doubling the price, we have landed on a much more modest increase of 30% which we think will be welcome news to our service provider partners when considering the original plan.

Here are some plain-English answers to some likely questions…

Q1 – “The new DC price point makes sense for newer hardware where I can achieve greater VM density.  What about my older hardware?”

The decrease in Windows Server EE should be a welcome surprise for older hardware.  For hardware that only practically supports 4 or less instances, EE may be a more economical option.

Q2 – “Why raise the DC price at all?”

As mentioned above, the current price is a promotional price (note that the price of DC in the current model is less than EE).  The January 1st change is 34% less than what was planned.  More importantly, since the DC sku was launched, server capacity in terms of cores has doubled, significantly increasing the performance value.

Q3 – “Is the new price a promotional price?”

No.  

Q4 – “What will this translate to in terms of the price I pay my Service Provider?”

 Since the introduction of this sku, cores per proc have doubled spreading the cost over twice the capacity.  That said, each service provider sets their own price based on their goals for revenue and share.

Today we announced a new role for Windows Azure – the VM Role.  This functionality does the obvious thing – runs Windows Server 2008 R2 on Windows Azure.  Key to this feature is the user’s ability to construct a Windows Server 2008 R2 VHD on premises, then upload and run it. This is a scenario that we hear a lot about in terms of licensing, so we are taking this opportunity to clarify how this works.

Thing you care about #1. Customers with Windows Server licenses obtained through VL may use their media for Windows Server 2008 R2 to create images which can be run in either dedicated or shared hosting environments including the Azure VM Role. .

What does that mean in plain English?  Most Service Providers provide their customers with canned images that have one or more products pre-installed.  They do this for license compliance reasons, security and simplicity for the user.  This approach is preferred for many customers for a variety of reasons. Some developers tell us that they want the ability to create images locally rather than configure them while the meter is running or use an existing image rather than configure an image from a Service Provider.  Service Providers who want to be in the business of running customer-provided instances have a simple mechanism for doing so.

Three things that might not be clear on the point above and are probably worth clarifying:

·         The point above is about the software, not the license.  This is not license mobility.  You aren’t moving a Windows Server license from on premise into the cloud; you are just using your Windows Server media to create images which will run outside of your organization.

·         The license for Windows Server in this scenario still comes from the service provider.  The service provider (via SPLA) provides the customer a Windows Server license.  Using your own bits doesn’t change the need for a Windows Server license.

·         Any other MSFT software that runs on top of the image needs to be licensed through the service provider.  Take SQL Server for example, running SQL Server on that image requires a license through the Service Provider.

Thing you care about #2.  As a pilot, MSDN customers can use products under their active MSDN subscription in a Dev / Test capacity in the Windows Azure VM Role.

Many of our Windows Azure customers came to us by way of the MSDN trial.  We know that many developers want to use Azure to spin up cloud instances to test scenarios, reproduce bugs and check out new features. This pilot gives you a way to use SQL Server and other MSFT software in the VM Role for development & test scenarios and will run until May of 2011.  Of course, MSDN does not give you rights to run the software / applications in a production environment, and this pilot is no different. We’ll collect feedback and see how useful this offer is.  Towards the end of the pilot we’ll announce next steps and how we might modify or extend this.

Thing you care about #3. No changes on License mobility…for now.

While I’d prefer to leave foreshadowing to meteorologists, I will say that when it comes to the desire for expanded license mobility, we hear you loud and clear.  It’s a very complex issue for our customers, resellers, hosting partners and outsourcing partners.  We’re working on some ideas and would welcome your thoughts. In as much as customers use hardware from a variety of sources, we know that customers will likely use cloud services from multiple providers and we will bank on that as we work through the details.

Why do I bring this up again? Well, we’re not done putting our platform to the test! Recently, we discovered that IBM quietly published their own benchmarking results to attempt to invalidate our original results. This provides us with yet another opportunity to make some comparisons, and bring them out to our collective customers in a public forum. The outcome - we stand by our previously published results and my earlier invitation stands to have IBM to meet us in an independent lab to perform additional testing of the .NET StockTrader and WSTest benchmark workloads and pricing analysis of the middle tier application servers tested in our benchmark report.

I guess the only thing I’m left wondering about is who will love Windows next?

As we look at our latest research numbers, we see that 73% of professional developers rely on .NET or a combination of .NET and Java.  In that sense, both Java and .NET have won in the enterprise and it is incumbent on both Microsoft and Sun to ensure that interoperability for the platforms is real, available and as easy to implement as possible.  It’s a responsibility that we both share and customers tell us loud and clear that they expect innovation to accompany interoperability.  I’m proud to say that this is something we take seriously and are executing against.

Along these lines, some of you may recall that last November we announced our participation – and the contribution of our StockTrader 2.0 code – to the Apache “Stonehenge” project. Stonehenge was formed to deliver a set of sample applications that demonstrate interoperability across multiple underlying platform technologies by using currently defined W3C and OASIS standard protocols. This is helpful for a number of reasons. While industry efforts like WS-* define approaches to enable interoperability, products may still need to be configured by customers before the benefits of interoperability can be realized. In fact, we’ve had a number of customers tell us they need better examples and more guidance on how to realize the built-in interoperability of applications across multiple vendor platforms.  Stonehenge addresses this by providing customers with best practice guidelines and actual code that illustrates precisely how to achieve this in real world scenarios. To put it a little more poetically, Stonehenge will help us complete the “last mile” of interoperability between today’s standards-based infrastructure and tomorrow’s service-based applications.

So what exactly does this have to do with Microsoft – and specifically me and Dan’l Lewin – keynoting at JavaOne? A great deal actually, since during our keynote, Sun Vice President Aisling MacRunnels, Dan’l and I will announce that Sun has also now agreed to participate in the Stonehenge project and will be contributing the Metro-based StockTrader application code. This is important for two reasons. First, it means that Stonehenge will deliver even more value by providing best practice guidelines and reference implementations across an even broader range of scenarios and platforms, including Java, .NET, PHP, etc. The more samples and real world guidance we can give the community the better since it gives customers the ability to choose the best ones for their specific business requirements. It also makes it easier to pinpoint potential interoperability problems.

In addition, it represents another step forward in our ongoing work with Sun. As we all know, today’s IT environments are heterogeneous; whether it’s a single organization that runs both.NET and Java apps or multiple organizations that seek to collaborate with each other. To that end, we’ve been working closely with Sun on a number of interoperability initiatives over the past five years to help customers leverage their existing investments in Sun and Microsoft technologies. Some of the best examples include our work on Web Single Sign On, the Interop Vendor Alliance, our collaboration on virtualization and, of course, our recent agreement to use the SAML federation standard in both the Sun OpenSSO Enterprise federation solution and the forthcoming Microsoft “Geneva” Server federation solution.

Looking ahead, our work with Sun (or perhaps I should say Oracle?) becomes even more important in the context of cloud computing. Success in the cloud for most enterprises will hinge on the ability to utilize a broad and diverse set of computational resources, some of which may be implemented very differently from others.  Interoperability protocols are the key to this. Thus, it’s important for us to continue to work together to ensure platform interoperability through these protocols, especially as it relates to Web service interoperability standards.  The work that we are announcing today with Sun around Stonehenge is a great step in the right direction since it helps demonstrate seamless interoperability across application platforms – whether those applications are implemented on premises and in the cloud – and whether those applications are implemented on J2, on .NET or on something else. 

With that in mind, I’d encourage everyone to take a look at the Stonehenge project and download the StockTrader sample app on one of the many supported platforms such as .NET, Java, PHP, WSAS, Sun Metro, etc.  If you are interested, you can also read more about what Microsoft is doing around interoperability in general or watch Dan’l’s and my full JavaOne keynote. The keynote focuses specifically on the work we are doing with Sun to deliver interoperable application platforms that span on-premises and cloud computing, and help our customers leverage their Java and .NET investments.

The question I most frequently receive is, “Why is the Azure Dev Challenge open to US residents only?”

I am pleased to announce that starting today the Azure Developer Challenge is open to developers outside of the US.  Without starting to sound like a lawyer, there were legal and regulatory considerations that took us a little bit longer to resolve for international.  We now have those worked out and can’t wait to see your applications.    See my previous post for more info on getting registered.

Seperately, we received questions about interopoerability and the use of existing code.  Specifically... “Can we use jQuery?” the answer is yes.

Experiment, have fun, and send us feedback about your experiences during the process of submitting an entry for the competition.

Remember, the deadline to submit contest app entries is June 18 for US developers.   Developers outside the US have until July 9^th to submit their application.   So hurry up and go to www.newcloudapp.com to get started today! To follow the contest chatter on Twitter, search for “#newCloudApp”.

Bill Veghte announced the availability of the Windows Server 2008 R2 release candidate, which includes some great new features for improved web experiences, scalability, hardware utilization and virtualization. We also continued to talk about the recent WebSphere Loves Windows campaign emphasizing significant cost savings, better efficiency and improved performance when customers run Websphere on Windows Server or take advantage of the .NET Framework for application development. Last, we demonstrated ways in which our customers could unlock the hidden potential in their existing technologies today by leveraging current versions of Windows Server, System Center, SQL Server, BizTalk Server and Visual Studio together.

So where do we go from here? Well, whether you’re a developer, an IT Pro or a decision maker within your organization you should be thinking about a few key things. Darryl Taft put it perfectly in this article when he called out the fact that IT can be a competitive differentiator in today’s economy. This doesn’t necessarily mean you need new features or technology. Think about harnessing the power that lives within your infrastructure today by taking advantage of tools that make it easier to spin up a new web presence, like the Web Platform Installer (WebPI) . Second, keep your skills fresh by leveraging resources like the Ramp Up program at MSDN.  And last but not least, speak up! Engage in community dialogue and as always, tell us what you think!