Spending Money To Make Money: An IT Strategy That Really Works?

By June 26, 2014Strategy

Tell me if you’ve heard this one before: “Look, if I spend more than $50 at this store, I get 20% off!” Or how about adding an extra item to Amazon’s shopping cart to qualify for free shipping? You have to wonder if these tactics are win/win, or if they are just getting us to think we are saving money while in reality, we are being tricked into spending more. I think the answer to that question just leads to more questions, such as, what are you buying, how often, etc.

But I admit that sometimes it really does make sense to spend more money to save in the long run—you just have to put some work into finding out how. I think there are certain strategies that work better than others. Consider the difference in cost between hardware and software.

Game Console Comparison

An Xbox or PlayStation might sell for $400 (the hardware), but what is the cost of all the games you might purchase over the lifetime of owning it (the software)? Assuming that the average number of games is probably between 5 and 10 games at roughly $60 per game, it wouldn’t take long before the software costs would exceed the hardware costs.

If your plan is to play and use as many games as possible, a good strategy would be to trade, buy used, or use a rental service. However, if you only planned to have a few favorite games, your goal would be to wait until the console and game packages became available with a one-time coupon or sale.

Having a strategy for enterprise hardware and software can also make sense in a similar fashion. Let’s use the example for software licensing for Microsoft and VMware, as opposed to the hardware (the server and Intel CPU) that runs that software. Which one is more expensive? What’s the TCO for each? And where do you get the most value for your enterprise?


Here’s a scenario for you: suppose you have blade servers in your environment that are approximately 2.5 years old, and your budget includes money to potentially refresh those servers at year 3. Like any good custodian of your company’s money, you want to get the best price with the best solution.

In some cases, the budget gets taken by other projects. So while you might benefit from newer servers, it might be tough to justify to the business how to spend the money on new hardware, when the current hardware is “just fine.” You also might have a Microsoft or VMware renewal coming, which typically are also every 3 years.

So what’s the best way to maximize your current budget and get the most value for you and the organization? Let’s run the numbers and see what happens.

The below table might illustrate your current scenario. Let’s assume you bought the original blades for $10,000 each using the Intel Xeon x5690 6-core CPU for a list price of $1,663 per socket and loaded them up with RAM. If you have even older 4-core CPUs in your blades, then you stand to gain even more benefit; but, let’s look at the 6-core CPUs for now, since they are still in service in a lot of places and will likely run for a long time without issues.

Scenario A

Scenario A Software Hardware (6-core) Total $ $-per-VM
Windows 2012 Std $882 $8k+ $1,663 CPU $10,545 $5,272 (2 VMs)
Windows 2012 DTC $4,809 $8k+ $1,663 CPU $14,472 $1,608 (9 VMs)
vSphere Enterprise Plus $3,495 $8k+ $1,663 CPU $17,967 $1,633 (11 VMs)

Microsoft will allow you to run Windows 2012 standard and virtualize up to 2 instances per OS. That’s not really a bad deal for around $440 per OS instance. The Intel CPU chip itself is $1,663 list, nearly 5x more expensive, and if the server was $8,000, the true cost to own each instance is around $5,300. Again, not bad, especially if you are running your critical business on those two servers from a value perspective (let’s leave high availability, backup, and DR out of this for now to keep it simple).

But most companies have a lot more servers than that. If you had, let’s say, 30 servers at $10k apiece, you are looking at $300,000 to run this environment.

So, in the case where you have hundreds of VMs, it may make sense to consolidate into denser workloads to save time, cooling, space, and last but not least … cost.

Using the same CPU model and running Windows Datacenter and VMware Enterprise Plus editions, the software cost is going to be significantly more expensive than a single processor. And while you are getting a lot more features using more advanced software, the added cost can be offset by increasing your density. Suppose that you can run up to 9 VMs using Hyper-V (11 on VMware taking advantage of SIOC, NIOC, SDRS, and other enterprise features) on each of those $10,000 blades. The cost per VM goes way down, from $5,300 to around $1,600.

This is really nothing new and is one big reason why virtualization has gotten traction over the years. Yes, $3,500 per CPU for virtualization is a big chunk of change, but I will gladly pay that over the old way of building servers for all the other benefits, including cost.

Now, let’s run the numbers by looking at what this would cost to buy all brand new servers and try to get even higher density. The new Intel E5-2697 v2 12-core CPUs are out in the marketplace, and they list for more money: $2,618 to be exact, as of May 2014. I could have used the 15-core CPUs, but those start at $6,400+, so I doubt the 3x cost increase for minimal performance improvement would be worth it.

Scenario B

Scenario B Software Hardware (6-core) Total $ $-per-VM
Windows 2012 Std $882 $8k+ $2,618 CPU $10,545 $6,191 (2 VMs)
Windows 2012 DTC $4,809 $8k+ $2,618 CPU $14,472 $857 (18 VMs)
vSphere Enterprise Plus $3,495 $8k+ $2,618 CPU $17,967 $860 (22 VMs)

Using this scenario, we can drop the cost per VM from around $1,600 to around $860, or around 47% cheaper. Wow, that’s a big difference, and if your server budget is $300,000, you can save $141,000 to free up on other projects. Granted, budgets don’t always work that way – sometime if you don’t use it, you lose it. If that’s the case, you can still use up the $300k, but buy more servers, add more RAM, install more IO cards, graphics cards, etc. for $140k.

But hold on a second. Is this really a fair comparison? What ever happened to the servers I already bought 2.5 years ago? Isn’t Scenario A one where the $10,000 servers and CPUs are already a sunk cost? Why wouldn’t I make the comparison that the hardware cost is zero in that case, compared to a new server? Well, if we did that, we’d have to include some other costs, such as hardware and software maintenance, and the results are surprising:

Scenario C

Legacy 6-core Server
Hardware & Software TCO
New 12-core Server
Hardware & Software TCO
Hardware $0 $10,618
Software (Windows & VMware) $8,304/CPU $8,304/CPU
50 VMs $49,824 (3 – double
CPU blades)
$24,912 (3 – single CPU blades)
200 VMs $149,472 (9 – double CPU blades) $66,432 (4 – double CPU blades)
600 VMs $448,416 (27 – double CPU blades) $199,296 (12 – double CPU blades)
1200 VMs $913,440 (55 – double CPU blades) $381,984 (23 – double CPU blades)
HW Maintenance 3/yr $6,000/BC + $900/server $6,000/BC + $900/server
SW Maintenance 3/yr 20%/yr of cost ($8304*0.2*CPU*3) 20%/yr of cost ($8304*0.2*CPU*3)
50 VMs w/ maintenance only $8,700 HW + $24,912 SW $8,700 HW + $14,946 SW
200 VMs w/ maintenance only $11,400 HW + $94,665 SW $9,600 HW + $39,859 SW
600 VMs w/ maintenance only $28,200 HW + $274,032 SW $16,800 HW + $119,577 SW
1200 VMs w/ maintenance only $73,500 HW + $543,081 SW $32,700 HW + $229,190 SW
50 VMs TCO $83,846 $48,558
200 VMs TCO $255,537 $115,891
600 VMs TCO $751,528 $335,673
1200 VMs TCO $1,530,021 $643,874

Wow! Those are considerable savings if you include maintenance and software costs.

I calculated these costs by assuming that blades require hardware and software support on the chassis and the blades themselves. I also added in the Microsoft and VMware maintenance costs, which I’ve estimated to be roughly 20% per year.

Finally, the performance difference between the 6-core CPUs and the 12-core CPU is more than 2x (it’s not just double the core count). There’s probably anywhere from 10%-60% increase in performance given all the other improvements. So, instead of 11VMs per socket and just doubling it due to core count, I assumed a conservative additional 20% increase in density for these new CPUs for a total of 26 VMs per CPU socket. Note, the 50-VM example will have 3 nodes for redundancy, but only 2 nodes would have worked for capacity purposes.

Based on Scenario C, while it may seem surprising that tossing your old servers, buying new ones, and saving money is possible, the numbers work out.

Of course, there is a big time effort to do this as well; however, even if you paid someone to do this, you’d still likely save money.

To think of this of this another way: 80% of the cost of running your “free” (or already paid-for servers) is the hardware/software maintenance and licensing to go along with them. So in the case where you are looking at software licensing, where you have the option to go out and add capacity to your VMware farm or pay up software licenses, it almost always makes sense to buy new hardware along with the software.

Here’s another scenario: Let’s say that instead of the 6-core CPUs, you have the 2-yr-old 8-core CPUs and were curious to know when it would be a good time to refresh. If you do the math, you find that you would only have to pay about 20% more cost to recycle these perfectly good servers for new ones. This is one reason why a lot of companies look for a 3-year refresh cycle for IT, even though servers can and do run a lot longer than that.

One final scenario: consider the case where you have a standard server, but a new more powerful CPU is released, and you need to add capacity to your existing farm due to business growth. As much as it makes great sense to standardize on one platform and keep buying the older model, consider the cost implications of doing so.

I’d argue that it might be more important to standardize on the hypervisor or management suite rather than the server itself.

Consider just going to a different CPU model and leave everything else the same in the server. The cost savings of adding 16-core CPUs when they become available when you already have 12-core CPUs can actually be difficult to deny. VMware’s Enhanced VMotion Compatibility feature (EVC), for example, allows you to run multiple processor architectures and not lose any features or performance when mixing and matching CPUs from the same manufacturer.

Granted, there are scenarios when this strategy doesn’t make sense. If you are running low-cost software, or you choose not to renew maintenance on software, or you have a hardware model that allow you not to have support on it, then going scale-out in a wide fashion might make sense. Then again, we didn’t even talk about the power and cooling costs associated with larger numbers of servers.


The shift in thinking about recycling more often is not about disposing of perfectly good hardware. It’s about looking at the total cost of ownership, the software and maintenance costs especially, and building a strategy around where you want to spend your money.

In today’s world of rapidly evolving hardware and software, the hardware is still plenty cheaper than most software. As long as that’s the case, I prefer to have the best hardware available and look to keep my software costs under control.

This strategy is just the tip of the iceberg. When it comes to really expensive software, such as SQL or Oracle, the software can be 10x the cost of the hardware. Look for SQL consolidation projects to get your overall costs down while at the same time, acquire new hardware. And remember, the proof of the pudding is in the eating, as they say, so always “do the math” to make sure the dollars add up.

Photo credit: Craig Piersma via Flickr