Channel At The Center Of Virtualization Wave

Solution providers are turning server virtualization, one of the fastest-growing segments of the IT market, into their very own gravy train.

According to two recent exclusive CMP Channel surveys, solution providers said server virtualization is becoming a larger part of their business and it's also quickly becoming the catalyst for a wide range of other service offerings, including disaster recovery and data center consolidation.

"Server consolidation and IT optimization [are] hot," said Stan Staszak, director of System i and System x for Sirius Computer Solutions Inc., a San Antonio-based IBM solution provider. "Solution providers who aren't doing virtualization are missing the boat."

The 2008 CMP Channel State of the Market Study found that nearly one in five solution providers surveyed are already currently selling or recommending virtualization products of some sort, including server and/or storage virtualization. And, according to the CMP Channel's first study on virtualization, VARs that sell server virtualization products—such as technology from VMware Inc., Palo Alto, Calif.; SWsoft, Herndon, Va.; and Citrix Systems Inc., Fort Lauderdale, Fla.—are seeing that technology already account for an average of 20 percent of their revenue.

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These results coincide with other industry research showing virtualization's galloping growth that will continue for the next few years. IDC, for instance, estimates that the number of virtual servers deployed will rise 41 percent annually through 2010, resulting in 7.9 million virtual servers implemented on 1.7 million new physical servers.

About half of enterprise IT shops are now using x86 server virtualization, and that figure should rise to about 65 percent by 2009, according to Forrester Research. About 45 percent of servers used by businesses that have adopted server virtualization are expected to be virtualized by 2009, compared with 24 percent today, Forrester said.

Our exclusive research reveals just how attractive these numbers are to solution providers, which are jumping on the virtualization bandwagon in growing numbers. According to CMP Channel's Virtualization Study, of those solution providers now active in the server virtualization market, 52 percent have been there for less than 12 months. What's more, more than 51 percent of server virtualization sales are going to a prime channel customer segment—midmarket companies with from 100 to 999 employees, the survey found. For virtualization leader VMware, VARs are absolutely critical to its go-to-market strategy because there is still a lack of customer awareness about the technology, said Carl Eschenbach, executive vice president of worldwide field operations. "Although customers might have knowledge of it, their experience and their education around virtualization is still limited, and that's why VARs provide tremendous value to the customers," Eschenbach said.

And that's good news for solution providers, said Diane Greene, VMware president and CEO. "It's a big upsale opportunity for VARs that these people don't have the awareness, so they can just go in with this awesome, better way to run their systems," said Greene who sat down with CRN for an interview and to review the results of our virtualization study.

Pat Edwards, vice president of sales at Alliance Technology Group, a Hanover, Md.-based solution provider, said that strong sales in the midrange has been his experience because these are the companies that right now don't have the in-house technical people required but, over time, will become enterprises.

Solution providers are also finding that customers depend strongly on them to bring server virtualization technology to their data centers. According to the survey, 48 percent of server virtualization sales stem from the customer looking for a server solution that the solution provider then turns into a virtualized opportunity, while 41 percent of sales come when solution providers proactively bring server virtualization technology to customers' attention. Another 11 percent of sales result from customers asking about the technology.

Next: The Intangible Factor

The Intangible Factor
Server virtualization is definitely a solution sell, Sirius Computer Solutions' Staszak said. While some of the benefits of the technology—such as reduced power, cooling, floor space, maintenance requirements and better control of data backups—are tangible to customers, there is so much more that can be done. "If customers are not exposed to server virtualization, it's up to the VAR to bring it to their attention," he added.

Customers are not only thinking about server virtualization, they are bombarded by it, said Chris Taylor, director of professional services and solution sales at Evolving Solutions Inc., a Hamel, Minn.-based IBM-focused solution provider. "They'd have to be living in a shell to not see it," he said. "But you [still] need to sell it to get them to make the leap. Virtualization is really an intangible. You can't touch it or feel it."

For small businesses, solution providers are absolutely essential to reaping the benefits of server virtualization, said Arlin Sorensen, CEO and partner at Heartland Technology Solutions, a Harlan, Iowa-based Hewlett-Packard solution provider who has worked with the free Microsoft Virtual Server software and is just starting to look at that vendor's new Hyper-V software.

Heartland Technology Solutions' server virtualization business is 95 percent driven by its interaction with its customer base. "Customers have heard of virtualization, but didn't know how it might impact them," Sorensen said. "The beauty of the Microsoft [Virtual Server] solution is it's basically free. It's hard not to get excited about something you don't pay for that can make a difference."

For the most part, customers already know about server virtualization, so the element of evangelization is gone, Edwards said. Instead, the value of the channel today is how to help customers implement it correctly. "Our mantra is, 'Customer first,'" he said. "We go out and talk to customers, understand their pain point. But we have a lot of customers who say, 'I've heard about VMware, I have a budget to meet, I've heard I can cut half my servers.' But do we say, 'Oh, you need $250,000 worth of servers, but I can cut that in half if you add $50,000 in server virtualization?' That's a big depends-on."

Nearly 63 percent of solution providers selling virtualization solutions work with server-hosted virtualization, which is not as robust as hypervisor-based solutions but are offered by vendors for free in order to give customers an opportunity to test the technology. About 55 percent already offer virtual desktop solutions, while nearly half offer hypervisor-based solutions.

Currently, about 58 percent of solution providers find that hardware margins change little as a result of customers' adoption of server virtualization technology. However, more than 27 percent find their hardware margins actually rise with the adoption of server virtualization. Solution providers said they often need to bring in higher-priced, higher-margin servers to act as a server virtualization platform to get the performance needed to replace multiple lower-cost servers, according to the Channel Virtualization Study.

Staszak said implementing server virtualization, rather than requiring all new server hardware, can actually be done using existing servers. "So it's not a complete rip-and-replace," he said.

Knowledge Is Power
For now, lack of experience in server virtualization is the main challenge for solution providers entering the market, followed by such closely related challenges as lack of expertise, and the time and expense involved in training and certification. As vendors improve their training and certification process, however, that should get better.

Going forward, nearly half of solution providers expect disaster recovery to be the most important server virtualization market driver, with 35 percent expecting lower costs and higher economies of scale to be the key driver, followed by 33 percent expecting increased flexibility in server resource allocation as the top driver.