Control the cloud

Antivirus bake-off

Which new security suite best protects your PC?

View photos

(Fortune Small Business) -- For years the online-software company HotSchedules had its head in the clouds.

The Austin company had invested in cloud computing -- that is, it paid a monthly fee to lease computer storage space and computing power on an as-needed basis from a third-party provider, not unlike the way a homeowner rents electricity from a local utility. But conflicts arose because HotSchedules employees were not allowed to set foot inside the off-site facility.

"Our clients like having their private data housed and maintained by us," says Matt Woodings, HotSchedules' chief technology officer. Poor customer service was the last straw. HotSchedules turned to virtualization.

Virtualization uses software to divide one physical server into multiple "virtual" servers. Each virtual server runs as an independent machine with its own operating system and applications.

Of course, you still need to run one physical server, which typically costs more than cloud solutions. The downsides of cloud computing include security risks and potential outages (see "Supercomputers for Hire").

Piggybacking on cloud computing's cachet, some marketers are describing virtualized servers as "internal clouds" or "private clouds." But don't be fooled: There's nothing cloudy about making your servers do double, triple or quadruple duty.

Save Money: Virtualization has helped HotSchedules manage the expenses of its exponential growth.

Since deploying Microsoft's (MSFT, Fortune 500) Hyper-V virtualization technology in 2008, the company has slashed hardware expenditures and stabilized electricity costs while delivering maximum uptime to 480,000 users. At the same time, its revenue has grown 80%. (The company can't say how much of that growth is attributable to virtualization alone.) Rather than invest $60,000 in brand-new servers, HotSchedules consolidated its existing 42 physical servers down to six.

"Once we virtualized, we were able to stabilize our monthly expenses," says CEO Ray Pawlikowski. (The company pays an average of $12,000 a month in energy bills, and Pawlikowski estimates that the sum would have doubled if HotSchedules had added hardware to its data center.)

Safety First: Virtualized servers also tend to be more stable.

Just ask Robert Gawne, technology operations manager at Gradient Analytics in Scottsdale, Ariz. In 2006 one of the research firm's in-house servers crashed, rendering the company's data inaccessible for two full days.

"It took us almost two weeks to get back to production-ready status," recalls Gawne. "There were a lot of sleepless nights, and we got a little egg on our face."

After ruling out cloud computing because of security risks, the company could have stocked up on servers to store its mix of predictive data models, stock performance systems and analytical tools. But that would have cost nearly $255,000 in installation, support and hardware expenses. And Gawne estimates that moving production off-site to a data center would have cost his company nearly $140,000 in new servers, plus $4,700 a month in facility rental fees.

Today, Gradient relies on VMware's virtual Infrastructure 3 to safeguard against hardware and operating system failures within its web of virtualized servers. The tool is designed to instantly detect system failures and automatically transfer data from one virtual machine to another in the event of a technical snafu.

With virtualization, Gawne says, Gradient realized a 70% cost savings over moving its production off-site.

Virtualization can save you a lot of money, but it's also complex stuff. Analysts caution that you must make sure your IT department can handle the switch first.

"You do need to have some in-house expertise for virtualization," says Ray Wang, a partner with the Altimeter Group strategy consulting firm. "But in the end you're using much less storage, less capacity and fewer processors."