Server Virtualization Market Forecast and Analysis,

Transcription

1 Global Headquarters: 5 Speen Street Framingham, MA USA P F SPECIAL STUDY Server Virtualization Market Forecast and Analysis, Michelle Bailey Al Gillen IDC OPINION Matthew Eastwood Dhaval Gupta Server virtualization has reached mainstream status in New technologies have come to market that allow IT managers to partition a single physical server into one or more logical servers, and it has been widely accepted among IT organizations. IDC has been closely following the server virtualization market over the last 12 months and has noted the rapid evolution of adoption among a broad spectrum of companies and industries. During May-September 2006, IDC interviewed more than 400 IT managers and directors about their current and future virtualization activities. Customers continue to be very positive with their virtualization experiences and are seeking new ways to drive virtualization into new usage models. Based on broad customer acceptance and a bullish outlook on the future role of virtualization in the datacenter, IDC estimates that by 2010 more than $20 billion will be spent on server hardware that is partitioned using virtual machine technology. This translates into almost one-third of all spend for server hardware and approximately 15% of all server shipments, or million units. In reality, these million units become 7.9 million logical servers, uplifting the overall server market in 2010 by 50% Given the high penetration of server virtualization expected in 2010, IDC predicts that this will change not only the number of physical servers shipped worldwide, but will also change the management practices within IT environments forever. IT managers will no longer be concerned with physical assets, but will instead be challenged to manage a highly changeable (and invisible) compute environment that will require sophisticated management and automation tools to drive optimal operational efficiencies. By 2010, IDC expects that IT staff skill sets will shift from break/fix to more business analyst roles, concerned with business impacts and flexibility. Filing Information: September 2005, IDC #, Volume: 1 Enterprise Server Fundamentals: Special Study

2 TABLE OF CONTENTS In This Study 1 Methodology... 1 Server Market Forecast... 1 Server and Storage Workloads Market Model... 2 Server Virtualization Survey Data... 2 Scope... 2 Server Virtualization Market Model... 3 Primary/Host OS... 3 Guest OS... 3 Workload... 3 Server Class... 4 CPU Type... 4 CPU Capacity... 4 Definitions... 4 Virtualization Definitions... 4 Server Definitions... 5 Situation Overview 7 Introduction... 7 Virtualization as a Solution for the Management Crisis?... 7 Summary of End User Research... 9 Future Outlook 11 Server Virtualization Forecast Growth in Logical Servers Forecast Dynamics Drivers Inhibitors Forecast by Operating System Forecast by Workload Forecast by Server Class Forecast by CPU Type Forecast by Socket Capability Impacts for Software Vendors Virtual Machines and Operating System Software Learn More 41 Related Research P # 2005 IDC

3 LIST OF TABLES 1 Worldwide Server Virtualization Shipments, Customer Revenue and ASV, Worldwide Server Virtualization Shipments and Customer Revenue by Host/Primary Operating System, Worldwide Server Virtualization Shipments and Customer Revenue by Workload, Worldwide Server Virtualization Shipments and Customer Revenue by Server Class, Worldwide Server Virtualization Shipments and Customer Revenue by CPU Type, Worldwide Server Virtualization Shipments and Customer Revenue by Socket Capability, P 2005 IDC #

4 LIST OF FIGURES 1 The Virtualization Effect Worldwide Physical and Logical Server Shipments by Year Worldwide Server Virtualization Customer Revenue by Year Worldwide Penetration of Virtualized Server Shipments by Year and Operating System Worldwide Server Virtualization Physical Shipments by Year and Operating System Worldwide Server Virtualization Customer Revenue by Year and Operating System Worldwide Server Virtualization Primary/Host Operating System by Guest Operating System, % Customer Revenue, Worldwide Server Virtualization Customer Revenue by Year and Workload Worldwide Server Virtualization Customer Revenue by Year and Server Class Worldwide Server Virtualization Customer Revenue by Year and CPU Type Worldwide Server Virtualization Customer Revenue by Year and Socket Capability P # 2005 IDC

5 IN THIS STUDY This study is a detailed examination of the adoption among customers of servers configured with partitions or virtual machine software that enables those systems to support multiple operating systems. This report, Server Virtualization Market Forecast and Analysis, is the marriage of IDC's latest server market forecast, Worldwide Server Forecast, , Server Workloads Forecast, and more than 400 interviews with senior IS managers in the United States. This report should by used by server suppliers to assess the market opportunity of server virtualization sales across a number of important market segments. This data is also a valuable tool for better understanding how server applications impact server hardware choice, particularly as it relates to virtualization. This document is an important first step in understanding how improvements in server virtualization technologies will impact the overall server market and should be used as a benchmark for measuring changes in adoption over time. Methodology For this report, four key tools are used to create IDC s Server Virtualization 2006 Market Model. These tools and their associated methodologies are outlined below. Server Market Forecast IDC created a server market-forecasting tool that provides a framework for establishing regional and global top-line customer spending information on servers. IDC's top-line server forecast is based on our knowledge of customer IT hardware budgets, technology trends, regional economic and market conditions, and server market dynamics. This forecasting tool includes: Top-line spending by OS Price bands Upgrade and initial server shipment (ISS) percentage splits Weighted average ISS average system values (ASV's) within each OS and price band Upgrade discount structures This forecast and analysis establishes ISS, upgrade, and total unit shipment rates for each OS and price band. Then, several segmentations further refine our shipment data, including CPU type (e.g., x86, EPIC, RISC, and CISC) percentage splits, CPU architecture (e.g., UP, SMP, and MPP) percentage splits, and channel (direct versus indirect) percentage splits. The forecasting tool is ultimately linked to our Quarterly Server Tracker SMART Database. Data for the base years of the forecast is taken from the SMART database, providing a sound benchmark on which to build our forecast data. The most recent 2005 IDC # 1

6 server market forecast is the Worldwide and U.S. Server Forecast (Doc # ). Server and Storage Workloads Market Model IDC s Server and Storage Market Models offer a comprehensive picture of server and storage usage by workload operating system and price band. This tool is based on more than 700 primary research interviews in the United States and IDC s supply-side forecasts for servers and storage systems. The underlying premise of the model is that server and storage usage is best understood by workload from an operating system and price band point of view. This tool is used as a metric to measure overall consolidation usage and growth rates from a system s perspective. IDC links these consolidated workloads to overall server and storage workload growth rates. Server Virtualization Survey Data As part of its study Server Virtualization 2006 IDC conducted 405 detailed telephone surveys, with U.S.-based IT directors currently implementing server virtualization within their organization. Respondents were qualified based on the following: Must be involved in recommending, purchasing or approving servers and/or server operating systems Must work for an organization that currently has virtual servers installed Must be personally involved in implementing virtual servers or be familiar with the details of their virtual servers Must work for a company with 500 or more worldwide employees This survey data is used to anchor our server virtualization forecasts in the 2005 time frame, and it is essential for the following measurements: server configurations and prices; average number of servers installed; the percentage of servers that are virtualized; and the relative penetration of applications, server operating systems, across server price bands, CPU types and socket capabilities. All statistical analysis of this survey data (including detailed cross-tabulations) is provided as a part of this study. This analysis can be found in the End-User Summary Report and the Annotated Questionnaire. Scope Server Virtualization Market Forecast and Analysis, is IDC s latest forecast of the worldwide (WW) server virtualization market opportunity. Based on IDC s Server Virtualization Market Model, this forecast is provided in several dimensions, measured in shipments, customer revenue, and average system values (ASV's). The forecast contains the following components: 2 # 2005 IDC

7 Server Virtualization Market Model Primary/Host OS Windows NetWare Linux Unix OS/400 OS/390 Other Guest OS Windows NetWare Linux Unix OS/400 OS/390 Other Workload Business Processing Decision Support Collaborative Application Development IT Infrastructure Web Infrastructure Technical Other 2005 IDC # 3

8 Server Class Volume $0 24,999 Midrange Enterprise $25, ,999 High End Enterprise $500,000+ CPU Type x86 EPIC RISC CISC CPU Capacity 1-way 2-way 4-way 8-way 16-way+ Definitions Virtualization Definitions Server Virtualization: Server Virtualization: Where a single, large server is subdivided into two or more physical or logical servers. This subdivision is accomplished by using either partitioning technology or virtual machine technology. Partitioning technology typically consists of a combination of hardware and firmware, sometimes with some level of control software; which creates multiple physical or logical hardware configurations. Each of these partitions is provisioned with a dedicated operating system and layered infrastructure and application software, and this configuration appears to the software environment to be a dedicated hardware resource. Virtual machine technology is a software-based resource that provides either an emulation of the underlying hardware environment, or provides a carefully managed, shared access to the underlying hardware environment, so that each of two or more operating systems installed each believes it has dedicated access to the underlying hardware resources. With either partitioning or virtual machine software, at a high level the outcome is the same: that a single hardware platform 4 # 2005 IDC

9 appears to be multiple servers, capable of running multiple operating system instances and applications in isolation on dedicated hardware resources. Throughout this document, references to "server virtualization" only refer to the above definition, as described to survey respondents. This definition is purposely designed to cover server partitioning and virtual machine usage, and does not include other types of related software, which IDC collectively defines as virtual processing software (consisting of clustering software, grids, load balancing software and availability software). In addition, IDC tracks other types of "virtualization" software that is likely to be used aboard servers, including Virtual Access Software (virtual user interface software), virtual application environment software (parallel database software, application server software), and virtual storage software (storage replication and file system software). IDC conducts broad research into the topic of virtualization software, with granular segmentation to the markets noted above. For an overview of IDC's software virtualization research, see Worldwide Virtual Machine Software Forecast, IDC # , September Physical Server Units: IDC's traditional view of a single physical footprint or server 'node'. Logical Server Units: Includes all servers both physical and virtual servers that are created using partitioning technologies. Host/Primary OS: Operating System that is either the Host OS or Primary OS (or dominant OS in the case of VMware) for the server footprint. Guest OS: Operating System that is installed in the partitions of a virtualized server Server Definitions Server: Servers are computers that provide services over a network to multiple, simultaneous users. These users communicate with the server through both intelligent (PCs) and non-intelligent (terminals) client systems, and some may access the services through an intelligent workstation system. Servers fell along a spectrum of capability, ranging from very simplistic, uniprocessor machines with limited amounts of attached storage, up to massively parallel designs containing hundreds of processors and terabytes of attached disk storage. Specifically excluded from our definition (and therefore market revenues) are the appliance type of network Web servers. We view these systems largely as intelligent peripherals that are dedicated to a single function. Server operating system: This is software designed to operate and maintain server and network hardware, with the objective of facilitating the sharing of resources among multiple users, either sequentially or concurrently. Average system value (ASV): The ASV price is the value of an initial server shipment (ISS) unit configured as it's typically sold. The ASV will include the base configuration plus any add-ons or upgrades typically sold when the system or 2005 IDC # 5

10 server is first delivered to a customer. It can be stated at both factory and customer levels. Upgrade ASV's also exist as a function of the ISS ASV. Customer revenue: In contrast with factory revenue, customer revenue is meant to equal those funds ultimately spent on a server configuration. The term enduser spending is synonymous with customer revenue. The sum includes ISS and revenue from upgrade servers sold through both direct and indirect channels, the channel margin, and an allowance for peripherals. This figure will yield a theoretical end-user total. Customer revenue (end-user spending) is used in all IDC server forecasts. It is normally determined by multiplying unit shipments by a factory price. This number is then uplifted (on a percentage basis) for sales through indirect channels and peripherals added by resellers. Factory revenue: In contrast with customer revenue, factory revenue is meant to equal those funds received by computer system OEMs for the sale of bundled hardware and software server products. This revenue is composed of both ISS and upgrade sales. Sales through indirect channels are discounted to exclude the channel value and any add-on peripherals from vendor receipts. A vendor's factory revenue can be reconciled with any publicly available information, such as U.S. Securities and Exchange Commission (SEC) financial reports. Initial server shipment (ISS): ISS is an initialism used to characterize the first sale of a server (previously referred to as a new footprint). An ISS server unit consists of processors, memory, disk storage, and any bundled operating system, database, and networking software as would typically be configured when it leaves the OEM's factory floor. Guidance for these average configurations is normally received from server vendors. ISS prices are net prices, which means we subtract the value of a trade-in server from the price for a new system. The use of net pricing was necessitated by the data reporting abilities of server vendors. Upgrade: An upgrade is an equipment addition to the ISS, but not all equipment additions qualify as upgrades. IDC typically recognizes a server upgrade unit that results in a model name or number change to an installed ISS unit. Server upgrades normally entail the addition of another processor to an SMP unit through a board addition or swap. Along with the processor, more memory is typically added and, possibly, more disk storage. In most cases, upgrades don't change the serial number of the system unit. Server price bands: A price band is a range of server values with upper and lower dollar boundaries. The lower bound will be the round number, and the upper bound will end with a nine. Servers are banded based on their customer installed price (CIP). Upgrade shipments are banded in the same price band as the ISS unit they're enhancing. IDC defines 11 distinct bands for dividing our traditional market shares and platform forecasts: Band 1: $0 2,999 Band 2: $3,000 5,999 6 # 2005 IDC

11 Band 3: $6,000 9,999 Band 4: $10,000 24,999 Band 5: $25,000 49,999 Band 6: $50,000 99,999 Band 7: $100, ,999 Band 8: $250, ,999 Band 9: $500, ,999 Band 10: $1.0 million 2.9 million Band 11: $3.0 million+ SITUATION OVERVIEW Introduction Fueled by customer demand for better utilized hardware resources and the desire to continue to consolidate data centers and simplify IT operations, IT managers have embraced virtualization technologies for x86 and non-x86-based servers. This has been particularly true over the last 2-3 years as end-users seek to drive higher utilization rates from servers that are constantly becoming more scalable as processors continue to follow Moore's law. While virtualization has been the mainstay of the mainframe for more than 25 years, it is an emerging technology for a new generation of IT workers. These IT employees are highly satisfied with their current virtualization initiatives and are using recent successes to drive virtualization deeper within their IT environment. As virtualization experience grows, IT professionals are now recognizing benefits beyond their initial goals to save on hard costs. These additional benefits include a more highly available systems infrastructure and a more flexible environment that can react to changes in the business. IT organizations are now beginning to develop business cases for virtualization that quantify the benefits of reduced downtime and better time to market, and many are moving ahead with virtualization as a standard build for their IT systems. Virtualization as a Solution for the Management Crisis? IDC has observed a dramatic increase in the server installed base over the last 10 years. While end-users managed just over 5 million servers in 1996, by 2006 they are managing almost 30 million servers worldwide. Although IT spend on new hardware has been held constant due to the rapid adoption on of x86-based servers and constantly declining server prices, IT organizations have been challenged to maintain their ever-expanding portfolio of systems. Compounding this problem is the low level of utilization on x86 servers. Customers have in the past typically installed 2005 IDC # 7

12 one-application per server, and consequently server hardware is typically over provisioned. End-users report utilization levels between 15-30% for individual servers, leaving approximately $140 billion of server assets unutilized at any given point in time. This is approximately 3 years of new server spending. To break this cycle one-application per server, IT managers have been quickly looking to server virtualization to drive up utilization rates and lower the need to purchase new server hardware. IDC is already seeing an impact on the server market in its quarterly server data (see Figure 1). Growth rates for server shipments have been in decline for eight consecutive quarters. FIGURE 1 The Virtualization Effect Source: IDC, # 2005 IDC

13 Summary of End User Research As a basis for this forecast, IDC interviewed 405 IT managers and directors regarding their current virtualization activities today as well as their future usage plans. The results of these interviews are presented below: Server Virtualization is now considered a mainstream technology among IT buyers Buyer profiles mimic that of the overall server market More than half of all virtual servers are running production level applications Virtual servers continue to support the most business critical workloads IT professionals that are currently implementing server virtualization remain very bullish on its future use More than 45% of all servers planned for next year are virtualization candidates Converting non-adopters will be increasingly more difficult over time Given the mainstream profile of virtualization buyers today, growth rates will start to temper in months and begin to approach more normal market behavior Expectations for Server Virtualization products are on the rise. While installations still remain somewhat simple, dynamic activity is up from last year signifying the need for more robust management tools Server partitions remain fairly static The number of partitions per server is still relatively low overall Customers are seeking tools that allow them to improve day-to-day management, but also plan for improved availability and dynamic IT capabilities Vendor support for virtual environment has become less of an issue Satisfaction with virtualization initiatives is very high and brand loyalty is especially strong Loyalty and advocacy are high for server virtualization vendors Satisfaction is fundamentally based in good past experiences VMware garners the majority of mindshare 2005 IDC # 9

14 Consolidation is a very important precursor to server virtualization, but experienced customers are more likely to see other advantages such as availability and management as ongoing drivers Companies with high rates of virtualization adoption tend to have fewer OS instances and fewer individual application instances, but they still have MANY physical server footprints Virtual servers are almost exclusively attached to networked external storage Virtual servers are often purchased as part of a consolidation or migration project One of the most important drivers of adoption is the notion that the technology is ready or mature. This is true early on in the decision to virtualize servers and continues through to the selection of vendors and their products Simplification will be a theme among customer environments for the next 12 months 70% are standardizing on one technology or software solution 62% are looking for a unified management tool Application portability is on the rise, however partitioning configurations are still fairly unsophisticated, with static partitions the norm supporting 4 or less virtual machines. Servers for virtualization are mainstream, largely x way systems. Blades will play a future role. Virtual server business cases are built on metrics beyond hardware savings, including real estate savings and power and cooling. 10 # 2005 IDC

15 FUTURE OUTLOOK IDC believes that server virtualization has undergone widespread adoption among organizations with the introduction of virtualization technologies for Windows-, Unixand Linux-based systems. Customers are very bullish on the future use of virtualization within their companies as they seek the cost benefits of virtualization, via higher levels of server utilization that have traditionally only been available within the domain of mainframe and RISC-based server platforms. Customers also view virtualization as an important tool for their ongoing consolidation efforts, which began post-bubble in the early 2000s. Almost $20 billion was spent during the years on hardware for server consolidation, with approximately half of those dollars allocated to the centralization and physical consolidation of server footprints. IDC believes that these activities have laid an important foundation for the broader adoption of server virtualization, providing the groundwork for more complex, yet high-value, consolidation for data and applications. Server virtualization is a well-recognized tool for hosting multiple applications per server, as well as for creating a tiered architecture "within-a-box." IDC believes that server virtualization will quickly become an increasingly important factor in server hardware deployments, as customers exploit the expanding processing capabilities of low-cost volume servers (defined by IDC as servers priced less than $25,000) and seek to maximize the utilization of these systems. Survey research performed as part of this study, along with market indicators in our IDC Quarterly Server Tracker products lead us to believe that the virtualization effect is already in process, and that adoption will continue to take place over the next 5 years. Server virtualization will not be a 5-10 year gradual shift in market acceptance. Rather, it is beginning to change the server market immediately. It is therefore critical for server vendors to identify the best opportunities for their products and services, and to focus their marketing and product design efforts. Server Virtualization Forecast IDC predicts that virtualization activities will account for $20 billion in worldwide customer spending on server hardware in 2010, up from $11.9 billion in 2005 (see Table 1). This forecast is based on survey results from the server virtualization study, mapped to IDC's supply-side market models. This represents 32.0% of the all server spending compared to 21.7% of all server spending in 2005, with a compound annual growth rate (CAGR) of 11.0% from 2005 to In contrast, spending for the overall server market is projected to increase at a CAGR of only 2.7% during the forecast period. Growth is expected to be particularly strong during the years 2005 through 2007 as broad adoption is still increasing, resulting in annual rates of 11.2% and 15.7% growth, respectively. Growth is also expected to climb from 2009 to 2010 (10.6% growth) as second generation hardware and software virtualization solutions come to market with more mature systems management tools in place. In terms of shipments, server virtualization will transform our current view of server units. IDC will continue to track physical server footprints as it does today, but this measurement will be augmented to account for the increasing number of logical 2005 IDC # 11

16 servers in the marketplace. IDC estimates that in 2005, almost 314,000 physical servers were shipped for the purposes of server partitioning. This number rises dramatically at a CAGR of 40.6% during so that by the end of the forecast period, more than million servers will be shipped for virtualization activities. This represents 14.6% of all physical servers in 2010 compared to just 4.5% of server shipments in This growth rate is, indeed, profound considering that overall physical server shipments are increasing modestly at a CAGR of 10.9% over the same time period. Growth in Logical Servers Logical servers are created through the use of virtualization technologies where a single server node is partitioned into two or more virtual servers. For 2005, 313,915 physical server footprints will translate into the installation of 1.41 million logical servers. This means that these servers, on average, have 4.5 partitions installed. The net result is an increase of 1.1 million servers to the server market for Over the forecast period, the number of logical servers is expected to rise along with the adoption of server virtualization technologies. In 2010, IDC expects that 7.9 million logical servers will result from partitioning activities on the 1.7 million physical servers shipped. The CAGR for logical servers during the forecast period is a 41.2%. Over the time period from 2005 to 2010, the average number of partitions is expected to remain steady 4.5 per physical server as server virtualization undergoes a sea change; shifting from high-end mainframes and proprietary platforms to the volume server space, where the average number of partitions is smaller. Perhaps one of the most interesting factors in the server virtualization forecast is the change in average selling values (ASV's) of virtualized servers compared to the ASV's for the overall server market. The average price of a virtualized server is $37,948 compared to just $7,794 for all servers. This wide gap in pricing is directly related to the proportion of mid-range enterprise and high-end enterprise servers that comprise much of the server virtualization market in Further analysis of ASV's by server class (see Table 4) reveals that virtualized servers are somewhat more expensive on a footprint-by-footprint basis, suggesting that these servers are more richly configured than non-virtualized servers. Interestingly, our research on server operating environments suggests that this higher ASP may in the short term be influenced only slightly by higher costs for the operating systems software, since the majority of today's consolidations involve existing installations of server operating systems on older hardware. Further out, as customers begin to create true dynamic IT configurations that leverage multiple net new server operating environment instances, these multiple new operating systems may be cost constrained by competitive pressures that limit the amount of uplift the operating system can provide to these system ASV's. As the server virtualization market migrates more heavily toward the volume server space, ASV's are expected to decline dramatically with a 21.1% CAGR to $11,617, a much stronger rate of decline than is expected in the overall server market (all servers worldwide) at just 7.4% CAGR. 12 # 2005 IDC

17 Logical server ASV's are expected to decline at almost the same pace as the physical servers that support them. The ASV for a single logical server is $8,452 dropping at a 21.4% CAGR over the forecast period to $2,538. This again is a phenomenon that is largely driven by the accelerating adoption of volume servers for virtualization activities, over time. TABLE 1 Worldwide Server Virtualization Shipments, Customer Revenue and ASV, ($M) CAGR (%) Physical Server Units 313, , ,388 1,185,985 1,349,924 1,725, Growth (%) NA 89.3% 53.4% 30.1% 13.8% 27.8% Share of all physical servers (%) 4.5% 7.7% 10.6% 12.4% 12.8% 14.6% Logical Server Units 1,408,214 2,380,560 3,617,640 4,765,321 5,827,385 7,897, Growth (%) NA 69.0% 52.0% 31.7% 22.3% 35.5% Share of all logical servers (%) 17.3% 25.0% 32.1% 36.3% 38.8% 43.9% Customer Revenue ($M) $11,912 $13,241 $15,325 $16,850 $18,123 $20, Growth (%) NA 11.2% 15.7% 10.0% 7.6% 10.6% Share of all servers (%) 21.7% 24.0% 26.9% 28.6% 29.9% 32.0% Number of Server Partitions Growth (%) NA -10.7% -0.9% 1.2% 7.4% 6.0% Physical Server Units ASV ($) 37, , , , , , Growth (%) NA -41.3% -24.5% -15.5% -5.5% -13.5% Logical Server Units ASV ($) 8, , , , , , Growth (%) NA -34.2% -23.8% -16.5% -12.0% -18.4% Source: IDC, IDC # 13

18 FIGURE 2 Worldwide Physical and Logical Server Shipments by Year (Shipments, Million) Physical Servers Logical Servers Source: IDC, 2005 FIGURE 3 Worldwide Server Virtualization Customer Revenue by Year ($M) Virtualized Non-Virtualized Source: IDC, # 2005 IDC

19 Forecast Dynamics Drivers The maturation of virtualization software drives widespread implementation, beyond early adopters in The maturity of virtualization management tools increases penetration within organizations, particularly in Microsoft will leverage its large installed base of Windows customers to drive adoption of its Virtual Server product and Viridian at the end of Hardware virtualization solutions such as Intel's Vanderpool and AMD's Pacifica will ease virtualization overhead issues and further drive adoption at the end of the forecast period. Increasing capabilities of volume servers will enable systems to be partitioned into smaller increments; Micro partitioning technologies, dual core and multicore processors, and multithread processors will further drive virtualization capabilities on volume servers. Sustained emphasis on IT organizations around cost reduction and efficiency as well as their ability to react to changes in the business will drive users to increasingly turn to server virtualization. The increased need for higher availability solutions via virtualization will result as IT becomes a more integral part of the overall business. Software pricing for operating systems and related infrastructure software in virtualized deployments will decline due to market pressures, leading to a more favorable price performance ratio in a virtualized environment. Price/performance advantages of higher utilization rates will continue to be a driver. The desire among datacenters for lower power and cooling options will be a driver. Inhibitors Cultural changes required within IT departments take time, and virtualization requires evangelization and credibility building among users. Staff skill sets are at the moment limited, but we expect this situation to ease as adoption reaches a critical mass and as systems management tools mature. Inertia and a perceived lack of need, especially for small and medium-sized businesses will be a constraint. Scale-out technologies such as clustering and load balancing are a countervailing force IDC # 15

20 Licensing for layered software needs to follow operating systems shifts to ensure economical deployment scenarios. However, this will be perceived as a potential revenue impediment for ISVs, and as a result, use terms may lag behind the interest in deployment on the part of customers. Forecast by Operating System Due to the advances in virtualization technologies among companies such as VMware (a unit of EMC Corp.) and Microsoft with its acquisition of Connectix and subsequent delivery of the Microsoft Virtual Server product, server virtualization is now widely instituted at customer sites, and we expect this trend to continue over the forecast period. Accordingly, we expect that Windows and Linux systems will dominate server virtualization both in terms of unit shipments and customer spending at the end of the forecast period in Server virtualization today has a dual impact on operating system usage improving customer choice and increasing server utilization--and as technologies evolve we expect that customers will seek out the availability and flexibility advantages from virtual environments. Customers now have a variety of options with respect to the operating environments they deploy, either as host or guest operating systems. VMware's ESX Server product eliminates the need of a host OS altogether. As a result, IDC captures information on the primary type of operating system installed with these systems. While our research finds that most customers today prefer to install the same type of operating system within each partition of their virtualized server hardware, recent advances such as VMware's support for Solaris on ESX make it feasible for customers to install Windows, Linux and Unix on the same physical server. The number of operating-system instances installed and the mix of operating systems installed on each server is a matter of customer preference, and is not limited by the technology. So, not only do customers have more choice than ever on the primary or host OS for their virtualized servers, they also now have many options for the mix of guest operating systems supported. The variety of platforms that customers choose today for their virtualization initiatives, as well as those we expect them to choose in the future are shown in Table 2 and Figures 4 through # 2005 IDC

21 TABLE 2 Worldwide Server Virtualization Shipments and Customer Revenue by Host/Primary Operating System, Physical Server Units CAGR (%) Windows 205, , , , ,993 1,149, Growth (%) NA 91.3% 54.3% 30.3% 11.2% 30.6% Share of all virtualized servers (%) 65.6% 67.9% 69.7% 70.3% 68.7% 70.2% Netware 6,112 11,593 13,409 14,036 13,845 12, Growth (%) NA 89.7% 15.7% 4.7% -1.4% -9.5% Share of all virtualized servers (%) 1.9% 2.0% 1.5% 1.2% 1.1% 0.8% Linux 42, , , , , , Growth (%) NA 171.9% 67.3% 36.9% 24.6% 26.5% Share of all virtualized servers (%) 13.4% 19.8% 22.0% 23.3% 25.5% 25.3% Unix 43,989 43,989 43,989 43,989 43,989 43, Growth (%) NA 0.0% 0.0% 0.0% 0.0% 0.0% Share of all virtualized servers (%) 14.0% 7.6% 5.0% 3.9% 3.4% 2.7% i5/os 13,434 13,956 12,743 12,097 14,098 15, Growth (%) NA 3.9% -8.7% -5.1% 16.5% 9.3% Share of all virtualized servers (%) 4.3% 2.4% 1.5% 1.1% 1.1% 0.9% z/os 2,190 1,933 2,091 2,370 2,520 2, Growth (%) NA -11.7% 8.2% 13.3% 6.3% 3.3% Share of all virtualized servers (%) 0.7% 0.3% 0.2% 0.2% 0.2% 0.2% Other Growth (%) NA -13.0% -5.0% -6.0% 6.5% -0.9% Share of all virtualized servers (%) 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% Logical Server Units Windows 855,121 1,474,587 2,226,757 2,928,382 3,502,782 4,898, Growth (%) NA 72.4% 51.0% 31.5% 19.6% 39.8% Share of all virtualized servers (%) 60.7% 61.9% 61.6% 61.5% 60.1% 62.0% Netware 22,919 38,421 44,562 46,805 51,153 47, Growth (%) NA 67.6% 16.0% 5.0% 9.3% -6.6% Share of all virtualized servers (%) 1.6% 1.6% 1.2% 1.0% 0.9% 0.6% Linux 183, , ,021 1,040,694 1,398,527 1,879, Growth (%) NA 135.5% 71.3% 40.8% 34.4% 34.4% Share of all virtualized servers (%) 13.0% 18.1% 20.4% 21.8% 24.0% 23.8% Unix 276, , , , , , Growth (%) NA 31.2% 46.9% 26.3% 16.7% 23.8% Share of all virtualized servers (%) 19.7% 15.3% 14.8% 14.1% 13.5% 12.3% i5/os 55,578 60,208 60,456 60,451 72,586 80, Growth (%) NA 8.3% 0.4% 0.0% 20.1% 11.3% Share of all virtualized servers (%) 3.9% 2.5% 1.7% 1.3% 1.2% 1.0% z/os 13,316 11,627 12,134 14,058 14,969 15, Growth (%) NA -12.7% 4.4% 15.9% 6.5% 5.8% Share of all virtualized servers (%) 0.9% 0.5% 0.3% 0.3% 0.3% 0.2% Other 1, ,017 1, Growth (%) NA -15.5% 0.5% -0.5% 6.0% -1.3% Share of all virtualized servers (%) 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 2005 IDC # 17

22 TABLE 2 Worldwide Server Virtualization Shipments and Customer Revenue by Host/Primary Operating System, Customer Revenue ($M) CAGR (%) Windows $1,955 $2,744 $3,591 $4,172 $4,665 $5, Growth (%) NA 40.4% 30.9% 16.2% 11.8% 26.7% Share of all virtualized servers (%) 16.4% 20.7% 23.4% 24.8% 25.7% 29.5% Netware $50 $69 $71 $65 $65 $ Growth (%) NA 39.5% 2.7% -8.4% -0.4% -18.0% Share of all virtualized servers (%) 0.4% 0.5% 0.5% 0.4% 0.4% 0.3% Linux $462 $814 $1,231 $1,507 $1,839 $2, Growth (%) NA 76.1% 51.2% 22.4% 22.0% 21.7% Share of all virtualized servers (%) 3.9% 6.1% 8.0% 8.9% 10.1% 11.2% Unix $3,361 $3,907 $5,026 $5,808 $6,379 $6, Growth (%) NA 16.2% 28.6% 15.6% 9.8% 8.3% Share of all virtualized servers (%) 28.2% 29.5% 32.8% 34.5% 35.2% 34.5% i5/os $1,375 $1,327 $1,229 $1,150 $1,166 $1, Growth (%) NA -3.5% -7.4% -6.4% 1.4% -4.9% Share of all virtualized servers (%) 11.5% 10.0% 8.0% 6.8% 6.4% 5.5% z/os $4,642 $4,325 $4,126 $4,106 $3,975 $3, Growth (%) NA -6.8% -4.6% -0.5% -3.2% -4.5% Share of all virtualized servers (%) 39.0% 32.7% 26.9% 24.4% 21.9% 18.9% Other $67 $55 $51 $42 $34 $ Growth (%) NA -17.6% -7.1% -17.7% -18.7% -21.6% Share of all virtualized servers (%) 0.6% 0.4% 0.3% 0.2% 0.2% 0.1% Source: IDC, # 2005 IDC

23 FIGURE 4 Worldwide Penetration of Virtualized Server Shipments by Year and Operating System Windows NetWare Linux Unix OS OS Other Source: IDC, IDC # 19

24 FIGURE 5 Worldwide Server Virtualization Physical Shipments by Year and Operating System (Percent Virtualized Shipments) Windows NetWare Linux Unix i5/os z/os Other Source: IDC, # 2005 IDC

25 FIGURE 6 Worldwide Server Virtualization Customer Revenue by Year and Operating System (Percent Customer Spending) Windows NetWare Linux Unix i5/os z/os Other Source: IDC, 2005 For 2005, Windows and Linux servers comprise 79% of all virtualized servers. Growth is robust for both platforms over the forecast period at a CAGR of 41.1% and 57.9% respectively. IDC predicts that this number will grow to 95% of all virtualized shipments in 2010 as z/os and i5/os virtualization reaches a saturation point. Penetration of server virtualization is highest for z/os and i5/os systems (see Figure 3). In 2005, 85.2% of all z/os units were virtualized. This number is expected to rise only slightly to 89.9% of all z/os shipments in 2010 as penetration approaches maximal levels across multiple segments of the mainframe market. Similarly, more than 50% of all i5/os shipments were virtualized in 2005, rising to 76% in In comparison, only 4.5% of Windows and 3.0% of Linux servers are deployed for virtualization activities in 2005, but virtualization for these platforms are expected to rise quickly over the forecast period to 14.6% and 13.8% of all shipments, respectively. Unix penetration within the virtualization space is also strong and is expected to climb to 18.8% of 2005 IDC # 21

26 all Unix servers in 2010, which is up from only 6.6% in Clearly the growth potential for server virtualization rests in the emerging markets of Windows, Linux and Unix on future shipments of x86-64 platforms based on Intel Xeon and AMD Opteron microprocessors From a logical-server perspective, shares by operating system are fairly consistent with the physical server shares. However, logical Unix servers account for 19.7% of all logical servers in 2004 (compared to 14.0% for physical servers), which is expected to decline to 12.3% share (2.7% of physical servers) in 2010 along with the expected, gradual decline of the overall Unix server market. In terms of revenue, z/os, i5/os and Unix systems account for the bulk of customer spending on virtualized servers at 78.7%. However growth in these platforms is significantly lower than that for Windows and Linux systems. By the end of the forecast period, IDC expects that the share of customer spending on Windows and Linux will rise from 20.3% of all virtualized servers in 2005 to 40.7% in 2010 (see Figure 5). The profile of guest operating systems as they relate to host/primary operating systems is shown in Figure 6. Based on findings from the survey research associated with this study, users overwhelmingly choose to host the same operating system in different partitions of a physical server, although we are starting to see some increase in installing different operating systems in different partitions of the same physical server. More than 95% of the time a physical server is partitioned to host the same operating system, with the exception of Linux that host Windows partitions 11% of the time. Customers do not expect to radically depart from this model in the near future, with only small shifts expected in the mix of host to guest operating systems. This primarily is due to the different type of workloads that are typically supported on different operating systems. Customers tend to try to match the characteristics of their workloads on the same physical server in order to optimize performance. In addition, customers are more inclined to standardize on operating environments to reduce management overhead. 22 # 2005 IDC

27 FIGURE 7 Worldwide Server Virtualization Primary/Host Operating System by Guest Operating System, % Customer Revenue, 2005 Windows Host/Primary NetWare Host/Primary Linux Host/Primary Unix Host/Primary i5/ OS Host/Primary z/os Host/Primary Other Host/Primary Windows Guest Netware Guest Linux Guest Unix Guest i5/os Guest z/os Guest Other Guest Source: IDC, IDC # 23

28 Forecast by Workload IDC has been tracking server sales by eight different types of workloads for the last nine years. This view of the server market is critical as software applications are a crucial decision factor in the choice of server hardware. We also know from other research that applications are one of the primary factors driving server consolidation projects, which are often a precursor for server virtualization initiatives. We define application types using the following scheme: Business processing. Includes workloads such as enterprise resource planning (ERP), customer relationship management (CRM), online transaction processing (OLTP), and Batch. These workloads have historically been run on proprietary platforms such as OS/390 and OS/400. In addition, scalable Unix systems also support these business-critical workloads. Decision support. Includes workloads such as data warehousing/ data mart and data analysis/data mining. These workloads are most commonly deployed on mainframes and Unix systems. Collaborative. Includes and workgroup workloads. These workloads are most commonly deployed on Windows NT/2000 and Netware-based systems. Application development. Traditional application development work. Particularly significant for customization and testing of non-production applications. Particularly significant on legacy systems, as well as systems running Unix and Linux. IT infrastructure. Includes workloads such as file & print, networking, proxy/caching, security, and systems management. These workloads are particularly prevalent on Unix-, Windows NT/2000-, and Linux-based systems. Web infrastructure. Includes workloads such as Web serving and streaming media. These workloads are particularly prevalent on Unix-, Windows NT/2000-, and Linux-based systems. Technical. Scientific/engineering workloads not including the IT infrastructure activities that are included above. These workloads are almost exclusively deployed on Unix and Linux systems. Other. Any other application types not covered by the above definitions. Table 3 and Figure 7 present IDC's server virtualization forecast by type of workload. This view of the market aids in understanding not only what drives server virtualization initiatives, but also provides insight into the expectations users will have for hardware requirements. 24 # 2005 IDC

29 TABLE 3 Worldwide Server Virtualization Shipments and Customer Revenue by Workload, Physical Server Units CAGR (%) Business Processing 74, , , , , , Growth (%) NA 78.6% 62.5% 26.0% 25.4% -8.8% Share of all virtualized servers (%) 23.9% 22.5% 23.9% 23.1% 25.5% 18.2% Decision Support 33,459 61,383 98, , , , Growth (%) NA 83.5% 59.9% 34.5% 22.7% 20.6% Share of all virtualized servers (%) 10.7% 10.3% 10.8% 11.1% 12.0% 11.3% Collaborative 28,735 54,918 81, , , , Growth (%) NA 91.1% 49.0% 32.3% 21.5% 79.2% Share of all virtualized servers (%) 9.2% 9.2% 9.0% 9.1% 9.7% 13.7% Application Development 86, , , , , , Growth (%) NA 92.0% 43.8% 26.6% -14.2% 2.3% Share of all virtualized servers (%) 27.7% 28.1% 26.3% 25.6% 19.3% 15.5% IT Infrastructure 51, , , , , , Growth (%) NA 95.6% 49.0% 33.6% 23.0% 89.1% Share of all virtualized servers (%) 16.6% 17.1% 16.6% 17.1% 18.4% 27.3% Web Infrastructure 27,209 54,697 88, , , , Growth (%) NA 101.0% 61.8% 34.9% 22.9% 24.1% Share of all virtualized servers (%) 8.7% 9.2% 9.7% 10.1% 10.9% 10.6% Technical 10,182 19,938 32,522 44,075 54,047 58, Growth (%) NA 95.8% 63.1% 35.5% 22.6% 8.3% Share of all virtualized servers (%) 3.2% 3.4% 3.6% 3.7% 4.0% 3.4% Other ,445 1,887 2,259 2, Growth (%) NA 83.0% 57.0% 30.6% 19.7% 17.0% Share of all virtualized servers (%) 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Logical Server Units Business Processing 355, , ,196 1,129,926 1,517,559 1,582, Growth (%) NA 59.8% 61.3% 23.5% 34.3% 4.3% Share of all virtualized servers (%) 25.2% 23.8% 25.3% 23.7% 26.0% 20.0% Decision Support 162, , , , , , Growth (%) NA 65.3% 57.3% 37.0% 28.9% 27.5% Share of all virtualized servers (%) 11.6% 11.3% 11.7% 12.2% 12.8% 12.1% Collaborative 133, , , , ,979 1,033, Growth (%) NA 76.2% 42.3% 34.8% 27.3% 80.3% Share of all virtualized servers (%) 9.5% 9.9% 9.2% 9.4% 9.8% 13.1% Application Development 339, , ,889 1,078,641 1,018,757 1,152, Growth (%) NA 65.9% 47.5% 29.7% -5.6% 13.1% Share of all virtualized servers (%) 24.1% 23.7% 23.0% 22.6% 17.5% 14.6% IT Infrastructure 244, , , ,832 1,092,851 2,057, Growth (%) NA 79.1% 42.1% 36.3% 29.1% 88.2% Share of all virtualized servers (%) 17.3% 18.4% 17.2% 17.8% 18.8% 26.0% Web Infrastructure 122, , , , , , Growth (%) NA 80.4% 59.0% 38.1% 29.2% 31.5% Share of all virtualized servers (%) 8.7% 9.3% 9.7% 10.2% 10.8% 10.5% 2005 IDC # 25

30 TABLE 3 Worldwide Server Virtualization Shipments and Customer Revenue by Workload, CAGR (%) Technical 47,967 82, , , , , Growth (%) NA 72.6% 61.9% 38.6% 29.2% 16.8% Share of all virtualized servers (%) 3.4% 3.5% 3.7% 3.9% 4.1% 3.5% Other 2,368 3,839 5,928 7,871 9,854 12, Growth (%) NA 62.2% 54.4% 32.8% 25.2% 23.1% Share of all virtualized servers (%) 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Customer Revenue ($M) Business Processing 5,733 6,073 6,823 7,241 7,846 8, Growth (%) NA 5.9% 12.3% 6.1% 8.4% 2.2% Share of all virtualized servers (%) 48.1% 45.9% 44.5% 43.0% 43.3% 40.0% Decision Support 1,603 1,752 2,106 2,450 2,787 3, Growth (%) NA 9.3% 20.2% 16.3% 13.8% 9.0% Share of all virtualized servers (%) 13.5% 13.2% 13.7% 14.5% 15.4% 15.2% Collaborative ,037 1, Growth (%) NA 26.9% 19.5% 14.2% 11.2% 41.6% Share of all virtualized servers (%) 4.5% 5.2% 5.3% 5.5% 5.7% 7.3% Application Development 1,774 2,044 2,394 2,590 2,379 2, Growth (%) NA 15.3% 17.1% 8.2% -8.1% -0.2% Share of all virtualized servers (%) 14.9% 15.4% 15.6% 15.4% 13.1% 11.8% IT Infrastructure 1,528 1,734 1,956 2,204 2,451 3, Growth (%) NA 13.5% 12.8% 12.7% 11.2% 35.1% Share of all virtualized servers (%) 12.8% 13.1% 12.8% 13.1% 13.5% 16.5% Web Infrastructure ,120 1, Growth (%) NA 34.3% 29.7% 16.7% 13.5% 15.6% Share of all virtualized servers (%) 4.1% 4.9% 5.5% 5.9% 6.2% 6.5% Technical Growth (%) NA 22.9% 28.1% 17.2% 12.8% 6.5% Share of all virtualized servers (%) 1.9% 2.1% 2.3% 2.4% 2.6% 2.5% Other Growth (%) NA 2.7% 14.2% 10.9% 9.8% 2.3% Share of all virtualized servers (%) 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Source: IDC, 2005 One of the more surprising results of this research is the broad use of server virtualization in support of business processing and decision support applications. Survey results indicate that customers are applying server virtualization technologies in support of their most mission critical applications. This is true across all server platforms, including x86, RISC and mainframe platforms. Customers have had very positive experiences with their virtualized servers and they have been quick to apply these technologies far beyond test and development uses. 26 # 2005 IDC