Virtual servers a savings strategy

In February online trading houses across the equities industry suffered a double ignominy when a global rout on stockmarkets overloaded computing resources and triggered a spate of erratic outages, freezing out anxious investors rushing to capture buy and sell opportunities.

Triggered when the Shanghai Composite Index shed nine per cent of its value, the onslaught froze online trading sites at Westpac and ETrade, and at CommSec, where volumes climbed 60 per cent higher than previously recorded, with 45,000 trades made in the first 40 minutes.

"We had 17 million hits on our website compared to an average of three to four million," said Matt Comyn, CommSec's general manager.

But for many technology directors, the biggest discomfiture was in knowing that they had enough idle computer power buried in their array of servers to keep their systems running, if they could only unleash it.

"Those companies had the capacity they needed but there was no way they could use it," says VMWare's managing director, Paul Harapin.

Each server running a fleet of services uses just five per cent to 10 per cent of its capacity, says Harapin.

But because each major application requires its own dedicated server - to support maintenance and ensure robustness - the bulk of server capacity goes untapped. So when the outage fiasco was over, CommSec's Comyn swiftly announced plans to double server, telephone and staffing resources to cope with unforeseen spikes in demand in the future.

But while CommSec seeks to boost its server capacity with additional hardware, its parent, Commonwealth Bank of Australia, plans to reduce the number of machines powering its operations over the next three to five years to achieve savings of around $200 million.

The bank is one of many deploying virtual machines that take advantage of computing capacity regardless of where it resides.

Virtualisation is achieved when the data centre treats the company's resources in terms of capacity rather than discrete machines.

Using virtualisation software, banks can dynamically shift a virtual machine from one physical piece of hardware to another part of the resource pool without any disruption.

The applications are dissociated from the underlying infrastructure, so a bank with 6000 servers would run as an operation of 12,000 CPUs of capacity or 50TB of storage.

Because one virtual machine typically runs 12 servers, banks can achieve capital reductions of up to 50 per cent and save up to 80 per cent on operational expenses, says Harapin.

Over the past two years, almost all of Australia's banks have begun looking at virtualisation as an alternative strategy to deal with the accelerating need for computing capacity.

Across the sector, around 30 per cent of financial services companies have deployed server virtualisation software so far, while almost 25 per cent have projects in progress and 10 per cent intend deploying the technology, recent research by technology industry analyst, Hydrasight, shows.

First deployed across the network, virtualisation has been extended to storage and server environments, where costs have become unsustainable, given that banks typically achieve a ratio of one server for every four staff, compared to 1:25 for other industries.

Hydrasight's Michael Warrilow says ratio was untenable at one of Australia's top four banks, which was adding servers at the rate of 100 servers a month.

"Business units were running IT projects and for every new service there was a new server. It had 7,000 servers."

After deploying virtualisation, the bank now has 1,000 virtualised servers.

At CBA, virtualisation is a key tool to reduce the number of boxes it runs in its wealth management division.

With two projects already underway, its services partner, EDS, has identified another eight as targets to reduce technology costs by $200 million over the next three to five years.

The bank has also renewed its outsourcing contract with EDS for its mid range and mainframe environment and this will be affected by the service provider's own virtualisation strategy.

EDS is rationalising 10,500 servers regionally in a move to save 65 per cent in hardware costs, lower expenditure in support and licensing, and reduce power and cooling.

While it's compelling to save energy expenses, which average around $2,000 a server, this will likely gain greater traction once more players embrace corporate social responsibility policies such as National Australia Bank, which aims to be carbon neutral by 2010.

Server reduction is a major driver for virtualisation, but banks are also using it to contain costs as they expand.

Bendigo Bank for example is working with IBM to curb costs as it opens 30 new branches a year.

And the Bank of Queensland is using Citrix to limit the investment required to quickly deploy hardware and applications as it adds 160 new branches over five years.

In 2004 the bank rapidly got services up when it added 23 branches and two interstate banking centres over 12 months, with only 3 per cent infrastructure costs.

That's because a range of operational areas are easier to manage when virtual machines are hosting applications.

Applications running on virtual machines "think they are running on their own", so compatability is easier to manage, as it is to upgrade or patch software, says Warrilow.

This also makes virtualisation a robust but flexible foundation for deploying emerging technologies such as Service Oriented Architecture.

Suncorp-Metway is one bank that is using VMWare's virtualisation technology to migrate to shared, re-useable services under SOA.

The bank is looking for $200 million in savings from this strategy, earmarked from its merger with insurer Promina.

 "The material benefits include being faster to market and reduced facilities and project costs, that is, less power, air-conditioning and physical floor space required to host Intel servers; and moving to a delivery model based on virtual services provided as opposed to hardware servers per application," says Paul Cameron, general manager of IT Infrastructure Service.

Cameron adds that virtualisation helps manage the risks associated with aging infrastructure.

Clearly virtualisation is a hot topic but industry veterans caution deployment must go hand in hand with solid discipline.

"Virtualisation is only a technology," says Suncorp's Cameron.

"The sustained benefits of introducing virtualisation come from ensuring that you have the right people operating the technology, processes in place and ongoing governance of the virtualisation service being offered."