What does virtualization mean for SAP managed hosting?

Managed hosting costs should get cheaper as virtualization technology drives down hardware investments, but it may be a while before customers really see those savings.

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For buyers of SAP managed hosting services, the emergence of reliable virtualization technology should be reason for them to rejoice.

The technology, which uses software to divide one physical server into multiple, isolated virtual environments, promises to make it cheaper to manage an SAP environment -- savings that should drive down costs for end customers.

"We're certainly hearing the service providers talk about the fact that they are able to lower their hosting costs because they're able to consolidate on virtualization," said Jim Shepherd, senior vice president of research with AMR Research in Boston. "I think it's in the eye of the beholder whether it truly does lower their costs or not. You never know how much of that they share with the buyer."

SAP virtualization took a step forward in December when the company announced it had reached an agreement with VMware to support SAP applications running within its VMware ESX Server virtual machines.

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Additionally, SAP and EMC Corp. grabbed headlines in February when Doug Merritt, president of SAP Labs North America, told Reuters that EMC and SAP were in talks to deliver software to customers using virtualization.

Merritt declined to discuss the details of the collaboration. An SAP spokesman declined to elaborate as well, saying only, "Cloud computing and virtualization are real trends that are here to stay. As we explore future directions for our technology and product roadmap, cloud and virtualization are certainly areas we are exploring."

Virtualization here to stay

If, in fact, "virtualization is here to stay," what does that mean for customers of SAP managed hosting?

"Virtualization is a lot more mature than it ever has been," said John Madden, research director with Ovum, a London-based research firm. "It allows vendors to do it more effectively than ever before."

However, virtualization is not new. Companies like Accenture, IBM and HP have been using virtualization technology for years and they run some of the biggest SAP shops in the world, according to Madden.

Yet, according to Lydia Leong, research director with Stamford, Conn.-based Gartner Inc., virtualization's effect on managed hosting is still nascent.

"It's mostly a technology issue, getting SAP to play nice with VMware," she said. "You'll see it on everybody's road maps, but it's still something that is a little further out."

It's a big issue for Dave Welch, CEO of House of Brick, an Omaha, Neb.-based firm that recently began offering hosting of Oracle's E-Business Suite. Welch has watched with envy as SAP has taken a vastly different approach to virtualization than Oracle.

"Everything SAP is doing right is everything that Oracle is doing wrong," Welch said.

In November, Oracle announced it would only support its applications running on its own virtualization software, Oracle VM, based on the open source Xen. While in practice, Oracle is supporting applications that run in other virtual environments, its official messaging is creating some uncertainty in the marketplace, Welch said. And, despite Oracle's efforts to control the entire technology stack, Welch does see great promise for virtualization and managed hosting for providers as well as customers.

"People are seeing virtualization gives them the benefits that they get in a native hardware hosted environment or in-house for a fraction of the cost," he said. "They can get all of their service levels, whether it's bandwidth, memory or CPU, and they can be billed just for what they use. We really need to get serious in the ERP industry about what's good for the customer."

Virtualization considerations

There are many issues to consider when selecting an SAP managed hosting provider, and while virtualization may not be a "make or break" consideration, there are some things that customers should know.

"Some customers -- maybe in the line of business -- may not be as interested in the technical details, but CIOs are going to want to know what the infrastructure is, what the capabilities are and who they are using for virtualization," Ovum's Madden said. "Some may have a preference for HP or IBM in terms of the actual platform. Others will be more interested in SLA and uptime."

Additionally, how well a managed hosting provider can scale with one's business needs to be carefully considered when selecting a hosting provider.

As the market for SAP managed hosting grows, virtualization may be one reason organizations look for someone else to run their implementation rather than do it themselves.

"There are lots of opportunities for getting much more optimal use of hardware than we have traditionally," Shepherd said. "That's available to companies in their internal IT department as well, but virtualization is complex and it's another one of those areas where companies may look at it and say, 'I can either try and buy or build the internal expertise around virtualization to take advantage of it or I can go out through hosting and capitalize on someone else's expertise.'"

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