VMware announced vSphere 5 yesterday, which will bring greater scalability and robustness to VMware's virtualization platform. The new version will support larger virtual machines—up to 1TB of RAM and 32 virtual processors each—faster I/O, simpler high-availability, easier deployment, and more. These announcements were somewhat overshadowed, however, by the launch of a new licensing scheme for the software.

For vSphere 4.x, the current version, pricing is based on a combination of the number of physical CPU sockets, physical cores, and physical memory installed in a server. Leaving aside the "Essentials" versions, as they operate on a different pricing model, there are four tiers: Standard, which gives you one socket, six cores, and 256GB memory; Advanced, which is 1 socket, 12 cores, 256GB memory; Enterprise, which is 1 socket, 6 cores, 256GB memory, and extra functionality; and Enterprise Plus, which is 1 socket, 12 cores, unlimited memory, and even more functionality. Additional sockets, cores, and memory required purchase of additional licenses.

With vSphere 5, however, it has all changed. Pricing is based not on physical memory, but virtual. There are now just three tiers: Standard, which allows a total of 24GB to allocated to all virtual machines, and up to 8 virtual CPUs per VM; Enterprise, which allows a total of 32GB across all VMs and up to 8 virtual CPUs per VM; and Enterprise Plus, which allows 48GB across all VMs, and up to 32 virtual CPUs per VM. These prices remain single-socket, though there's no longer any limit on the number of cores per socket.

This is a substantial change in licensing terms. The current, version 4 licensing strongly encourages "scale-up"—buying systems with few sockets and lots of memory and running lots of virtual machines on them—rather than "scale out"—buying a larger number of servers each with much less RAM. That's because adding physical memory was "free," at least until you hit 256 GB, but adding sockets (or new servers), however, cost money. The result is enterprises using VMware on (typically) two-socket servers and hundreds of gigabytes of RAM.

That scale-up model, so encouraged by the old licensing scheme, is now penalized. A two-socket, six-core per socket, 256GB machine used to require two Enterprise licenses. Now, on account of all that RAM, it'll require eight Enterprise licenses. Problem is, the price of those licenses is the same as it was before; $2,875 for Enterprise, $3,495 for Enterprise Plus. The Standard license has even gone up, from $795 to $995. vSphere 5 will need four times as many licenses, and hence cost four times the price of version 4. That's a bitter pill to swallow.

For systems with even more memory, it becomes more expensive still. Those new 1TB virtual machines that vSphere 5 will support? That'll set you back $76,890 in vSphere licensing fees, on account of the 22 Enterprise Plus licenses you'll need to support all that memory. If the old pricing model were available, you'd hypothetically need just one Enterprise Plus license per socket, thanks to the old unlimited memory limit. Even if you only had 4-core processors, and hence needed to fill 8 sockets to reach the new 32 virtual CPU limit, you'd still come out ahead under the old scheme, as just eight licenses—rather than 22—would be enough.

By way of comparison, a 4 CPU Dell R910 with 1TB RAM lists at about $85,000—so the new VMware licensing thus risks doubling the price of such a machine if you choose to virtualize it.

The new licensing system does have its winners, however. The virtual RAM assignment is pooled across entire environments, allowing excess RAM allowance on one system to be used by others. Licensing isn't needed for unused physical RAM, either, so if servers are oversized, there can be savings there. The lifting of the core-per-socket restriction will also be good news for Intel and AMD alike; no longer will buying an 8- or 10-core processor force you into the highest price tier.

VMWare's rationale for the new model is that this better aligns with the hardware now available and the capabilities vSphere enables. Losing the core-per-socket restrictions means that new processors with ever-higher core counts are no longer an issue; coupling pricing to pooled virtual RAM rather than per-server physical RAM reflects the ability to create shared, unified infrastructure. Reading between the lines, this is likely a reaction to the ever-decreasing need to have systems with high socket counts. When you can have eight, ten, twelve, or even more cores per socket, it's a lot harder to justify the price premium that 4-socket machines command. The old unlimited memory Enterprise Plus licenses thus became something of a liability: just two licenses per server would cover almost any need.

Regardless of the reasons or the potential advantages, the reaction to this announcement has not been warm. Customers who scaled up and built systems with large amounts of memory—and there are many such customers—are facing steep price hikes, with many already saying that they're going to investigate alternatives such as Microsoft's Hyper-V and Citrix's XenServer. For Windows-using organizations in particular, Hyper-V is an attractive prospect; it lacks many of the high-end features of vSphere, but with the core virtualization features being free with Windows, its price is hard to beat.

Some administrators we've talked to are sure that VMware will back down, that this pricing just cannot stand. Some are already provisioning less than 32GB per socket, so won't really see a difference. Others are considering a switch to Hyper-V or XenServer—and some have already switched to Hyper-V, as they felt that even VMware's old pricing couldn't compete with the "as good as free" pricing of Hyper-V, given that they were buying Windows licenses anyway. Organizations that are heavily dependent on vSphere's high-end features may have no option but to stick with VMware and pay up. What will you do? Will vSphere continue to have a role to fill in your company, or is it time to abandon ship?