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Server prices may be dropping, but the purchase price is just a small part of the total cost of ownership (TCO).

Server budgets expand rapidly once you factor in the cost of maintenance, as well as cabling, cards, rack space, adapters, switches, operating systems and other software licensing costs. Additionally, each new deployed server decreases server room cooling efficiency, which runs the electricity bill up another notch.

On top of the hardware costs, there’s the cost of hiring and training staff to operate and maintain the servers. The costs and complexity of managing a server are often beyond the financial and technical abilities of smaller companies which often do not have in-house I.T. staff.

Economies of scale, which generally dictate that costs drop as the purchase quantity of a particular product increases, do not work in the server world.

And all of that is what is making virtual dedicated servers so attractive.

You are probably becoming familiar with the concept of a virtual server. Many organizations are beginning to deploy products like VMware Infrastructure to create multiple virtual servers inside of one physical server. But the concept of a hosted virtual dedicated server is relatively new.

Essentially, you are renting resources on a remotely-hosted server. However, unlike the typical shared-server environment, such as a web server, you’re not sharing any of the server’s operating system with other users.

Virtual dedicated servers, for all intents and purposes, function exactly as if your applications were running on a dedicated box. The server hosting company deploys a VMware Infrastructure, partitioning physical servers into multiple virtual machines. Each machine functions exactly as if it were a single server. It has its own instances of the operating system, application software, virtual processors, virtual memory, networking, storage devices and even its own virtual BIOS.

In fact, the only real difference between using a virtual dedicated server and your own dedicated server, is a reduction in TOC that is difficult to realize using other solutions.

The cost savings begin not having to make capital expenditures to acquire the server. Costs are spread out monthly and are not carried on the organization’s balance sheet. That fact may not impress the I.T. folks, but it will get the CFO’s attention.

But the real cost-savings come into play when you start looking at what else you don’t have to buy. Most popular operating system software is included, so there goes the licensing fees. Most common server application software, such as Exchange Server, can also be included, which further reduces costs.