This sounds almost like what Netfirms offers with their Enterprise packages. While I do think there is a market for this stuff, I doubt if it will eradicate the need for dedicated servers. There are many folks out there who still wish to have complete control over their own server.
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You are right, they are VMware + SAN, I have spoken with them. The costs are killing them, both in hardware and in labor to set up software once the resources are provisioned. Their new investor, DH capital, has been trying to get their management to talk to 3Tera for a couple of months :-)
In general, we have found that our best customers are companies who have tried to build a utility system on VMware first.
I enjoy the convenience of free VWmare player on my home mahcine.
Old Wind95 + apps run amazingly fast and I don't need to do multiboot, anymore.
But I can imagine the overhead...
Don't get me wrong - VMware is a good virtualization system, and it does what it is supposed to do. They are successful for a reason.
My point was different. While virtualization is an essential enabler for grid/utility computing, the two are VERY different.
In virtualization, your goal is to trasparently divide one resource into many
In grids/utility, your goal is to transparently combine many resources into one
These are two totally different competencies. They require totally different view of the world.
It is very hard for the same company to do both well. Many requirements clash. Some are mutually exclusive (what's the best solution for a single server is bad for the grid and vice versa). It is schizophrenic.
It is just like hardware and software. Without hardware, there is no software. But there is not a single example of a company that have succeeded in both (Sun tried for awhile, but ended up losing on both sides).
The other problem with VMware is that they are owned by EMC. EMC counts on VMware to drive up the sales of SAN. This means VMware has no incentive to provide good SAN-less solutions, let alone solutions that make SAN unnecessary.