With BT as its owner since February the consulting and professional services organization now known as BT INS continues to dissect the IT marketplace. The group’s latest analysis on server virtualization shows the technology has made significant progress over the last year.

BT INS conducted a web-based survey of its subscribers and other IT departments across the U.S. and found that the number of IT organizations that have already virtualized production and development servers in their data centers jumped from 29% in 2006 to 48% in 2007.

BT INS defines virtualization as architectures and products designed to emulate a physical device, where the characteristics of the emulated device are mapped over another physical device.

As the line blurs between the IT department and the telecom data center, virtualization is becoming an important pat of controlling costs, said Jim Hicks, head of BT INS's virtualization practice. “Lots of people see virtualization as just VMware. But to us, virtualization is an end-to-end solution that reduces your overall footprint, because today power, cooling and floor space are absolutely killing our clients,” he said.

VMware is a Palo Alto-based company whose name is synonymous with virtualization. It is a market leader in virtual infrastructure software. EMC acquired VMware in January 2004 for $625 million and has wisely run it as a separate subsidiary. It went public on Monday with a debut price of $29 per share and by yesterday was up to $57 per share.

As if the virtualization market needed any more signs it was taking off, Citrix Systems announced today it plans to acquire open source virtualization software vendor XenSource for $500 million.

But users of virtualization technology speak louder than speculators and here is what they had to say: On the positive side, 87% of respondents to the survey are involved in exploring, testing or using server virtualization technology. Another good sign is that IT departments have rushed to get up to speed on virtualization by accelerating their training. Last year, 31% of IT organizations felt they lacked adequate staff expertise in this area. This year, that metric fell to 18%.

IT organizations also are forgoing limited pilot programs in favor of committing to virtualizing their environment during the next technology refresh, blending virtualization and application stacking and, most of all, virtualizing their development environments with plans to do the same for their production environments next.

Although it appears to be full steam ahead for this technology, IT organizations also have their concerns and expectations. And those expectations are high. “The level of expectation is higher than I have seen for other technologies,” said Rick Blum, director of strategic marketing for BT INS and the man responsible for conducting the survey.

Blum said he’s not sure if the high expectations are due to the hype of the technology or that these organizations have been burned in the past by technology that did not live up to its promise. “They don’t want to go out there with virtualization and then find out they don’t have the proper controls and capabilities in place,” he said.

When rating the importance of selection criteria for virtualization technology, just about everything was a high priority for users and potential users. The technology must accomplish much before it gets widely deployed. Primarily, it must reduce hardware requirements. Sixty-five percent of respondents named that as their highest priority. Seventy-two percent agreed that gaining floor space was also an objective.

Other high priority items among the 13 identified were infrastructure manageability, security and vendor support. The BT INS report warned IT departments to take a realistic approach to virtualization. It said that as they move from technology concerns to return on investment, they should keep in mind that other less tangible benefits come with virtualization, such as improved disaster recovery flexibility. BT INS also warned that existing internal processes needed to be addressed along with virtualization.

“If you don’t have strong processes and control methods in place, using virtualization without proper governance, thins can get out of control,” Hicks said.

The concern over return on investment becoming a hurdle for deployment grew from 13% last year to 23%. Ongoing growth management concerns increased, rightfully so said Hicks, from 8% to 14%.

“For a long time people spent a lot of money on technology without realizing results, but now the business is shifting and technology is being forced to line up with the business,” Hicks said.

BT INS’ practice focuses on three areas of the IT organization: security, IT governance and process and virtualization. However, server virtualization is not the only focus. The group provides services for and has identified other areas of interest for virtualization.

Nearly half of respondent also have virtualized some of their applications and 29% have done so with network and storage virtualization. The highest interest was in application virtualization, which 39% of respondents said they were considering.