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If you want a reliable network then you need to determine an appropriate level of redundancy. When servers were small and there was no well accepted virtual machine technology there were always many points at which redundancy could be employed.
A common example is a large mail server. You might have MX servers to receive mail from the Internet, front-end servers to send mail to the Internet, database or LDAP servers (of which there is one server for accepting writes and redundant slave servers for allowing clients to read data), and some back-end storage. The back-end storage is generally going to lack redundancy to some degree (all the common options involve mail being stored in one location). So the redundancy would start with the routers which direct traffic to redundant servers (typically a pair of routers in a failover configuration – I would use OpenBSD boxes running CARP if I was given a choice in how to implement this , in the past I’ve used Cisco devices).
The next obvious place for redundancy is for the MX servers (it seems that most ISPs have machines with names such as mx01.example.net to receive mail from the Internet). The way that MX records are used in the DNS means that there is no need for a router to direct traffic to a pair of servers, and even a pair of redundant routers is another point of failure so it’s best to avoid them where possible. A smaller ISP might have two MX machines that are used for both sending outbound mail from their users (which needs to go through a load-balancing router) as well as inbound mail. A larger ISP will have two or more machines dedicated to receiving mail and two or more machines dedicated to sending mail (when you scan for viruses on both sent and received mail it can take a lot of compute power).
Now the database or LDAP servers used for storing user account data is another possible place for redundancy. While some database and LDAP servers support multi-master operation a more common configuration is to have a single master and multiple slaves which are read-only. This means that you want to have more slaves than are really required so that you can lose one without impacting the service.
There are several ways of losing a server. The most obvious is a hardware failure. While server class machines will have redundant PSUs, RAID, ECC RAM, and a general high quality of hardware design and manufacture, they still have hardware problems from time to time. Then there are a variety of software related ways of losing a server, most of which stem from operator error and bugs in software. Of course the problem with the operator errors and software bugs is that they can easily take out all redundant machines. If an operator mistakenly decides that a certain command needs to be run on all machines they will often run it on all machines before realising that it causes things to go horribly wrong. A software bug will usually be triggered by the same thing on all machines (EG I’ve had bad data written to a master LDAP server cause all slaves to crash and had a mail loop between two big ISPs take out all front-end mail servers).
Now if you have a mail server running on a virtual platform such that the MX servers, the mail store, and the database servers all run on the same hardware then redundancy is very unlikely to alleviate hardware problems. It’s difficult to imagine a situation where a hardware failure takes out one DomU while leaving others running.
It seems to me that if you are running on a single virtual server there is no benefit in having redundancy. However there is benefit in having an infrastructure which supports redundancy. For example if you are going to install new software on one of the servers there is a possibility that the software will fail. Doing upgrades and then having to roll them back is one of the least pleasant parts of sys-admin work, not only is it difficult but it’s also unreliable (new software writes different data to shared files and you have to hope that the old version can cope with them).
To implement this you need to have a Dom0 that can direct traffic to multiple redundant servers for services which only have a single server. Then when you need to upgrade (be it the application or the OS) you can configure a server on the designated secondary address, get it running, and then disable traffic to the primary server. If there are any problems you can direct traffic back to the primary server (which can be done much more quickly than downgrading software). Also if configured correctly you could have the secondary server be accessible from certain IP addresses only. So you could test the new version of the software using employees as test users while customers use the old version.
One advantage a virtual machine environment for load balancing is that you can have as many virtual Ethernet devices as you desire and you can configure them using software (without changing cables in the server room). A limitation on the use of load-balancing routers is that traffic needs to go through the router in both directions. This is easy for the path from the Internet to the server room and the path from the server room to the customer network. But when going between servers in the server room it’s a problem (which is not insurmountable, merely painful and expensive). Of course there will be a cost in CPU time for all the extra routing. If instead of having a single virtual ethernet device for all redundant nodes you have a virtual ethernet device for every type of server and use the Dom0 as a router you will end up doubling the CPU requirements for networking without even considering the potential overhead of the load balancing router functionality.
Finally there is a significant benefit in virtual machines for reliability of services. That is the ability to perform snapshot backups. If you have sufficient disk space and IO capacity you could have a snapshot of your server taken every day and store several old snapshots. Of course doing this effectively would require some minor changes to the configuration of machines to avoid unnecessary writes, this would include not compressing old log files and using a ram disk for /tmp and any other filesystem with transient data. When you have snapshots you can then run filesystem analysis tools on the snapshots to detect any silent corruption that may be occurring and give the potential benefit of discovering corruption before it gets severe (but I have yet to see a confirmed report of this saving anyone). Of course similar snapshot facilities are available on almost every SAN and on many NAS devices, but there are many sites that don’t have the budget to use such equipment.