I plan to host up to 1000 sites for a large non-profit. Each site could get quite a bit of traffic. What is the ideal setup?
VPS, *ngix, mem-cache etc?
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Get a dedicated box with Nginx. That'll go pretty far even before caching. It mostly depends on your traffic tho. Number of blogs matters a lot less, becasue I've seen a network with 10 blogs suck up a gig of RAM becasue of the hits it was getting.
Chris_O's "My WordPress Performance and Caching Stack" is the server setup I'm planning to use for my multi-site install of similar size. Given that I can accomodate the following caveat, (from the Nginx proxy cache plugin page), I'll be very interested in seeing how many accounts (sites) a single VPS can comfortably support.
Next steps, once the single VPS is outgrown is to move the database to a separate host, and the CDN to an external one, and have Nginx load balance between multiple apache servers. If that's not enough, then you'll have to shard the database and probably want to move to hardware load balancing. The WPMUDev folks have a good overview of that type of setup.