A computer implemented method is provided, including monitoring network traffic among virtual machines allocated to a plurality of compute nodes on a network, and identifying first and second virtual machines having inter-virtual machine communication over the network in an amount that is greater than a threshold amount of the network traffic. The method further comprises migrating at least one of the first and second virtual machines so that the first and second virtual machines are allocated to the same compute node and the inter-virtual machine communication between the first and second virtual machines is no longer directed over the network. In one embodiment, each compute node is coupled to an Ethernet link of a network switch, and data is obtained from a management information database of the network switch to determine the amount of network bandwidth that is being utilized for communication between the first and second virtual machines.