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Volume 14, Number 5 -- January 31, 2005

IBM Offers Real iSeries Utility Computing

by Timothy Prickett Morgan

When I interviewed Mark Shearer, the new general manager of the iSeries line, I ended by asking him if IBM had considered selling OS/400 servers and software under a subscription-style model, moving away from the whole concept of selling servers. What neither of us knew at the time was that IBM already does this for the iSeries, and other server platforms, too. (IBM is a $100 billion company, and no one can know everything it is doing.)

Unix server maker Sun Microsystems has garnered a lot of headlines and mindshare because of its subscription-based pricing for Java Desktop System (an amalgam of the Linux operating system and the OpenOffice office suite, merged as one) for desktops and Java Enterprise System middleware (the full Sun suite of middleware servers, including the various products created by Netscape and sold by America Online that Sun acquired), as well as its plans to move to subscription-based pricing for its Unix servers. IBM's Global Services unit has not made a lot of publicity for itself, but it has also been offering subscription-based utility computing, on OS/400, Unix, and Windows platforms, for quite some time.

Subscription-based pricing is an attractive idea to anyone who has to manage an IT budget (or has fallen victim to the budget when cuts get lowered like a boom). For one thing, it moves costs from the capital side of the budget, where you have to depreciate hardware and software over time, to the operating expenses side, where costs are immediately written off. You basically move the depreciation from your books to the IT vendor's books. Subscription-based pricing also lowers the initial cost, since you don't have to pay in full for the equipment to begin using it. You pay a setup fee, and get to use the full power of the equipment right away (like you would with your cell phone or cable box). Costs can be spread over three, four, or five years. All of these benefits are similar to ones that IT vendors have been providing through leasing of equipment and software for years. However, there are some important differences.

Because of the time value of money, the longer you lease, the more you end up paying. In subscription scenarios, however, the longer you commit to a deal, the less you pay for that service. Vendors pushing subscription models would rather have a longer commitment (and, therefore, lower sales costs per account) than higher profits for the deal. My guess is that they make it up on ancillary services. Perhaps the most important difference is that subscription services, unlike even the most sophisticated leases, have pay-per-use provisions that scale up and down as you use or stop using features. So the cost of a subscription-based IT solution should bear more of a direct relationship to the use the solution gets in an organization. This last bit is what turns a subscription-model into utility computing.

I would not have set off looking for the utility-based pricing services from IBM had the company's European unit not made an announcement a few weeks ago of something called Managed Hosting Server Services for eServer i5 and iSeries. It seems that IBM's On Demand Center in Ehningen, Germany, has just set up two iSeries 870s and two i5 570s, has linked them together with SAN switching equipment to two Shark storage arrays and a 3585 tape library (with automated robot arms), and is now selling slices of this box under a utility model. I figured that this setup, which was just for Germany, Switzerland, and Austria, was a beta test of just the idea I was talking about with Shearer.

Well, as it turns out, IBM Global Services runs 44 data centers worldwide that sell what it calls e-business hosting services. This is one of the fastest growing portions of IBM's Global Services unit, and Bruce Otte, global offering manager for e-business hosting server services, says that, last year, the total opportunity for such application hosting was approximately $16 billion. So that German center was not a beta test. Somehow, the application service provider (ASP) market that was hyped to death and then roundly mocked has become real under a different name. Otte says that, of that $16 billion worldwide application hosting figure, about $10 billion was for managing infrastructure on behalf of clients under a utility pricing model, with the remaining $6 billion being for hosting applications and Web infrastructure. By the way, IBM has the number-one market share in this application hosting market, which is one reason why it bought ASP specialist Corio last week for a big bag of cash.

While IBM has been hosting Unix and mainframe servers and their applications for quite some time, the iSeries was first rolled out as a utility offering in early 2004, beginning with its On Demand Center in Boulder, Colorado, which has a number of iSeries 870s running OS/400 V5R2. Otte says that there is a plan to upgrade to i5/OS V5R3 in the centers soon. The IBM data center in Warwick, England, has a similar setup, and the third center with iSeries utility boxes is the new one in Germany.

IBM sells two different kinds of services on these boxes, one called Managed Hosting Services and the other called Virtual Server Services. So far, without making a big public relations campaign about it, Global Services has already locked in hundreds of customers. Managed Hosting Services is for customers who know a great deal about how their existing workloads behave and can accurately peg their server capacity needs, while Virtual Server Services is more flexible and is for customers who don't know how much capacity their applications will require; perhaps it is a new workload, for instance.

IBM Global Services does not provide list prices for its services, since they are contingent upon many variables, and because, quite frankly, the law doesn't require it. Otte says that pricing depends on the following:

  • What processor capacity is needed, in terms of CPW-rated raw power and CPU time for the workloads.

  • How much memory and disk capacity is used.

  • Whether they need to run OS/400 Standard Edition or OS/400 Enterprise Edition.

  • Whether they need high availability clustering.

  • Uptime service level agreements.

Managed Hosting Services and Virtual Server Services have contract terms that range from 36 to 60 months; and, presumably, the longer you commit, the better the deal IBM gives you. Pricing on the iSeries is based not only on the CPW size of the partition on the box but also on CPU time, since many workloads consume lots of CPU time but very little CPWs (such as Web serving); conversely, some workloads that take lots of CPWs do not consume much CPU time (such as hitting the database using the 5250 protocol). So IBM has to use a mix of the two. Exactly what the mix is, Otte would not say. And though he was vague about pricing, he did give some numbers that you can work with. "We have tried to make sure that MHS or VSS will be cheaper than customers going out and acquiring the server capacity themselves," he says. The target price for the Managed Hosting Services offering is to save customers about 10 to 15 percent of their acquisition and operational costs for the platform. Because of its variable nature and more tight coupling of server use and pricing, the Virtual Server Services offering aims to save customers anywhere from 15 to 30 percent of the cost of acquiring and managing a dedicated OS/400 server to run workloads. This is pretty substantial savings.

Each On Demand Center tailors its service level agreements to the conditions of the local market and the customers' needs. For instance, in the German center, a development and test partition on the OS/400 platform has a minimum 98 percent SLA, meaning it is guaranteed to be available 98 percent of the time during a single month. A relatively simple production environment is rated with a 98.5 percent per month SLA, while a complex environment has at least 99 percent availability. For customers who need to go the extra mile and want to install high availability clustering software, Global Services has installed high availability software from Lakeview Technology and Vision Solutions as part of its MHS and VSS offerings, raising availability to 99.5 percent each month. (This seems a little low to me, but, again, these are minimums. If you need higher high availability, you simply pay IBM more.) Otte says that while Lakeview and Vision Solutions are what Global Services have installed to date in the centers, it is perfectly willing to install alternative high availability software from any other vendor, including DataMirror, iTera, Maximum Availability, and Trader's.

Otte says that IBM is not charging a big premium across that span of service level agreements. To go from the base 98 percent SLA for a development partition to a clustered partition using high availability software at 99.5 percent only increases the price by about 20 to 25 percent. Similarly, customers who can accept even lower service level agreements can drop their costs by another 10 to 15 percent off the base prices.

One last thing. As part of these services, IBM doesn't much care who owns the machine or where it sits. You can acquire the machines and let IBM manage them while they sit inside your data center or inside IBM's data centers; you can simply use the machines in IBM's data centers or have IBM install its machines in your data centers. Each approach meets a different set of customer needs and, of course, has a different price. In all cases, IBM manages and maintains the iron and software.

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Editor: Timothy Prickett Morgan
Managing Editor: Shannon Pastore
Contributing Editors: Dan Burger, Joe Hertvik, Shannon O'Donnell,
Victor Rozek, Kevin Vandever, Hesh Wiener, Alex Woodie
Publisher and Advertising Director: Jenny Thomas
Advertising Sales Representative: Kim Reed
Contact the Editors: To contact anyone on the IT Jungle Team
Go to our contacts page and send us a message.


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