IBM Indeed Relaunches Tweaked Power Systems Deal

Published: July 13, 2009

by Timothy Prickett Morgan

As The Four Hundred suggested it might do two weeks ago, IBM has indeed put out another in a long line of rebate offerings for customers deploying Power-based systems and systems and application software from a select list of independent software vendors. The configuration of the deal is just a little bit different from what we had heard a few weeks ago.

The deal, known formally as the Software Solutions for IBM Power Systems First-in-Location Rebate Offering, is outlined in detail in announcement letter 309-546, dated June 29. And it has a slightly different flavor from past deals I have seen.

The intent of the deal, as is shown in its name, is to get specific software into midrange and enterprise accounts for the first time and to get it into those accounts running on IBM's Power6-based servers, not on x64 servers or alternative RISC or Itanium systems. To that end, the deal has a provision whereby the chief executive officer, chief technology officer, chief information officer, chief financial officer, or an equivalent big-wig or hot-shot at the company has to complete and sign a certificate saying that the particular application paired with the discounted (er, rebated) Power Systems server chosen to support it has never, in the history of the company, been installed at a particular location of the company. The inclusion of such a provision suggests that there might have been some gaming in past deals where the intent was exactly the same as this current deal--to help ISVs sell into new accounts--but some customers or resellers or both were playing a little fast-and-loose with what constituted a prior install of systems or application software. I don't know of any such shenanigans, but it ain't hard to imagine it.

The rebate offering can be applied to any deal starting on June 29, and customers have only six months from the time they do the deal to when they install all of the components of the solution. IBM doesn't want customers accepting delivery of the iron and messing around, dragging out delivery on the software. And customers have to have an invoice date for the software that is on or before the invoice date for the Power Systems machinery that will support it. So you basically have to commit to the software buy and get your paperwork together before IBM will invoice for the Power Systems gear, thereby sealing the deal and, presumably, giving the rebate back to customers instantly, as it usually does in these deals.

(Instant rebates allow IBM to keep the revenue it books high and count the rebate as a cost of sale; if IBM did a real discount, it can't book the higher revenue figure. Obviously, the money comes out the same in the end, but it makes a big difference when you are talking about lots of deals and to Wall Street.)

In North America, the size of the rebate scales roughly with the size of the server in terms of its processor and memory scalability and the number of cores that are activated on the machine. For each rack, tower, or blade machine, as you can see from the announcement letter, IBM requires that a certain number of processor features on the Power6 machinery be activated to get the rebate (well, actually a mix of Power6 and Power6+ machinery, but IBM has been trying to hide that). On rack and tower machines, the rebate ranged from $2,000 on a Power 520 with two 4.2 GHz cores to $28,000 on a Power 550 with 16 3.6 GHz cores. On larger enterprise boxes, the rebates range from $9,000 on a Power 570 with four to seven 3.5 GHz cores activated to $225,000 on a full-bore, 64-core Power 595 using 5 GHz Power6 chips. Customers buying a four-core JS23 blade get a mere $500 rebate, and an eight-core JS43 gets only $1,000 for the rebate.

Customers in Canada, who can also participate in the deal, are getting rebates in Canadian dollars that make the numbers more or less wash with the currency exchange rates between the U.S. greenback and the Canadian looney. Presumably, IBM will offer similar deals in EMEA, and if not, customers should complain to both Big Blue first and then to me so we can tell people about it and bring some pressure to bear.

The new rebate deal can be used in conjunction with products sold by 88 different software vendors, which span the i 6.1, AIX 5.3 and 6.1, and Linux operating systems supported on Power6 iron. It is a veritable who's who of ISVs, but is by no means covering the 2,500 key ISVs on the i platform and the similar-sized AIX ISV community. IBM has, however, covered the bases with a lot of key players, as you can see from the list in the announcement letter, and it is likely that more ISVs will be clamoring to be added to the list if they decide that jumping through whatever hoops IBM no doubt has placed in front of the deal.

What I want to know is this: what kind of matching deals are ISVs giving to customers to sweeten the IBM Power Systems rebate deal? In this kind of economy, a discount on hardware is not going to be enough to move a deal toward a close. If ISVs are not budging on their prices, none of this will mean much until the economy improves.

Moreover, considering what configured systems cost, these rebates look like they are coming in at around 4 percent to 8 percent of the cost of a reasonably configured box. (It depends on what you consider a reasonable configuration.) Big Blue and its ISVs are probably going to have to do better than that. I simply do not believe that this will be enough to get fence-sitters to spend dough.

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