OS/400 Edition
Volume 11, Number 47 -- November 11, 2002

The iDeal iSeries, Part 2

by Timothy Prickett Morgan

Last week, in part one of the iDeal iSeries saga, I dreamed up my own iDeal iSeries product line. A lot of you thought that this iDeal iSeries product line was a pretty good idea. The more I think about it, the more I do, too. Last week I took care of assembling the base iDeal iSeries server line with its feeds, speeds, and base prices. This week, I am tackling memory, disk, operating system, and database pricing.

The pricing on these components has been in sore need of some changes for quite some time. IBM has from time to time made changes that make pricing for memory and disk capacity more palatable, but it is still way out of step with the rest of the midrange. OS/400 operating system and DB2/400 pricing is nearly a complete mystery, since IBM bundles it into the base servers. (IBM does have list pricing for V5 on AS/400 4XX and 5XX servers, which can support the operating system, so we can play with those numbers.) IBM's 5250 green-screen software used to be included in the base OS/400 license, but since 1997 IBM has used separate interactive features with their own pricing--and very expensive pricing at that--to bolster hardware revenues. But, as I have said hundreds of times now, these features, which put a governor on the performance of the green-screen protocol that RPG and COBOL applications use to access the DB2/400 database, are not really hardware, but software. I think it is high time IBM start charging for OS/400, DB2/400, and the 5250 protocol like it was software.

Before I get into this, let me make something clear. I am a firm believer in consistency. I am a firm believer in telling people what the price of something is, and sticking to it. I am a firm believer in using discounts equally across all customers, regardless of size, to promote a certain kind of behavior. I believe in action as well as words. IBM's secretive pricing for OS/400 and DB2/400, and its inconsistent pricing for 5250 features, irks me as much as it probably does untold OS/400 shops. I get paid to talk for a living, and while I may have strong beliefs, I make my money where my mouth is.

None of you care about how Guild Companies prices advertising, but this is a good example of what I am talking about. It has taken a while for many of our advertisers to get used to our egalitarian way of doing things, but I think that if you asked them if they preferred our way of doing things to that of our competition, you'd get very little dissent. And if there is dissent, my advertisers all know they can call me and see if there is some way to change one of our business practices. And if we did do that, we'd make a change for every one of our advertisers, all at the same time. Last year, for instance, I cut advertising prices in a few slots in two of our newsletters, and did so across the board for all advertisers, even those who had already negotiated deals at higher prices. This is called being fair. Moreover, our list prices for advertising slots are posted on our Web site, and those are, in fact, the prices. You buy one ad, you get one ad; you buy 10 ads, you get 10 ads. We don't offer volume discounts, since a new customer is just as valuable to us as a repeat customer, and a small advertiser is just as important to us as the bigtime advertisers. Together, they all make our publications--which are free to all of you--possible. We are grateful for all of their support, and this is the best way I know how to express that gratitude. We play it straight with each and every one of them. The only discount any of our advertisers get is a 7 percent discount if they pay within five business days of being invoiced. That's it. Plain and simple. Our advertisers, after being with us for more than a year, appreciate the simplicity and consistency we offer. Not haggling with our advertisers gives us time to do what we do--publish newsletters--and it gives our advertisers time to devote to other things, which are none of my business.

I suppose pricing out the iSeries line isn't my business either, but it's too late now; I've already built my next bunch of spreadsheets. As was the case last week, I am not concerning myself with how my iDeal iSeries product line compares with the actual iSeries product line. I won't know that until I build more spreadsheets. I am just designing and pricing components based on the prevailing technologies and pricing algorithms out there in the midrange.

iDeal iSeries Storage Pricing

By my reckoning, main memory and disk storage account for anywhere from 50 to 75 percent of a typical server purchase these days. When main memory and disk drive prices are high, as they are on the IBM iSeries line, customers probably skimp on these components in ways that are harmful to the performance of their machines. High memory and disk capacity prices are also what makes the iSeries unappealing in competitive bids with Unix and Wintel servers at new accounts, as well as at accounts that are already pro-OS/400. It's easy to justify why IBM charges so much money for memory and disk components--with iSeries shipment numbers at an all-time low because of the poor economy and the high pricing on the iSeries, Big Blue has to make its money somewhere--but it is hard to justify paying for such components in an IT budget. IBM's high server, memory, disk, software, and 5250 pricing makes it hard to compete against other platforms. Companies are not thinking about the long run right now, and the iSeries pricing model from IBM is based on selling the idea of a lower total cost of ownership for the box compared with Unix and Linux alternatives. The iSeries pricing makes it a customer-push sell instead of a customer-pulling sell. Dell pricing, which is insanely low, makes it a pull sell. That's why it can sell direct. Its pricing means it doesn't need a sales force or business partner channel, just a Web site with low list prices that are the real selling prices does the trick just fine.

Take a look at the memory and component pricing table I built that shows low-end and high-end eServer component pricing in the iSeries, pSeries, and xSeries lines. As the table shows, IBM charges $3.50 per MB for main memory in the Model 270 entry machines and $13.50 per MB in the Model 890 "Regatta-H" server. IBM's 17.54 GB disks in the Model 270 and Model 890 servers cost 8 cents per MB, and its 36.2 GB disks cost 7 cents per MB. A PCI-based RAID disk controller costs $6,000.

The two most similar products (in terms of intended customers, not necessarily technology) in the pSeries line to the iSeries Model 270 and Model 890 servers are the pSeries 630 and pSeries 690 servers. In the pSeries 630, memory sells for a little more than $2 per MB, about 35 percent cheaper than in the iSeries Model 270. The 18 GB and 36 GB disks sell for 6 cents per MB and 5 cents per MB respectively, about 30 percent cheaper than on the iSeries. IBM also offers 73 GB and 147 GB disks on the pSeries line that have yet to make it to the iSeries line. A RAID disk controller costs $2,499, which is 60 percent less expensive than on the iSeries. On the high end, IBM's memory prices on the pSeries 690, which is almost exactly the same machine as the iSeries Model 890, are very generous. On the pSeries 690, a 4 GB memory card costs $9 per MB, an 8 GB card costs $8 per MB, a 16 GB card costs $7 per MB, and a 32 GB card costs a mere $3.68 per MB. You heard that right. IBM is charging more per MB for an iSeries 512 MB Model 270 memory stick than for a 32 GB pSeries 690 card. And if I were a pSeries 690 customer buying main memory, I'd be peeved at IBM for such disparate pricing.

Over on the xSeries 440 product in the eServer line, for IBM's biggest and most powerful Wintel and Lintel machine that is based on the "Summit" chipset that will eventually scale to 16 processors, IBM is charging 97 cents per MB for 512 MB and 1 GB memory cards, and is charging $3.42 per MB for a 2 GB memory card. A RAID disk controller costs $2,099--roughly one-third the cost of a similar card on the iSeries. Disk capacity costs about a fifth on these machines for equivalent 18 GB and 36 GB 10K RPM disk drives.

Is anybody surprised about why IBM's xSeries sales are growing at its enterprise accounts and pSeries sales are dwarfing iSeries sales? I'm not. IBM would have to use cattle prods, sleep deprivation, and hypnosis to keep customers away from the xSeries and pSeries at these prices. And that's before IBM's very aggressive discounts on pSeries and xSeries iron kick in. Fury is a good word to describe how iSeries customers should feel about such ridiculous pricing on storage components.

Here's any idea, IBM: If you haven't already standardized memory components in the eServer line, do it to the highest degree possible. And when you do, charge the same price across the eServer line. We're all supposed to be one big, happy eServer family, right?

iDeal iSeries Systems Software Pricing

OS/400 is not free, and neither is the DB2/400 database that is integrated into it. I know what IBM says, but it confused the word bundled with the word free. I can assure you that OS/400, which includes a DB2/400 license, has a price. And the 5250 protocol that allows the vast majority of OS/400 applications to access that DB2/400 database most certainly have a price. Prices vary from one iSeries configuration to another, but it is safe to say that, for typical OS/400 shops, OS/400, DB2/400, and the 5250 protocol account for the biggest slice of their iSeries configuration price, even after taking into account the relatively high server and storage prices IBM has for the iSeries line.

You can see a table that shows IBM's current OS/400 pricing, which is based on tiered pricing (P05, P10, and so forth) for the base OS/400 and DB2 components, by clicking here. OS/400 also includes supplemental fees for media management, printing, high availability, OptiConnect networking, and parallel database functions. With OS/400 V3, IBM charged a mix of tier- and user-based pricing. The current V5 pricing shows the user bands that the OS/400 tiers implied during the V3 generation. I've added this in so you can see the effect of moving to a mix of CPU-based and user-based pricing on OS/400, DB2/400, and other major software components.

I think it is time to scrap the whole tiered-pricing model and move to a different set of editions for different customer sets. This is how Microsoft does it for Windows 2000 and SQL Server, it is how Oracle does it for its Oracle9i database, and it's how IBM does it for its own DB2 Universal Database products for Unix and Windows.

I'm not exactly sure what features to differentiate the iDeal iSeries Standard, Advanced, and Enterprise editions of OS/400 and DB2/400 from each other, but for the moment all I have done is focus on the SMP scalability that each one offers. Standard Edition OS/400 and DB2 is for uniprocessor, two-way, and four-way servers. Advanced Edition is for two-way through eight-way machines, and Enterprise Edition is for any machine that can scale from four to 32 processors.

My pricing for OS/400 Standard Edition is the same as for Windows 2000 Standard Edition--$400 per processor. Ditto for OS/400 Advanced Edition, which I am pricing at $1,000 per processor. The CPU portion of the pricing for DB2/400 will look familiar to Microsoft customers, since it is the per-processor charge the company sets for SQL Server 2000, which is $5,000. I've set the price of DB2/400 Advanced Edition such that the price of this software with no green-screen protocol (but using ODBC or JDBC access) is the same as what Oracle Enterprise Edition costs on an eight-way Unix server, and that DB2/400 Enterprise Edition (again, no 5250) costs the same on the iDeal iSeries Regatta box as Oracle9i does on the pSeries 690 Regatta server. Oracle offers two pricing methods: CPU-based pricing and user-based pricing. It's an either-or thing, and it doesn't map well into my scheme. Oracle charges $300 per user for Standard Edition and $800 per user for Enterprise Edition with user-based pricing on Oracle9i, and these prices imply that customers are paying for 50 users per processor on the Standard Edition of Oracle9i and for 500 users per processor for the Enterprise Edition of Oracle9i. After that, each user is free.

I have not put in per-user fees for OS/400, mainly because I have added database access fees that will be substantial enough. For every 5250 user, I think a $225 per seat fee is reasonable, and for users whose desktop machines or applications access DB2/400 databases using ODBC or JDBC protocols, I think a $50 fee per seat is reasonable. Any user seat with a paid 5250 protocol gets the ODBC/JDBC connectivity for free, since that will promote the use of these new technologies. So will the much lower price on the ODBC/JDBC database access.

To be honest, I am not sure how to rectify this pricing against the advent of logical partitions, and, quite frankly, neither have any of the server vendors or software houses selling applications that run into partitions. It is not that hard to convert this pricing scheme into a monthly usage pricing model. I'm not doing that right now, but I do see the limitations.

The effect of this pricing is dramatic. Small customers who make modest use of OS/400 features for a small number of users pay a lot less per seat than customers with the big iron who are using all the most advanced features in the guts of OS/400. As is the case with Microsoft's Windows and SQL Server, customers on small machines with few users pay a lot per user--this is the cost to ante. In general, these pricing schemes are progressive--those customers who use more features and who have machines (like 32-way SMP servers) that require more R&D pay more for the software. Only those customers with a large number of users on a machine really make out paying a few hundred bucks per seat.

In the end, there is no absolutely fair way to price software. But this scheme, or something that looks like it, at least puts this mythical iDeal iSeries on competitive footing with the Wintel, Lintel, and Unix alternatives.

Next week, I'll configure some iDeal iSeries machines and see how they compare with the current iSeries line from IBM and Wintel, Lintel, and Unix alternatives. I'm dying to see how this will turn out myself.

Related Articles:

The iDeal iSeries, Part 1

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But Wait, There's More...

Timothy Prickett Morgan

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Last Updated: 11/11/02
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