The Four Hundred--The Fall (and Rise?) of the OS/400 Ecosystem: How the ISVs See It

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Volume 14, Number 46 -- November 21, 2005

The Fall (and Rise?) of the OS/400 Ecosystem: How the ISVs See It

by Mary Lou Roberts

This summer, IT Jungle ran a series of four stories that examined the state and size of the OS/400 ecosystem and then compared it to other server ecosystems. Our editor in chief, Timothy Prickett Morgan, in his classic style, presented tables and charts galore, constructed market models, and reached some conclusions about the OS/400 market that all seemed to make sense (at least to this industry reporter). But with all that research and analysis, those stories did not gauge the businesses of the iSeries ISVs (God love 'em) whose fates will rise or fall with the growth or contraction of that ecosystem.

The growth--or at least the stability of--the OS/400 ecosystem will likely rise or fall depending on the faith that the ISVs have in it. As intelligent as any number-crunching pundit might be, and however useful it may be in framing the context of the market and setting out the problems and possible solutions to making that market healthier, the attitudes of the ISV community may be, in the end, the only "crunch" that really matters. [Editor's note: As much as I like the work I do and know how it is valued by our readers, I certainly agree with that statement. I'll even concede the "number-crunching pundit" crack. --TPM]

So, in a less scientific fashion, we've sampled the ISV community to find out what they think. Just how much is the OS/400 ecosystem shrinking? Or is it growing again? How do they measure the size of the ecosystem? What factors do they assess to determine the payback they will get for ongoing investment in OS/400 applications and solutions?

Before launching into what I found, let me point out something that I believe is a major qualifier to my own findings: Although several ISVs were contacted, not one of the application solution providers offered to give me input for this article. This, I believe, may indicate quite a bit about the state of the OS/400 ecosystem. While the ISVs who offer security, Web facing, and application development tools are important to the overall ecosystem, without the underlying business applications, we'd all be polishing our resumes and looking for other ways to put the kids through college. But more on that later.

So, let's begin by taking a look at ISV opinions on whether or not the OS/400 ecosystem has, in fact, declined. And most agree it is. Furthermore, there is no shortage of culprits to blame, according to the ISVs.

Matt Graybill, iSeries channels sales engineer for NetIQ, believes that "Open systems prices, performance, and general acceptance have taken their fair share of the market from IBM. Poor marketing and lack of focus have also contributed to the decline of OS/400 in the marketplace."

Eric Figura, sales and marketing manager for BCD Software sees a different villain. "The iSeries-AS/400 marketplace took a shot in the mid-section as a result of Y2K, one of the greatest non-events to occur that caused an exodus that later turned out to be a serious overreaction. Many organizations were convinced to either totally revamp their systems, buy all brand new software on the AS/400, or move on to other software on other servers. At the time, it appeared to some that leaving the platform was the answer. However, costs for those who moved off the platform were never lower."

Cost was a factor too, claims Bill Langston, director of marketing for NewGeneration Software. "In the past two or three years, iSeries sales were soft and the platform lost market share in the overall server marketplace. I don't think anyone can argue that point," he says. But while he does not believe that the platform has lost a significant number of customers in recent years, Langston does believe that "even the most loyal iSeries customers chose to deploy their new applications and workload on other servers. This was due in great part to the relatively lower hardware costs and greater availability of new software for those other operating systems, particularly Windows and Unix."

Langston sees another force that worked against the iSeries as well. "I have not heard IBM or any other business partners talk about it, but I also think the iSeries, as the premier ERP box in the manufacturing industry throughout the 1990s, has been hurt more than other platforms by the decline in manufacturing in North America and Western Europe. IBM has a chance to establish the iSeries as the number one ERP platform in the emerging markets where manufacturing is now centered, but it could take years to make up for the revenue lost in the mature markets."

John Siniscal, president of LANSA, shares Langston's view that Windows is one of the primary villains. "Clearly, the OS/400 ecosystem has been in decline for several years. There are fewer ISVs and regional consulting firms whose primary focus is the iSeries market, compared with five or 10 years ago. The ecosystem peaked in the mid- to late-1990s and has eroded since then, due in large part to the rise in acceptance of Microsoft Windows as the corporate line of business server platform."

But Siniscal sees another cause as well: The poor performance of iSeries ERP vendors who failed to modernize their products and lost business to newer, more attractive Windows- and Unix-based solutions. This, in his opinion, is not only a cause of past shrinkage in the ecosystem, but a cause for worry about further contraction. "The consolidation of ERP vendors by Oracle, SSA Global, and Infor (which acquired MAPICS last year and Geac last week), must be a major concern for IBM and the iSeries team. With the doubt about Oracle's support for the iSeries in its next generation replacement for the JD Edwards ERP--after all, Oracle's database doesn't run on OS/400--and skepticism that SSA Global can produce an effective upgrade to its multiple ERP product lines, there are hundreds of iSeries customers that are looking for a replacement ERP system, and that choice is likely to determine their choice of hardware platforms. Although SAP offers an iSeries version of its popular ERP system, most customers seem to prefer the UNIX versions. That leaves Lawson and Intentia, who are in the process of merging, as the last remaining significant global ERP vendor that has any chance of providing an ERP path that would keep these customers on the iSeries." Extrapolating the situation to banking, supply chain and healthcare, for example, underscores for Siniscal the importance of a vibrant ISV community to keep the iSeries ecosystem healthy and growing.

ASNA, which earns its living migrating ISVs and others off of OS/400 onto .NET and Windows, naturally keeps a pretty good tab on the base of prospects. John Ball, vice president of marketing, claims that at one point there were more than 3,500 ISVs actively developing and marketing applications to the OS/400 market. Today it's different. "Our efforts to secure mailing lists and contact details to support our marketing activities reveals fewer than 1,000 companies that continue to actively market OS/400 applications--and the number we can confirm through contact is 700."

As evidence of the decline, Ball points to data released by Microsoft's Midrange Alliance Program that shows that IBM shipped 22,000 iSeries servers during all of 2004. Conversely, 1.9 million Intel/Windows servers shipped during the quarter ending June 2005. Ball reasons, "Even if the OS/400 ecosystem were steady-state or flat, the environment is becoming rationalized by not keeping pace by the market growth experienced by alternative platforms."

Assuming the accuracy of these numbers, is this a fair measurement of the size of the OS/400 ecosystem? David Wegman, executive vice president of Vision Solutions, thinks not. "It is easy to confuse raw server counts with deployments and workloads as often seems the case in the midrange markets. We need to look under the raw counts at capacity and even instances of the operating system. Despite what we hear in terms of mass shipments of Unix and Windows servers, one must ask the question: 'How many of those boxes equate with a single iSeries in terms of power, simplicity, and workload capacity.'" If he hadn't said that, we would have. The question is: How many of those 1.9 million Windows boxes are running ERP software? That is how you compare the iSeries to Windows.

The iSeries has evolved, offering a platform with sophisticated logical partitioning technology that enables the running of multiple operating systems on the same platform. Wegman says, "Each of those systems is capable of tremendous workloads. How do you compare and contrast those numbers to raw Unix server counts? Does one 32-way iSeries with hundreds of partitions count as hundreds of servers or one footprint? If one mid-size iSeries can do the work of a rack of Unix servers or a room full of Windows servers, how do you equalize the count? Maybe the better 'server metric' is instances of the OS/400 and i5/OS. Or maybe workload capacity or connected users."

Joyce Bordash, IBM's director of iSeries ecosystem development, applauds that kind of thinking. "We really recognize that the iSeries is not a high volume or commodity market," she explains. "The product has always been about solutions--particularly business processing solutions. For the kind of strength that we're playing too, that's really where our investment streams are being prioritized. You're not going to see us getting into a lot of initiatives that are all about pumping volumes and prices." Indeed.

A much better measure of the decline/stability/growth of the OS/400 ecosystem might be to look at the numbers presented by the ISVs themselves rather than the number of iSeries servers chugging away.

NetIQ's Graybill reports that five years ago, before NetIQ acquired PentaSafe to get into the OS/400 market, that company total OS/400 revenue was $14 million. Today, NetIQ brings in $9 million in OS/400-related revenues. Five years ago, all of PentaSafe's software ran on the iSeries. Today, they have more systems that run on Windows. "OS/400 is now 40 percent of our current security business; our company's investment in the iSeries versus other platforms has declined significantly in the last five years."

NewGeneration's Langston declined to offer specific numbers, but he explains that his company has "grown its investment in the iSeries while exploring other operating systems and application development environments."

Simon Bouganim, CEO of Bsafe Information Systems reports that his company, which only came to the iSeries platform three years ago, had only negligible iSeries revenue until recently. However, since moving to the iSeries, Bsafe's OS/400 revenue has increased every year by 50 to 80 percent, with a revenue split of 80 percent for software and 20 percent for services. Three years ago, its revenue was split 80 percent for mainframes and 20 percent for iSeries. Today, those numbers are 40 percent for mainframe and 60 percent for iSeries. They are riding that wave with their investment dollars as well. Bsafe invests 70 percent of its resources in the AS/400-iSeries platform, as compared to 30 percent in mainframe.

ASNA's business is, by definition, the iSeries base, so 100 percent of its product revenues are derived from that market. However, as Ball is quick to point out, "Our software solutions do not drive the further purchase of OS/400 hardware or applications." His report of double-digit growth for his company may be great for ASNA and its employees--but it's not necessarily a boon to the OS/400 ecosystem.

Other iSeries ISVs may be doing quite well also, but their numbers can be interpreted, perhaps, in other ways. For example, Figura reports that BCD's revenues have more than doubled in the past four to five years, with 98 percent of sales driven by the iSeries platform. And while a significant portion or BCD's growth is attributed to increased sales of software products, BCD's services business has grown by a factor of five in that same time frame. "For WebSmart, we have seen our installed base grow from 100 accounts in 2001 to more than 1,000 in 2005. The trends show that ten-fold increase in four years continuing strong."

Wegman also reports strong growth for Vision Solutions. "Vision has doubled in size in the past five years in terms of customers and licenses, increasing its customer count on a worldwide basis from approximately 1,000 to over 2,200, and licenses to more than 12,000. We have also seen tremendous opportunity for partnering among ISVs as applications have become more integrated." Vision maintains investment levels for research and development on the iSeries at above 20 percent of revenues, Wegman says.

Some of these numbers sound quite impressive for the iSeries itself, but they do not necessarily bode a rosy future for the OS/400 ecosystem. Whether or not IBM can successfully bring new OS/400 application solution providers to the platform will, perhaps, determine that.

Next week, we'll take a closer look into what IBM is doing to grow the OS/400 ecosystem, with an emphasis on OS/400, not just the server itself, and what the ISVs think about the potential for growth in the ecosystem in the long term.

Mary Lou Roberts, a 35-year veteran of the information systems industry, is a new contributor to IT Jungle. In addition to her work as a reporter in the iSeries space, she has spent her career as a marketing and communications professional working exclusively with information technology publications and companies. She can be reached at WriterNewf@aol.com.