The Shape of the System i Business
April 10, 2006 Timothy Prickett Morgan
A decade or more ago, there were various services that did an excellent job of polling IT establishments in North America and Europe to find out what kinds of computers people used and the applications they ran on them. The one that I had complete and unbridled access to was the Computer Intelligence service, which is now owned by Harte Hanks. With this tool, you could get a good feel for the AS/400 installed base. I miss it a great deal.
The original publisher of The Four Hundred was Hesh Wiener, who you all know as the Mad Dog columnist in this newsletter, and he knew Hugh Tietjen, the founder of Computer Intelligence. For a ridiculously modest fee, Tietjen gave Technology News, the company founded by Wiener, unrestricted access to the relational database behind the North American and European installed base databases, which if memory serves me had something like 250,000 combined sites that were polled. The CI online interface to the relational database (which ran on an IBM mainframe) allowed you to dice and slice the installed bases in a million different ways, and I did this for countless stories in this newsletter and others. It was a great deal of fun, and I learned a lot about the computer business from this and even got to teach a few things that no one else saw in the data. When Tietjen sold CI to Harte Hanks, our sweetheart access deal went out the door with the company’s founder.
Back in the late 1980s and early 1990s, the North American and European economies were still pretty heavy into manufacturing and distribution, and these two categories dominated the AS/400 installed base; again, from memory, I recall that companies in the $10 million to $50 million range were the belly of the AS/400 market in terms of shipments, but in terms of the value of the machines, companies in the $50 million to $250 million range spent the most dough on their machines over a much smaller installed base. As we all know, manufacturing jobs have been offshored in the past two decades at a frightening clip, and it comes as no surprise that the installed base of AS/400 and iSeries machines has shifting along with it. It is also totally reasonable to me that the emerging economies in Brazil, Russia, India, China and Korea–where iSeries sales have been skyrocketing–are following the offshored manufacturing and offshoring services business (including banking and financing) as these economies grow.
Here it is 2006, and we have to rely on anecdotal evidence from IBM and others to get a read on the current state of the OS/400 server installed base. When I sat down to talk to Mark Shearer, the general manager of the newly christened System i division, at COMMON two weeks ago, we talked a bit about the business. Shearer explained that IBM sees three distinct markets for the OS/400 platform these days.
The first is the large users who have big boxes and who have multiple operating systems deployed on their machines. He said that Unix adoption on the iSeries and i5 platforms has progressed faster than IBM expected, and other sources at IBM tell me that over 1,000 logical partitions are now running AIX. Shearer said that these companies are looking at the hardware, software, and operational savings that come from consolidating their various platforms down onto a single iSeries or i5 box. The second group of users, which is a lot larger in number (but not necessarily in terms of aggregate revenue), are the small and medium business customers who use the OS/400 platform as their core platform for back office applications. These companies, said Shearer, do a fair amount of Windows server computing and like the Integrated xSeries Server co-processors and the Integrated xSeries Adapter cards that let them link outboard xSeries servers to the iSeries and i5 platforms for hybrid OS/400-Windows computing. The third group that IBM thinks about are new account sales, which Shearer said would be an explicit focus for IBM in 2006 and which tends to be driven by a complete, new solution sale.
Interestingly, banking and finance is a key area for the System i5 platform. Shearer said that this is the fastest growing market segment for the platform, and that because of the strong heritage in banking applications for the AS/400 and iSeries–with over 16,000 banks (not branches, but unique banks) running on the box–banking is often the way that the AS/400 and iSeries has entered an emerging market. “In broad terms, wherever money is moving around, the System i has strengths,” explained Shearer. After establishing a toe-hold in banking in an emerging economy, then IBM and its application partners go into manufacturers and distributors in the economy, peddling applications that are for many in the emerging economies, the first ERP systems they have ever installed. The public sector, with state and local governments and small federal governments, the i5 platform also is popular.
Shearer said that the revenue split between the sales of iSeries and i5 platforms is still about 40 percent in the United States and 60 percent for the rest of the world, a split that has more or less remained unchanged for the past two decades. But, with China, India, Russia, and Indonesia growing so fast, this ratio could change. It is my guess that it will not be too many years from now when the System i sales profile will be split into thirds: one for the U.S., one for Europe, and one for the rest of the world.