Big Blue Pulls The Plug On IBM i Discount Deal

February 20, 2012 Timothy Prickett Morgan

IBM, like most retailers of capital goods, has to use a combination of carrots and sticks to encourage customers to spend money on new systems or upgrades, particularly when the economy is as dicey as the current ones in parts of North America and Europe still seem to be. Sometimes there’s a real stick–like the threat that an operating system will no longer be available–and sometimes there’s the withdrawal of the carrot, which feels like a stick when it hits you.

In the wake of IBM’s announcement last week of the sunsetting of the i5/OS V5R4 operating system release on September 30, 2013, you’d have to expect that IBM would put a few carrots back into its pockets, saving them for another day. But who knows what IBM is thinking? The company doesn’t exactly explain its every move to customers and pesky market watchers. (And to Big Blue’s credit, its competitors generally do a worse job explaining their moves.)

Last week, in announcement letter 312-020, IBM pulled the plug on a pretty generous IBM i discount deal, and it is not clear how much the removal of this deal will help or hurt the revenue stream from this portion of the Power Systems and System z division. The deal, which debuted in announcement letter 310-241 from August 18, 2010, gave customers buying JS22, JS23, JS43, PS700, PS701, and PS702 blade servers, as well as Power 520, 710, and 720 rack and tower servers, a 40 percent discount on the per-user fee for the IBM i 6.1 or 7.1 operating systems. The IBM i Licensing By User deal was modified a bunch of times in the past 18 months, taking away some of the Power6 and Power6+ based machines from the deal last November in the most recent change.

That per-user fee is a big deal, and raising the per-user cost by $100 to $250 for entry Power Systems machines running IBM i will bite into more than a few budgets. But it may not be as big of a deal as you think.

On entry and some midrange Power Systems machines, IBM has a flat fee per core plus a per-user fee for each user that accesses the system directly with a user name and password. Larger machines have an unlimited numbers of users and pay a flat (and much higher) per-core IBM i license charge. IBM meets customers halfway between these two points on smaller machines, allowing customers to buy an unlimited user license once they buy the per-core license. On P05 tier machines, this cost $18,750, so effectively once you had more than 75 users, you should go for it and do it this way. On the P10 tier machines, it cost $50,000, which is equivalent to 200 users.

The Power 520 and 720 machines are by far the most popular boxes purchased by IBM i shops these days. On a Power 720 box, you are talking about $745 per core for IBM i plus $1,250 for five users (this price does not include Software Maintenance, which I have backed out of the numbers). So on a four-core processor card, which costs $3,070, activating IBM i 6.1 or 7.1, and putting on five users, each machine lists for $7,980. (A year of SWMA will run you another $4,000.) So while you are saving big bucks on the per-user fees, when you add it all up, just the raw processor capacity and the software and support costs $15,050 at list price. The IBM i licensing deal amounted to a 13 percent discount off the raw price of the base processor, IBM i, and support.

The thing to consider is that IBM Solution Editions still, as far as I know, offer IBM i licenses on entry and some midrange Power Systems machines at $70 per user. So as good as the IBM i user promotion was, if you can buy a Solution Edition in conjunction with a third-party application, the IBM i fees (and the hardware price as well) come down even further.

I’ve said it before, and I will say it again. The Application System/400 was founded on the idea that customers wanted to create their own applications, and Big Blue invented an ingenious machine that let programmers create clever business programs to run their businesses. So why, dear readers, does IBM always cut the best deals with ISV partners? What, precisely, is wrong with setting the price the same for all users of the IBM i operating system, whether companies write their own code and maintain it or buy good applications from a third party? Why should IBM tilt the playing field to be unlevel?

For 18 months, the playing field was slightly less a-kilter. I suspect that IBM will come up with another way to cushion the IBM i sticker shock a bit in the coming months. Particularly if we all complain a little. Or, you can just ask IBM to give you user licenses for $70 a pop and cut right to the chase scene.