IBM i Licensing, Part 1: Operating System Subscriptions

June 6, 2022 Timothy Prickett Morgan

Every vendor that sells systems and/or the systems software that runs atop that machinery has had to cope with myriad transitions in product packaging and pricing with the establishment of the cloud. The transitions are difficult for both companies and their customers, but in the long run, pricing will be more flexible and equitable – and far more predictable for both vendors and users alike.

Big Blue has offered several licensing models over the years for the OS/400, i5/OS, and IBM i platforms. In the early years, every piece of software had a perpetual license tied to a machine, usually based on a processor group or some other unit of capacity, and then a software maintenance support contract that was paid every year that this software was active to cover the costs of keeping that software patched and updated. Speaking very generally, software maintenance in the midrange has been on the order of 15 percent to 20 percent of the initial cost of the perpetual license, and that rate was charged annually. IBM did a stint with user-based pricing for OS/400 and its adjuncts back in the 1990s, and because of the difficulty of policing licenses (the commercial Internet was still in its infancy) and the complexity of explaining it, after a few years Big Blue reversed itself and went back to perpetual licenses and support – except for entry OS/400 machines, which had a combination of capacity tiered perpetual licenses with support and per-user access fees.

Now, thanks to the cloud, IBM is being pushed to price both hardware and software on the IBM Cloud not only on a cloud-style capacity basis with subscription basis, but thanks to the success of the GreenLake program from Hewlett Packard Enterprise and the APEX program from Dell, among others, it is also having to offer cloud-style subscription pricing on gear and systems software installed on premises. In the latter examples, HPE and Dell actually retain ownership of the machines on their books and customers are essentially paying rent to use them – like a lease in terms of pricing but very much unlike having to make a capital investment and carry it on the company books. This is one of the major benefits of the cloud, and offering cloud pricing for on premises gear is a way to compete – and compete well – against the likes of Amazon Web Services, Microsoft Azure, Google Cloud, and others.

We look forward to making many, many comparisons.

But in the first in what will be a series of stories on IBM subscription pricing, what we want to do is just focus on what is coming first, and that is subscription-based pricing on the IBM i operating system and integrated database, which will soon be available for Power9 and Power10 machines in the P05 software tier. This lays the foundation for providing such pricing for all IBM i software tiers and extending it out to the stack of licensed program products, or LPPs, for the IBM i platform, for providing subscription pricing for hardware that aligns to the rental price of Power Virtual Server (Power VS) capacity on the IBM Cloud, and ultimately for allowing the portability of software licenses and hardware capacity between on-premises gear and capacity on the IBM Cloud.

IBM already laid some stones in that foundation, in fact, and we have talked about how IBM has its own utility pricing for on-premises gear, which came out in with the Power Private Cloud in May 2020 and of course with the launch of the Power VS instances on the IBM Cloud in February 2019. And while IBM has offered generous pricing for IBM i to service providers setting up clouds, it has not offered that to customers who want to use a cloud and who, ultimately, want control of that operating system in some fashion without have to go all the way to owning it through a capital expense. They want to rent control as well as capacity, and IBM understands that, as does HPE and Dell. In fact, that is all that the OEMs have in the fight against the big clouds.

IBM first gave some hints about its subscription pricing plans for the IBM i platform and for a hardware and software bundle (presumably marrying Power10 entry servers and the new IBM i 7.5) back in the May 3 announcements, and we have been on the hunt for details since then.

Dan Sundt and Alison Butterill, both IBM i product managers at this point within IBM’s Systems group, gave a presentation during the recent POWERUp 2022 conference that reveals the pricing on IBM i subscriptions. For now, we just want to get you the data, comparing perpetual and subscription pricing for IBM i and then we will follow up with an analysis of what it all means and how this might play out across the P10 through P50 tiers of the IBM i stack.

It is helpful to review current pricing for a perpetual license plus Software Maintenance, or SWMA as it is often abbreviated (pronounced swamma by IBMers). So here is what it now costs to buy IBM i and support it, which is data IBM does not let loose in the world easily. (But, to be fair, it does publish it, more out of habits from its 1956 antitrust consent decree with the Department of Justice to settle an antitrust lawsuit with United States government.) Anyway, here is the pricing structure for IBM i:

This chart is handy because it brings together the Small, Medium, and Large tiering used by certain Power Systems software with the P05 through P50 tiering used for OS/400, i5/OS, and IBM – as well as the IBM i license transfer groups that are also available. This is just a nice chart to have, and it is a good thing that Butterill and Sundt shared it.

Here is the latest pricing for IBM i perpetual licenses and SWMA by tier:

These IBM i prices – both for the perpetual license and the SWMA – are a bit higher on the entry machines than we remember from a few years ago, but not egregiously so. User fees, for instance, were $250 for as long as I can remember, but are now $300. The base licenses for P05 and P10 are also higher. It is what it is, particularly in these inflationary times.

And now, here is what the P05 subscription pricing looks like for IBM i compared to the price of buying a perpetual license on a P05 machine and supporting it for two years. And remember, the subscription price includes SWMA:

The use of the word “core” here is going to confuse the heck out of people. IBM means “base operating system” where it says core and it also means “per core” for the license. For the perpetual license plus maintenance for a P05 tier, it is $3,095 for the IBM i stack and then $7,500 to have 25 users attached to the system, for a total of $10,595. In year two, tack on another $1,850 for SWMA, for a total of $12,445. The IBM i subscription will cost $75 per user per year and the license for a core to run IBM i in the P05 tier will be $2,160. So for a two-year term, the cost of $8,070 will be a lot lower for subscriptions than for perpetual licenses and support.

But you have to do the math, and it gets particularly interesting if you assume a customer has an operating system release installed for seven years – the term of standard support. Take a look:

In year one, the subscription is 61.9 percent lower, and by year two it is 35.2 percent lower. But the crossover happens in year four, where they are essentially the same, and starting in years five, six, and seven, the total cost of the subscription gets considerably more expensive than a perpetual license. It’s a 30.2 percent premium, in fact. But, this is also an operating expense and not a capital expense, so there is that.

What I remember is back in the 1990s, for both IBM mainframe and midrange gear, the cost of renting systems software was the perpetual license divided by 36 months. If you were keeping the software longer than 36 months, it made more economic sense to buy it than to rent it. But even then, this operating versus capital expense thing was in play. A 48-month divisor is much more generous, so let’s not forget that. But still, over the long haul, subscriptions cost more, and it is not clear how customers will feel about that.

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