Don’t Have A Conniption If Big Blue Goes All Subscription
August 14, 2023 Timothy Prickett Morgan
Big Blue has been pretty clear that it is not only going to put Power Systems machinery in its own cloud as well as those run by its business partners, but that it going to offer hardware and systems software alike under a cloud consumption model with as much of a unified pricing scheme, based on subscriptions, for on premises, IBM Cloud, and partner cloud deployments.
As we have already reported back in February, the IBM i operating system and its integrated Db2 for i relational database is already available under subscription pricing, which includes the license to use the software as well as the right to ongoing support and bug patching that normally comes with a Software Maintenance (SWMA) contract attached to a perpetual license to use that IBM i and Db2 for i software into perpetuity on a specific system with a very precise serial number.
Way back in the day – meaning before I was born as the commercial computing industry as we know it, embodied initially in the IBM System/360 mainframe, was just becoming a force of business – Big Blue didn’t sell its machines, but rather rented them – both hardware and software, and support was a given. And given the high cost of the machinery, companies like IBM also through in some programming services to get companies started down the road to creating datastores and then databases and the online and batch applications that replaced a zillion manual processes for the business as well as created whole new processes that were not possible before the advent of these systems.
But rental was not the only option, although IBM’s pricing and practices strongly encouraged rental. Customers could buy machines and get perpetual licenses to software and then pay for maintenance of the hardware and software separately. This was not something that IBM did out of the goodness of its heart, but rather thanks to an antitrust lawsuit that was brought against Big Blue by the US Department of Justice in 1952 and that the company settled with a consent decree in 1956. After a follow-on lawsuit a decade later that was settled in 1969, there were all kinds of rules that IBM had to follow regarding allowing third party peripherals and support on any of its computers as well as offering list prices to customers and a guarantee that there was an algorithmic relationship between the buy price and the rental price of IBM systems. These rules governed the System/3X, AS/400, and iSeries lines until IBM was able to get out of the consent decree settlement in 2000. Which is why getting pricing information about IBM’s products is so difficult compared to years gone by.
That might all be water under the bridge, but with subscription pricing on hardware and software in the Power Systems line, Big Blue will come full circle. We had user-based pricing on the OS/400 stack and its related Licensed Program Products back in the 1990s, which is half-way to a subscription model in some ways as a machine and a user were both given a piece of a perpetual license. Subscription pricing can be based on users or machines or tiers or performance or whatever – the difference is that it is based on consumption spread out over time explicitly rather than a vague consumption over time that comes with perpetual licenses.
The vague part is that the perpetual license allows a company to use the software forever, in theory, but there are practical limitations because those licenses are tied to specific hardware that cannot, thanks to the laws of physics and the ever-growing need for compute and storage capacity, work forever. Many companies keep their AS/400 and IBM i machines for five, six, or seven years, and still others push it to a decade or a decade and a half of longer, but then they get stuck in a massive La Brea tar pit of technical debt and end up with machines that are inherently less secure than more current systems. And for very sound economic reasons, buying hardware and getting perpetual licenses with support came to be the norm in the 1980s, mainly because companies could stretch that cost out over many years.
In the wake of IBM offering subscription pricing for IBM i and Db2 for i on Power9 and Power10 machines back in February for tiers P05, P10, P20, and P30 (which are all of the tiers), customers could acquire the software the new way or the old way with perpetual licenses plus SWMA support. And at the POWERUp 2023 conference in April, IBM’s top brass told us that subscription pricing was coming for the rest of the Licensed Program Products in the IBM i stack before the end of the year, and in fact that IBM had simplified its packaging of the LPPs last year – which we covered here – specifically to make it easier to move the IBM i stack to subscription pricing. Basically, IBM bundled a whole bunch of separately charged LPPs into other LPPs so there were fewer prices to keep track of and lower costs for customers overall.
And now we hear that the subscription pricing for the IBM i LPPs is going to come out sooner rather than later as Big Blue is pushing for all things Power to be cloudified as much as possible. The word on the street is that the cloudy LPP pricing could be announced before the end of the summer, which would give customers some time to think about it before we get into the fourth quarter push.
This is all well and good, and when this does happen we will do the economic analysis to see how the subscription pricing compares to the current perpetual software plus SWMA approach.
But it did get us to thinking, and this is always a dangerous thing: What happens if IBM stops selling perpetual licenses and software maintenance at all for the IBM i stack?
There is no consent decree with the US government preventing this, and IBM has always liked annuity-like revenue streams. While perpetual licenses are available for the myriad pieces of the System z software stack, they have been available for monthly rental fees since the beginning and that practice never ended for the mainframe – and because both customers and Big Blue liked a monthly charge based roughly on capacity that was predictable. Use more, pay more is the principle. The cloud is not new in any way when it comes to IT packaging and pricing. A System/360 or System/370 mainframe four and five decades ago running in a corporate datacenter was essentially the same as an Amazon Web Services outpost today running in a corporate datacenter. There are different levels of granularity, of course, but this subscription concept is very old.
Given the longevity and the persistence of the Power Systems installed base and the lumpy sales of hardware and systems software licenses in the wake of each Power processor upgrade cycle, we think IBM might want to level it all out, to transform the business to an annuity-like revenue stream that covers on premises, cloud, and outpost management styles and economic models. Given that all of IT is shifting to a subscription model – because customers want a flatter and more predictable way to pay for the IT gear they use – we think IBM will be eager to bring this model to Power Systems. Red Hat already does this. The mainframe stack already does this. And we suspect that IBM wants the entire company – spanning hardware, software, and services – to be priced under a subscription model.
There could even come a day when perpetual licenses, which are presumed to provide entitlement into perpetuity, will go the way of all flesh. We think such a repositioning of IBM will come sooner rather than later. Exactly when remains to be seen.