A Closer Look at the Economics of the Solution Edition for JDE

The Devil is always in the details in the computer business, and it is funny how the Devil is always looking out for the vendors and not the customers. I have been watching the computer business for decades now, and I am never surprised that things are not usually what the marketeers claim them to be, especially when I do the math. So it is with the i5 520 Solution Edition for JDE EnterpriseOne that IBM announced last week. The deal is a good deal, but it is not as good as IBM would have had us believe from its press release.

Before I start picking, I want to say that I am gratified that IBM at least gets the fact that it is competing against Windows for the hearts and minds of the midrange, and it needs to work with ISVs to make the System i platform more appealing to new customers and to existing customers who might want to jump ship to a Wintel platform from an AS/400 or an iSeries. The i5 520 SE for EO, as I am calling this machine for shorthand, is a big improvement over last year’s i5 520 Solution Edition, which had a $39,500 price tag for a box with nothing but a frame and a processor.

Now, let the picking begin. And yes, I am annoyed, as I am sure any customers who do the math, as I did, will be. First of all, when I got a briefing from IBM concerning the i5 520 SE for EO two weeks ago, I was told that the box was a configuration suitable for supporting 100 JDE EnterpriseOne users. Not exactly. The processor core in the box might be able to do so, but this is a machine without memory and disks. Moreover, the base price tag of the machine is $24,900, not the $21,921 price that the press release says. Presumably, that latter price is the street price of the bare-bones chassis of the i5 520 SE for EO after a 12 percent discount for retail customers, which is about as generous as business partners and resellers get these days on such small machines.

There are no disks in the box. But, IBM is offering a 16-pack of its 70.5 GB, 15K RPM disks for $15,992. Considering that these feature 4327 disks list for $1,999, IBM has cut the price of these disks in half to $999.50 for these JDE customers. Sweet! You can also buy a 16-pack of 35.2 GB disks for half of list price, which works out to $9,592. Wow! Thanks, IBM. Sort of. What about the other 200,000 customers out there in OS/400 land? They don’t deserve to pay twice the going rate that X64 customers pay for a hot swap disk drive? (That’s after IBM’s price cuts, mind you.) Why should everyone else in the OS/400 community have to pay four times market prices for a raw disk? Because Systems and Technology Group needs to report profits more than IBM needs happy customers, or new ones.

The IBM announcement did not give any guidance on how much memory the JDE EnterpriseOne software would require to support 100 users, so making comparisons to Wintel platforms is not precise. But, I took a stab at it, configuring the i5 520 and two Hewlett-Packard ProLiant machines in roughly the same power class. Because these three servers are different in shape and features, the comparisons are not perfect. But I think they reflect the kinds of choices that real customers would be making as they shopped i5/OS and ProLiant boxes to run their JDE EnterpriseOne applications.

To start with, I chose the entry rack-mounted ProLiant DL140 G2 machine using the prior generation of single-core Xeon DP processors, because they are cheap and this is HP’s least expensive box. I also compared the i5 520 SE for EO to a new ProLiant DL380 G5, which has Intel‘s newest dual-core “Woodcrest” Xeon 5100 processors in it. I added 8 GB of main memory to both machines, enough storage to support the users (so I reckoned), plus an operating system, a database, and a virtualization hypervisor. As IBM correctly pointed out last week, and which you all know full well, OS/400 and i5/OS have sophisticated subsystems and a workload manager that allows applications and their databases to run on a single machine without having to resort to virtual or logical partitioning to isolate workloads. The same cannot be said for Windows. Which is why I put the top-of-the-line VMware ESX Server 3 Enterprise Edition on the Wintel boxes. IBM includes its Virtualization Engine hypervisor on the i5 boxes, but you don’t have to run an application like JDE EnterpriseOne. You most certainly do have to use ESX Server to accomplish the same task on a Wintel machine. And ESX Server is not, at $5,750, a cheap option. In fact, it costs roughly twice as much as the base ProLiant servers do.

For the i5 520 setup, I picked the 35.2 GB disk pack (for a total of 563 GB) and added a RAID 5 disk controller (which was missing) for $1,999. That brought the list price of the i5 520 box up to $41,131, and if that 12 percent discount is valid, then the street price of the box would be $36,195. That includes i5/OS V5R4, DB2/400, and Virtualization Engine all bundled in. This machine is rated at around 3,800 CPWs, which makes the street price/performance of this setup around $9.53 per CPW.

(You can see the feeds and speeds of the machines and the pricing for them in this comparison table I have built.)

The DL140 G2 box is a 1U rack-mounted server that only has enough room for two disk drives. I put 8 GB of main memory on it and two 36.4 GB, 15K RPM disks and a RAID controller to store Windows Server 2003 Enterprise Edition and SQL Server 2005 Standard Edition. The base box costs $2,200 without memory and disk. The 8 GB of memory costs $1,716 (less than half of what IBM is charging for memory), and the disks and the RAID controller together cost under $1,000. Because EnterpriseOne needs some spindles to do its work as well as more storage, I opted for an HP Modular Storage Array 20 box, which is an entry RAID 5 array that uses SATA disks. The MSA 20 holds a dozen SATA disks, which can be 160 GB, 250 GB, or 500 GB in capacity. I chose the least-dense disks, slapped on a SCSI controller to attach it to the DL140, and created a 1.92 TB array that cost $5,106. The total hardware budget for this box came in at just under $10,000. Onto this hardware, I added Windows Server 2003, which costs $3,999 at list; Client Access Licenses for 100 users, which cost $2,994; and SQL Server, which costs $5,999. Add on VMware ESX Server 3, and the grand total comes to $28,711.

With a single 3.6 GHz Xeon DP processor, this DL140 box is rated at about 38,100 transactions per minute (TPM) on the TPC-C online transaction processing benchmark test, which works out to about 3,830 CPWs of power in OS/400speak. (This shows, once again, that clock-for-clock, the Power architecture is still doing twice the work of Intel’s X86/X64 architecture, which has been true for a decade now.) When you do the price/performance analysis, that works out to about $7.50 per CPW for the DL140. Assume that list price is deal price–which it more or less is with Wintel boxes sold as onesies–this setup offers 21 percent better bang for the buck than the i5 520 setup.

This is not, admittedly, the box that most customers would choose to run JDE EnterpriseOne using Windows. The DL140 is really aimed at supercomputer clusters or Web infrastructure where I/O and disk capacity are not issues and connectivity to the network is. I just did this example to show you that in the Wintel world, building a machine out that is suitable for supporting real workloads is not as inexpensive as many would have you believe. (Hey, HP, Dell, Sun Microsystems, and others fudge their numbers, too, just like IBM.)

So, I ginned up a more typical setup using HP’s new DL380 G5 server. Even though this machine supports two processor sockets, I only put in a single 1.86 GHz Xeon 5120 processor with two cores. Why? Because this yields roughly the same performance as the single Power5+ core running at 1.9 GHz. (Actually, the Woodcrest core is a little bit faster, clock for clock, than the “Irwindale” Xeon DP core. But only just a little.) With two cores running, this Xeon Core, as the new X64 architecture from Intel is called, the machine can do about 40,810 TPM on the TPC-C test, which works out to about 4,100 CPWs of OS/400-style processing power.

The base DL380 machine with no memory or disk would cost $3,139 (if HP sold it that way, which it doesn’t, since it puts memory and disk in a machine you buy, as if you were going to actually try to use it); adding 8 GB of main memory would cost $2,836. The DL380 G5 servers have room for eight small form factor Serial SCSI disk drives (technology that the i5 still, for some inane reason, does not support). Rather than go the MSA 20 route with the DL380, I did what real HP customers would do. I loaded the box up with eight 72 GB, 10K RPM disk drives, which yields 576 GB of capacity. It is arguable if eight disk spindles are enough to service 100 users, but I think the disks will be busy but not past the point of good capacity planning. (IT Jungle’s DL380 G3 has only five 10K RPM SCSI disks, and it handles all kinds of workloads just fine.) The DL380 has an integrated RAID 5 controller, so the storage part of this server only costs $2,872. (Memory, disk, and server all cost about the same for a balanced configuration.) The total price tag for hardware came to $8,847. When you add the same Wintel software stack on the box, it comes out to $27,589–almost exactly the same as the DL140 setup above.

And, like the i5 520, these two HP machines have enough room to double their processing capacity. However, with the ProLiants, you just drop in a second processor, which costs a few hundred bucks–$399 for the 2.8 GHz Xeon DP used in the DL140 and $549 for the second 1.86 GHz Xeon 5120 used in the ProLiant DL380. With IBM, you have to upgrade to a plain vanilla i5 520 Standard Edition box with a single processor. Assuming a net-cost upgrade, that will cost $10,100 to $15,100 with no change in performance (depending on if you want the L3 cache turned on); you pay $1,800 to activate the second core, and then pay $24,000 to add i5/OS and DB2/400 to that second processor. The Wintel stack is already enabled on the X64 processors. You have to pay in the neighborhood of $36,000 at least to double the power in that i5 520.

Yikes!

I am beginning to wonder if the people in IBM’s Somers, New York, facilities actually know about the server business. (The word “beginning” is a bit of a stretch. I have been wondering that since about 1993, when the people behind the AS/400 business, or IBM’s upper managers who seem to hate it but love to milk it for profits, started to lose their minds.)

So, let me show you how to do this properly, IBM, since you seem to have very little idea how the rest of the server business does business. Take a look at the last column in the table I built, called TPM’s iDeal i5 520 SE for EO.

First, if the software is where the value is, put the price there. Integrated does not mean bundled price. By charging so much for the hardware and bundling the price of the software in, you scare off customers. So, charge $3,000 for this single-core i5 520 server with nothing else but a frame. If you can’t make a bare-bones server for $3,000, IBM, then just port your software to X64 and just get it over with. Or, call it $9,000 because you have $6,000 worth of integrated virtualization hypervisor built in. I prefer to call the hypervisor part of i5/OS, which is what it should be. So, a $3,000 price tag on the i5 520 bare-bones machine. Now, charge another $3,000 for 8 GB of main memory, which is a slight premium over HP’s prices. Charge $500 for a RAID 5 disk controller (what HP charges in machines without one, but a quarter of what you currently bilk i5 shops for), and I will even let you charge $400 a pop for 15K RPM disks with 35 GB of raw capacity, which is still a little too high. But they are better or faster disks than HP is using, so I will grant you that. With this iDeal i5 520 machine, list price is street price. That means it costs $12,900–no discounts. The deal is fair enough.

Now, let’s talk about software. For the Solution Editions–and I wish for all i5 machines–i5/OS should be core neutral. The whole industry is this way, and IBM had better get with the program. I want to charge $8,000 for i5/OS, which I am calling OS/400 V5R4 because I hate the i5/OS name. That’s twice what Microsoft charges for Windows 2003 Enterprise Edition, and that $4,000 is the value of not having to cope with Winders. (Yes, I call it Winders when I am speaking.) OS/400 has its virtualization software built in, just like Windows will eventually. I want DB2/400 as a separately priced option, and IBM can charge $7,000 for it. That brings the total price tag to $27,900 for a configuration suitable (I hope) for running JDE EnterpriseOne, and that works out to $7.34 per CPW or a 9 percent premium over the Wintel setup. That 9 percent is margin the dealers and resellers get in addition to whatever cut IBM gives them. If customers want to activate a second core in the TPM iDeal i5 520 box, they pay IBM $1,000–twice what Intel charges.

This is fair. This would sell. This ain’t that hard.

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