The IBM i 500

May 6, 2013 Dan Burger

What can an electronic data interchange (EDI) software company tell you about the IBM i installed base? EXTOL International has 500 IBM midrange shops using its software that range from $25 million a year small to midsize businesses up to $21 billion a year enterprises. Each year it adds about two dozen new customers running its software on IBM i on Power Systems. EXTOL’s software does not run exclusively on IBM i, but the platform is an important aspect of the company’s business.

Electronic data interchange allows the computer systems and networks of business partners to transfer data–typically related to shipping, receiving, and order tracking–with little or no human intervention. In other words, it’s very good at integration–getting data into and out of a variety of systems.

“The challenge that IBM i shops have when talking about EDI is not a technical one,” says Mark Denchy, the manager of channel partnerships at EXTOL. “The problem is what software companies remain to do this. We are one of the last companies actively developing EDI software for the platform.”

OK. So EXTOL has 500 IBM i customers with a need for EDI software. The customer demographic is weighted toward manufacturers and retailers. Does that make its customers any more or less progressive when it comes to hardware and software upgrades? Denchy estimates that between one-third and one-half of EXTOL’s IBM i customers have upgraded to Power7 servers running i 7.1.

It’s always a bit of a crap shoot trying to get a somewhat precise handle on OS upgrades, and an estimate from 33 percent to 50 percent doesn’t help focus the lens all that much. If it’s one-third of the customers who have advanced to 7.1, that’s pretty average. If it’s one-half, that’s crossing the line into progressive.

“EXTOL’s application is not going to drive an OS upgrade,” Denchy says. “IBM i shops do OS upgrades typically because they have a new version of an application they absolutely must have and it won’t be supported by the old version of the OS that is running.”

“We have some customers staying on V5R4 or earlier and they can’t upgrade to the newest version of software. Sometimes they hold back because of a lack of manpower to do the upgrade, sometimes it’s related to cost. Sometimes it’s because of old hardware that doesn’t support the new OS or doesn’t have the performance to adequately run the latest software. And sometimes it’s just an attitude that everything is running fine on the existing equipment and life is good.”

That sounds very average. It has been two years since IBM i 7.1 was introduced. Software Maintenance support services for V5R4 will be discontinued on September 30 this year. That’s five months away. If EXTOL’s customer base is average, even if you take into account some of those have moved from V5R4 to i 6.1, the 50 percent or so of the IBM i installed base that has not upgraded in years will either stampede to upgrade the OS, and probably the hardware, this summer or there will be a lot of companies staying on older versions of the OS, going without support, and running their old boxes. There seems to be an increased willingness to drop software support these days, although operating without PTFs and other fixes is a risky proposition. For companies that are nervous about dropping OS support and need a little more time to prepare, IBM does have a fee-based extended service plan, which we report on elsewhere in this edition of The Four Hundred.

There’s more than a slight ring of truth in Denchy’s view that companies that view IT as a competitive tool as opposed to a cost center are the companies that have made the OS upgrade already. When IT is used for competitive advantage, investments get made. When it is viewed as a cost center, the budget becomes a “do more with less” mandate.

You may have raised an eyebrow or two when you read the opening paragraph about EXTOL adding new IBM i customers to the tune of two dozen or so. It caught my attention, too, when I heard it. But the other side of that coin is that those gains are outnumbered by the companies that are leaving the platform and running EXTOL EDI on Linux, Unix, and Windows servers.

“The defections are not technical defections,” Denchy says. “They are the result of mergers and acquisitions and some are lower total cost of ownership for companies that compare what they have to running EDI and ERP in the cloud. There are a lot of considerations when maintenance and renewals come due.

“The new customers that want EXTOL on i are most often smaller company and the IBM i staff has control over where things will be run. I used to see larger companies with policies that everything must run on the i. You don’t see that much anymore.”

In the IBM i world, there are few companies that are new to EDI. Most of EXTOL’s business is replacing EDI installations from companies that have gone out of business, or is no longer supporting the IBM i platform, or have dramatically increased software support charges, Denchy says. There are also cases where companies have contracted EDI as a service and chose to bring it back in house as well as instances where a home grown EDI no longer works well for them.

Denchy estimated 80 percent of EXTOL’s new EDI software licenses last year were added on non-IBM i platforms.

EXTOL has a managed services offering for companies that prefer not to run their own EDI. In this scenario, companies would run the EXTOL EDI on their own machines or on machines hosted by a service provider. EXTOL provides software as a service, but does not provide the IBM i on Power Systems hardware. It does have hardware that hosts its Windows and Linux apps, however.

Denchy says managed services revenue is less than 10 percent of the company’s business at this point, but he predicts it will grow 10 percent year over year for the next several years.

IBM i chief architect Steve Will pointed out in a recent interview with IT Jungle that managed services was a growing trend and that more than 110 IBM i ISVs were supplementing their software licensing with SaaS. He noted that it allows software companies to keep existing customers and allows them to go after new customers without requiring those prospects to buy a server.

The remainder of 2013 should reveal a lot about whether companies are ready to give up their servers and hand over the IT keys to a service provider.

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