Big Blue Gives MSPs Monthly Rates On IBM i Stack

June 15, 2015 Timothy Prickett Morgan

Off and on over the past several years, IBM has tinkered around with special pricing for managed service providers that are building IBM i hosting and cloud businesses. The central issue is that Big Blue charges a perpetual license plus annual Software Maintenance fees for the IBM i stack, but MSPs charge customers by the month. The gap between the initial investment and the initial cash flow can be huge–in fact, big enough that building an IBM i cloud can be prohibitively expensive.

Given the legendary ease of use of the IBM i platform and its predecessors, as well as the relatively large installed base of customers who are running mission-critical application on it, you would think that it would be a natural for IBM i clouds to be popping up all over the place. But fees for IBM i range from thousands to tens of thousands of dollars per core, which of course includes a relational database management system but which does not include per-user fees. For low-end machines in the smaller IBM i software tiers, it costs $250 per user to give people access to applications running on the IBM i machine. (What my colleague, Alex Woodie, wants us to start calling the Power i platform.)

Back in the IBM i 6.1 days of late 2012, IBM charged what I thought was an uncharacteristically low price for IBM i licenses, and even more surprisingly, one that was precisely consistent with its AIX Enterprise Edition pricing for MSPs, and that was a mere $500 per quarter per Power core. That’s right, MSPs could get IBM i, including a database, for a stunningly low $2,000 per core per year, and regardless of the size of the machine. This pricing was quietly carried over for IBM i 7.1, and frankly, if it helped build Power i clouds, I think it is a good idea but I also think maybe the 125,000 OS/400, i5/OS, and IBM i shops in the world who have been loyal to the platform deserved a similar break.

Last week, IBM took another stab at MSP pricing for the IBM i stack, and it is quite a bit different from just charging $500 per core per quarter for the base operating system and database. In announcement letter 215-212, IBM is rolling out a new MSP pricing scheme that not only includes licensing for the base operating system and its integrated database, but is also rolling in Software Maintenance fees. Unlimited end user entitlements to the software are also included in the new MSP pricing and a number of other key software packages that IBM i shops want access to are also now being offered with this special MSP pricing. These other packages with MSP pricing include IBM i Access Family, DB2 Query Manager and SQL Development Kit, Backup, Recovery, and Media Services, Advanced Job Scheduler, and Performance Tools. Here is how the MSP pricing stacks up:

As you can see, this is a far cry from $500 per core per quarter, but it includes more stuff, too. Whether or not it is a better deal than before is almost irrelevant because that deal is no longer on the table. What matters is how the new MSP pricing stands up to just buying perpetual licenses and paying for Software Maintenance. And it will take some very specific math to make any comparisons, because it all depends on the machine, what other system software is on it, and how many users are accessing the machine. Suffice it to say, for large numbers of users, the new MSP pricing is probably competitive because those per-user fees do add up. And it is my guess that IBM is building some margin in these numbers now, too.

In the chart above, below each per-core monthly price for a program, I have calculated what it costs to license the software on a monthly basis for a 36-month term. This is not a magical number, and it certainly doesn’t match the 48-month or even 60-monmth financing terms that we see on the consumer and commercial world as interest rates have remained low. But that 36-month term is significant in that this was the time that IBM used to calculate the monthly license fees on mainframe software back in the 1990s. If you took the perpetual license for individual mainframe software (systems software and middleware) and divided it by 36, you got something very close to the monthly license fee that IBM was charging.

The numbers add up fast. If you assume every core needs all of the six programs that have been giving this special MSP pricing (seven if you count the database separately) and put it on a machine using the top-end 12-core Power8 chips and the most applicable machine in the line, then on a low-end P05 machine, over those three years the software stack will cost a stunning $2.11 million based on the monthly charges. The assumption has to be that the machine will have a high number of users and therefore make it all make economic sense. But maybe there is another thing at work here. Just for fun, I went over to Amazon Web Services and fired up pricing on the new EC2 M4 instances that the cloud giant announced last week. (I reported on these over at The Platform.) Anyway, if you take the top-end m4.10xlarge instance type, which has 40 threads and 20 cores and which has roughly the same performance as a Power S824 (and I mean very roughly), and keep that thing running at an on-demand price for three years, it could cost $2.17 million.

I wonder if IBM did similar math to come up with its pricing. The P10 and higher machines get progressively more expensive per core, while AWS charges a more or less flat rate. It also does not offer machines with more than two sockets, and no customer can get more than 40 threads dedicated to a single virtual machine on the AWS cloud. IBM i MSPs could sell you an entire machine on an hourly basis if they felt like it.

At any rate, the new MSP pricing is available on IBM i 7.1 and 7.2 and later releases and can be applied to machines based on Power7, Power7+, and Power8 processors. Customers can mix monthly and permanent perpetual licensed versions of this software on the same machine if they choose. Service providers are not allowed to move their licenses around from machine to machine.

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