MSPs Get Monthly IBM i Pricing; Why Not Everyone?

April 3, 2017 Timothy Prickett Morgan

On one of the problems with cloud computing, from the point of view of the people building the clouds, is that they can provide per-user or per-hour utility style pricing to their customers for hardware and system software, but they have to pay for perpetual licenses to software and buy the hardware to provide that service. They have to get a lot of capital and shell it out before they can even begin to take in the first dollar.

Over the past several years, IBM has offered managed service providers – really more hosting companies than true cloud capacity vendors because they tend to operate at monthly provisioning of compute, storage, and networking – a means to pay a monthly fee to rent IBM i systems software rather than have to pay that perpetual license up front. In announcement letter 217-130, Big Blue is rolling out the IBM i Service Provider Monthly Licensing Offering for the latest two current IBM i releases, 7.2 and 7.3. This idea is to cut MSPs a break as they build IBM i clouds and allow them to scale up and down their licenses as their base changes.

In this case, the MSP user-based pricing is only available on Power8-based systems in the P10 and P20 software tiers, which honestly is probably the kind of machinery that MSPs will invest in if they are going to build cloudy infrastructure. The Power S812 and Power S814 machines in the P05 software tier have lower absolute prices, which is important for selling into accounts with modest compute needs and a relatively small number of end users, but they are by no means the most cost effective way to bring compute and storage to a larger number of end users sharing logical partition slices of modest capacity.

Under this pricing deal, IBM i with unlimited user entitlements is included in the price as is Software Maintenance for that slice. There are five different packages of IBM i systems software that MSPs can add to the systems they are peddling to customers as a rental, and they are:

• IBM i Service Provider Monthly Licensing (5770-MSP)
• IBM i Monthly Licensed Programs (5770-MPP)
• IBM i Monthly Rational Pack (5770-MRP)
• IBM i Monthly PowerHA (5770-MHA)
• IBM i Monthly Cloud Storage Solutions (5770-MCC)

The latter is cloud storage, presumably on the Bluemix (formerly SoftLayer cloud), which IBM announced last fall, but it is unclear. The Rational Pack is, as you might expect, a one user entitlement for programmers that gives them a license to Rational Development Studio for i (5770-WDS), which itself includes the ILE compilers, the Heritage compilers, and Application Development ToolSet (ADTS), as well as a right to use Rational Developer for i (5733-RDW), which includes the RPG and COBOL Tools at a basic user level. The Monthly PowerHA license is exactly what it sounds like. The first two stacks offered in the bundles bulleted above have a mix of stuff in each type.

The Service Provider Monthly Licensing (5770-MSP) bundle includes all the stuff customers would normally order with a machine:

• HTTP Server for i (5770-DG1)
• Developer Kit for Java (5770-JV1)
• Network Authentication Enablement for i (5770-NAE)
• Portable Utilities for i (5733-SC1)
• TCP/IP (5770-TC1)
• Transform Services for i (5770-TS1)
• Universal Manageability Enablement for i (5770-UME)
• IBM i Access for Windows (5770-XE1)
• Zend Server (for PHP, no IBM product number)
• IBM Administration Runtime Expert (5733-ARE)
• IBM Facsimile Support for i (5798-FAX)
• IBM System Manager for i (5770-SM1)
• IBM CICS Transaction Server for i (5770-DFH)
• IBM Managed System Services for i (5770-MG1)
• IBM i no-charge features such as AFP Compatibility Fonts, PASE, Host Servers, OptiConnect, and others.

The Monthly Licensed Programs (5770-MPP) bundle includes a bunch of other stuff that customers usually, but no always, buy, all wrapped up:

• IBM i Option 18 Media and Storage Extensions (5770-SS1)
• IBM i Option 26 DB2 Symmetric Multiprocessing (5770-SS1)
• IBM i Option 27 DB2 Multisystem (5770-SS1)
• IBM i Option 36 PSF for IBM i 1-55 IPM Printer Support (5770-SS1)
• IBM i Option 37 PSF for IBM i 1-100 IPM Printer Support (5770-SS1)
• IBM i Option 38 PSF for IBM i Any Speed Printer Support (5770-SS1)
• IBM i Option 41 HA Switchable Resources (5770-SS1)
• IBM i Option 42 HA Journal Performance (5770-SS1)
• Rational Application Management Toolset (5761-AMT)
• Advanced DBCS Printer Support (5770-AP1)
• AFP Font Collection for i (5733-B45)
• Backup, Recovery and Media Services (5770-BR1)
• System/38 Utilities (5761-DB1)
• Communications Utilities (5761-CM1)
• Business Graphics Utility (5761-DS2)
• InfoPrint Fonts (5648-E77)
• AFP DBCS Fonts (5769-FN1)
• AFP Fonts (5769-FNT)
• Integrated Domino Fax (5733-FXD)
• Performance Tools (5770-PT1)
• Query for i (5770-QU1)
• DB2 Query Manager and SQL Dev Kit for i (5770-ST1)
• XML Toolkit (5733-XT2)
• IBM i Access Family (5770-XW1)

The ability to use the 5250 protocol for an unlimited number of users is included on all P05 and P10 IBM i licenses already, and it is important to point out that IBM is not waiving the $15,000 per core it is charging for 5250 Enablement on P20 machines. So MSPs have to take that into account when they decide on what class of machine, in what software tier, to use as they build out their rental infrastructure.

Here is the detail on the pricing for each of these different aspects of the MSP deal:

You pay to enroll each core for each part of the bundle for the base OS and the LPPs, but this enrollment is free for the Rational, PowerHA, and Cloud Storage. Then there is a monthly fee for normal business (9×5) support and then an incremental fee per month to uplift tech support to 24×7 coverage. The Rational tools are sold under a per user license, and PowerHA and Cloud Storage are sold per core for each system where they are activated.

We wanted to know how these MSP monthly prices stacked up to the license charges that “real” IBM i customers are facing, so we built a comparison based on the software pricing we gathered up as part of the comparison of the Power S812 Mini system introduced last month with the Power S822 and Power S824 machinery. As it turns out, if you gin up pricing for the MSPs for about 27 months for P10 and P20 machines, it comes very close to the perpetual fees and Software Maintenance charges over three years for 24×7 coverage. Take a look:

As you can see, the cost of the base operating system (which includes the database) is about the same as the cost for 25 users on the P10 and P20 machines when equipped with the Rational development tool stack. We kept the cost of that Licensed Program Product (LPP) stack out of the comparison because, to be frank, we don’t have access to all of the pricing information for all of the many programs in that bundle. The sense we get based on the data we have about perpetual licensing on these products is that IBM is really cutting back the prices on the LPPs for the MSPs.

By the way, for the P20 comparison in the chart above, don’t forget you have to add the cost of a perpetual license for the 5250 Enablement hardware feature (it is really a software feature, no matter what IBM says) to the cost of the monthly fees. So in this comparison, all four configurations have the ability to run the 5250 green-screen protocol.

This is by no means the first time that Big Blue has offered user-based pricing to the OS/400, i5/OS, and IBM i bases. You will no doubt recall the forward-thinking user-based pricing scheme that IBM cooked up for OS/400 V3R1 back in the summer of 1994. That was when IBM announced the four new software tiers (P10, P20, P30, and P40) that replaced a slew of existing tiers that had been in place since the AS/400 was launched in June 1988. The way IBM did it back then was pretty simple. Each tier had a base charge and then a $400 per user charge that scaled up until each tier reached a certain number of users, and after that as users were added to the system the price did not rise further. I personally liked this scheme since it made sense to me, even if it was complex and cumbersome for IBM to implement and audit, but the IBM i business might have been in better shape if customers had been weaned off perpetual pricing and used to user pricing. It is a shorter step to monthly utility pricing from there.

In any event, here is how it looked back then:

Back then, of course, all of the compiler tools were included in the stack. And frankly, I liked this old scheme a whole lot better because it didn’t charge a premium for 5250 capability on big iron (which seems counterintuitive, but it drove customers to modernize their interfaces over the past decade). What I also find interesting is that, when you do the math, the P20 tier back with IBM’s original per-user pricing scheme from 1994 cost about as much as the P10 tier today with 25 users with the development tools in. For the P30 tier, the old user-based pricing model that debuted with OS/400 V3R1 (and which was discontinued a few years later) with 140 users was about the same price as the P20 tier with 25 users is today.

The other way to play with these numbers is to say that the P10 tier with a static 25 users costs 3.2X as much as it did in 1994, and in the in the P20 tier, the price is 4.7X higher. (That includes maintenance and support in the price in both cases.) The question is, how consistent is this with the normal rise in prices? Well, historically in the early years of the AS/400 line, from June 1988 to July 1994, OS/400 license fees rose by about 5 percent per year. If you do a 5 percent inflation on the OS/400 V3R1 prices from 1994 through 2017, you get to $32,250. Funny that. It is right where you would expect it to be. Not so for the P20 tier. If you take the OS/400 V3R1 price for 25 users and give it an annual 5 percent uplift in licensing charges (and remember this included maintenance, SWMA was not separate from licensing) then the P20 tier would cost only $43,000, which is $23,000 less than IBM is charging on a P20 machine today with the operating system, databases, and compilers. The inflation rate over those 23 years for P20 stack is more like 9 percent on average.

This is, of course, considerably higher than the increase in gross domestic product for the economies in North America, Europe, and Japan over that time, and a hell of a lot higher than the actual inflation rate. But software is a very people-intensive if profitable endeavor, and that cost reflects the investment in people as much as IBM’s desire to profit in software (like its peers) in a world where hardware profits are hard to come by.

All of this brings me back to a larger point. As I have said many times over two decades and in a number of ways and with many different possible scenarios, I think IBM should move the cost of the IBM i stack to a user-based subscription and bundle Software Maintenance back in. Go back to the future. All of the other key systems software makers left in the world are doing so. If IBM can do this for MSPs, it can do it for the installed base, and then it can try to get that vast base of many 90,000 customers out of 120,000 who are not on modern IBM i releases moved up. The capital outlay to get their systems modernized is killing deals–there is no way companies are going to spend $50,000 or $100,000 to upgrade their mission critical systems. They don’t want to get a lease. They want a monthly fee and one bill – and one bill only – from Big Blue that covers it all.

And while I am thinking about it: If IBM is giving a great deal to MSPs on that long list of LPPs, it should be doing so for its actual user base, too. Why should IBM treat MSPs better than customers? They can make their profit margins through the volume pricing they get from Big Blue and from the additional services and support they provide. It is simply not fair – or smart – to treat MSPs better than customers.

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