IBM i Licensing, Part 2: Subscriptions Change Everything

June 13, 2022 Timothy Prickett Morgan

In a very funny way, the licensing of the IBM i platform is coming full circle with the advent of subscription pricing – with some funny curlicues along the way with over three decades of software licensing history and an even longer history of Big Blue renting, rather than selling, its software. When IBM first delivered its punch card machines, way way back, they were only available for rent, not for sale. The long arm of the law taught IBM to have some optionality, and it thus sold mainframes and minicomputers as well as leasing and renting them.

But before we get into some more detail about the subscription pricing coming to the IBM i stack, we want to stress something really important. And that is that IBM will not easily be able to do away with the perpetual license sale and Software Maintenance model that has dominated since IBM reverted to the perpetual license/software support method with OS/400 after a brief experiment with user priced systems software during the Auxiliary Service Provider (or ASP, and not the iASP or Auxiliary Storage Pool you all know) wave that tried to get off the ground as a kind of SaaS effort in the waning years of the Dot-Com Boom.

ASPs had the right idea, but even the user-based pricing that IBM offered for OS/400 platforms was too complex, unwieldy, pricey, and unpredictable for it to ever be implemented.

But during the cloud era, the second coming of ASP if you think about it, we are all more used to paying for subscriptions for all kinds of services in both our business and our personal lives, and better and automated means of tracking usage have been developed to make it easier for companies like IBM to figure out who owes what when. But perhaps more significantly, the advent of the cloud and the desire for hybrid computing environments that span multiple clouds as well as on-premises systems and those residing in co-location facilities means that one pricing model has to span all situations. And that is why, in a nutshell, IBM is finally relenting and offering subscription pricing on the IBM i operating system, and soon it will do the same for dozens of key Licensed Program Product add-ons and even full hardware systems that run them.

This is the new normal, and every major OEM has a subscription pricing model and is trying to implement it across its portfolio so they can better compete against the clouds or at least better co-exist with them.

Here is IBM’s thinking on the way it will be implementing the subscription pricing for IBM i, which was extracted from the presentation that Alison Butterill and Dan Sundt, both product managers for the IBM i platform, gave at the recent POWERUp 2022 conference in New Orleans.

Aligned with industry direction – helps transition IBM to a competitive subscription-based business model
Additional way to acquire IBM i software; more likely to be realized as an OPEX model
A subscription term pricing model; non-cancellable during the term of the contract
1 to 5 year committed terms; 1 year term carries a premium
At term end, customer will purchase new term; investigating auto renewals
Lower entry price than perpetual
Predictable and protected pricing for duration of the term
New PIDS orderable thru e-Config (AAS)
Includes 9×5 support (upgradeable to 24×7)
No transfers from perpetual to subscription
Modeled after IBM Software group structure
Perpetual and Subscription may reside on the same machine

IBM has a number of different strategies for pricing on the Power Systems platform, and subscription pricing is just part of it. But ultimately, we think that a lot of customers will just want to be able to be current and keep current and have an operating expense and even have a managed service provider – be it IBM or someone else – keep it all patched and up to date. Here is the breadth and depth of pricing and packaging options that Big Blue is bringing to market for Power:

It is hard to get perfect alignment in pricing across these three different deployment models, and it is going to get even more complex once subscription pricing comes not just to the P05 tier of IBM i, but to all tiers and to the underlying hardware, too.

This complexity of choice might be a bit too much for a lot of IBM i shops, and there will have to be many comparisons to help customers figure out the best options given their own situations. As we pointed out last week, at four years, the cost of an IBM i subscription is the same as a perpetual license plus Software Maintenance, and in years five, six, and seven, when full support is available, the subscription ends up being more expensive. Let me show you that chart again because IBM did not run the pricing out beyond year two in its presentation:

You are renting IBM’s balance sheet with your operating expense for IBM i with a subscription, and IBM is charging a 30 percent premium for that over a seven-year life. That there is a premium is reasonable; whether 30 percent is reasonable is a subject of debate. We don’t know what IBM will do for the P10, P20, or P30 tiers of IBM i, and don’t assume the pattern will be the same. For all we know, the big shops will get a great deal and the little shops will end up paying the difference. This is not the first time such a thing happened in IT. In fact, if there is a an unwritten rule, it is that big makes for bigger discounts, no matter the buyer or the technology.

If IBM didn’t want any arguments, it would have made the subscription cross-over at seven years and therefore the price would have been the same for the technical and economic life of an IBM i release. In both cases, the operating system presumed to be under Software Maintenance and thus it is eligible for an upgrade to a newer release when support runs out on the current release. (If you don’t pay Software Maintenance for a perpetual license, you are not entitled to an upgrade and you have to pay the After License fee to get current on maintenance before you can do the jump. Software Maintenance is literally built into the IBM subscription fee, so you are covered whether you like it or not.)

We have an observation, which is really not a complaint. We like the optionality Big Blue is bringing to the market. It is a whole lot better than not having any new options. But we can already see that it is going to be hard for many customers to figure out the best option and it will be hard for resellers to see where – and how – they can make the most money from these cloud-style utility pricing options. IBM will have to give out the details of the metrics and pricing and give lots of examples to show how to best navigate the options. This is so important, and we would be happy to analyze them in partnership with Big Blue to get the math and the message out there.

One suggestion I have immediately. Way back in the dawn of time, there was a variant of OS/400 called Application Server – not WebSphere Application Server – that had all of the entitlements to the OS/400 stack except the integrated relational database management system. Sometimes, a core only needs the application runtime, not the full database, and in fact, I might want to dedicate a partition with lots of Power cores to the database and several partitions with a few Power cores to application servers and middleware that access that database. You should not have to pay for the database when you are not using it, and that goes for perpetual or subscription licenses alike.

2 thoughts on “IBM i Licensing, Part 2: Subscriptions Change Everything”

James Sanders says:

June 13, 2022 at 9:43 am

Shouldn’t you apply some sort of present value to that 7 year calculation? Less money up front provides additional value in that model.

- Timothy Prickett Morgan says:
  
  June 13, 2022 at 2:55 pm
  
  I suppose so in the current inflationary world we live in. But the point still holds. A 30 percent premium is still pretty high, but I gave reasons for it.

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