IBM and Resellers Do the iLoyalty Blitz

March 2, 2009 Timothy Prickett Morgan

As I report in the lead story in this issue, IBM is giving customers using old AS/400 and iSeries machinery trade-in credits on new Power Systems gear and is also cutting the cost of per-user software licensing fees on i5/OS V5R4 and i 6.1 until the end of June. These two deals are, in fact, part of something IBM and its master resellers have cooked up called the iLoyalty Blitz.

The basic idea, according to the internal documents that I have been able to get my hands on concerning the iLoyalty Blitz, is to get customers interested in new Power Systems i machinery with “as few touches as possible” and the hopes of closing a sale in only two phone calls. The first call to the customer is a value call, to discuss the benefits of moving to the new technology and sharing some examples of how moving to a new Power Systems i box can cost no more or even less than supporting a vintage OS/400 machine. That first call is to get some detailed information so the salesperson can do a tailored pitch in the second call and then toss in these two deals mentioned above and any other applicable discounts, rebates, and promotions, as well as low-rate or deferred-payment financing for the system from IBM Global Finance.

In addition to these two deals outlined in this issue of The Four Hundred, the iLoyalty Blitz is making use of an expanded no-charge i 6.1 processor entitlement deal that kills the cost of activating i 6.1 on selected Power Systems servers by $2,245 per core on entry 520 machines, $14,995 on midrange 520 and JS22 boxes, and $44,000 per core on big boxes. This existing deal gave customers moving from iSeries 810, 820, 825, and 830 boxes a freebie i 6.1 license of the bought a Power 520 or 550 or a JS22 blade server. Now, the four-core JS22 blade server is eligible for this “Move Up To i” promotion, and a slew of vintage machines are now added to it. Anything in the chart below is new, and “Yes” in a column means you can jump from a machine on the left to that particular Power Systems configuration:

It is interesting to note that the JS12 is pretty much ignored in the Move Up deal, and that might seem foolish considering that for customers with a lot of those vintage machines, a JS12 is the appropriate machine based on CPW ratings. However, you have to remember that the BladeCenter i Edition with the JS12 blade already includes i 6.1 license fees on both cores in the JS12 blade. (IBM should nonetheless cut the price to be consistent.)

IBM is also tossing in migration services vouchers that range in value from $1,500 to $3,000, apparently. And its sales tools take all of these deals as well as maintenance prices for the old and new gear into account to kick out the final proposal for a specific customer.

To help resellers out, IBM put together some scenarios. Pictures are worth a lot of words, so just take a gander at them. Here’s the first deal, which sells a Power 520 (Model 8203 in the converged product line) with 25 users and an appropriate amount of disk and memory:

The Power 520 has a single 4.2 GHz Power6 core activated, with 4 GB of main memory and four 140 GB disks for a total of 560 GB of capacity. The machine is rated at 4,300 CPWs and lists for $14,643. Now, adding in the i 6.1 (not including PowerVM hypervisor charges) brings the cost of the machine to $23,747, but after giving away the i 6.1 license and cutting per-user fees in half, the resulting machine costs $20,277, down 17 percent. (IBM is tossing in a $650 charge for something called a “service uplift,” and I have no idea what that is.) If you can shave off some points on the new hardware, and get a trade-in on the old gear, then you can probably get the price down to maybe $18,500. That’s a 24 percent savings.

If you don’t have the cash and you are using an older box, then IBM wants you to look at your maintenance bills. Say you have one of those very popular AS/400 or iSeries Model 270s, which used to be the workhorse of the product line, much as two-socket X64 boxes dominate that part of the server biz. Here’s the comparison:

Just on the central electronics complex (CEC) alone, maintenance fees on a Model 270, including Software Maintenance, runs up to $787 per month, compared to $196 per month on the new Power 520 box. Throw a 10 percent discount on top of the Power 520 deal outlined above, and figure out the lease payments on a 36-month, fair market value lease, and you are talking about monthly payments of $483, if your credit is good.

Now, that comparison assumes the customer is paying for hardware and software maintenance. In many shops, they are currently paying $0 per month, so the $483 lease payment is real money and is a lot more than they are paying. But that said, $483 a month is not going to break a $10 million to $50 million company, now is it? Not even in these harsh economic times, and getting four times the oomph might help save the business.

The next deal pitches a 150-user Power 520 with a pretty respectable configuration, including RAID data protection, an LTO-4 tape drive, and other features:

The Power 520 in this comparison has two 4.2 GHz Power6 cores activated, 8 GB of memory, and 1.7 TB of disk. The two-core configuration is rated at 8,300 CPWs, but only one core is turned on in this deal at that only yields 4,300 CPWs. As you can see, the software discounts chop the system price by 40 percent, and that is before IBM throws in a trade-in rebate and any other discounting you can wiggle out of the reseller. Now, IBM wants you to think about the maintenance differential. So compare this server to an iSeries 820 with a lot less oomph:

In theory, a customer with such a machine is shelling out $2,878 a month for hardware and software maintenance, while the same maintenance on the new box costs one-tenth that amount. Dropping the Power 520 onto a 36-month, fair market value lease costs an estimated $1,376. If the Model 820 has a lot of other features under maintenance (like disk arrays), the differential can be even larger between maintenance on the old gear and financing on the new gear. The point IBM and resellers are making is simple: The new box costs less money on a monthly basis, and you get a new system with more than four times the CPW oomph.

In the next example, IBM priced up a four-core Power 520 with an unlimited number of i 6.1 users. This ain’t no wimpy configuration, but a real machine. Take a look:

The Power 520 with four 4.2 GHz Power6 cores, 16 GB of main memory, and 5 TB of disk costs $97,944. The i 6.1 software stack, including user licenses and the PowerVM hypervisor, and three years of maintenance for the whole shebang runs to $120,846. But the software deals drop that to $68,351 and therefore the overall solution price drops by 26 percent to $163,035. Then, customers can get discounts on the hardware and rebates on modest trade-ins on top of this.

Say you are moving from an iSeries Model 830 with 7,350 CPWs of computing power. This new machine will give you a little bit more power (about 2 percent, so don’t really count it), but look at the differences in maintenance fees, and how leasing stacks up against paying maintenance on the old stuff:

The presentation for a BladeCenter S and JS12 combo was a little less detailed in the documents I saw. IBM did the math on the configurations, but there is no freebie i 6.1 license because i 6.1 is already in the BladeCenter S i Edition Deal. IBM did not calculate the lease payments. But I can make a guess after we take the look at what IBM cooked up:

This pitch puts a single JS12 blade in a BladeCenter chassis with four 450 GB SAS drives in that new SAS drive module. The JS12 has two 3.8 GHz Power6 cores, and i 6.1 is on both cores. The user-entitlement discount does shave a few grand off the deal, and after slapping on PowerVM and software and hardware maintenance for three years, the configuration price comes to $30,836, which is 7 percent cheaper than it might otherwise be.

If you want to compare this bladed i machine to an iSeries Model 810 Enterprise Edition machine, rated at 750 CPWs. That 810 box has $707 a month in maintenance and support fees, compared to $154 for the JS12, and after a 10 percent discount on the BladeCenter S i Edition hardware, you need to finance $27,293. That should come out to around $722 per month. I can see why IBM didn’t put that number in there, because it is larger than the monthly maintenance on the 810 box. IBM has got to chop the JS12 price and eat some of the cost of the SAS disk module to make this deal work. It really needs to be down in the zone of $500 per month for the customer set IBM is targeting, I think. IBM is going to have to make up the difference in selling add-on X64 blades to i shops to get more margin for itself and its resellers.

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