A Closer Look at IBM’s Current System i5 Deals

A few weeks ago, I ran a story that described a trade-in deal that IBM had launched to try to beef up sales of the System i5 platform. I got a call from Big Blue that shed a little more light on this deal, and I also learned about some other deals that Big Blue has cooked up to try to sell more System i5 iron and help its software partners better sell upgrades and new licenses.

First, let’s recap the original deal that IBM announced three weeks ago. First, you need to be running an AS/400 50S or 53S server; an AS/400 500, 510, or 530 system; AS/400e 6XX, SXX, or 7XX server; or an iSeries 250, 270, 820, 830, or 840 server. If you trade in these machines, you can buy one of three different configurations of the new System i5 machines, all of which are based on the 1.9 GHz Power5+ chip and all of which are equipped with i5/OS Enterprise Edition. IBM is emphasizing Enterprise Edition because this is the machine that can run the 5250 green-screen protocol. These machines eligible for purchase under this trade-in promotion include the i5 520 with a single processor (feature 7734) that is rated at 1,200 CPWs, the i5 520 with a single processor rated at 2,800 CPWs (feature 7735), and a two-way capable i5 520 that has one processor activated for an initial 3,800 CPWs (feature 7736, expandable to 7,800 CPWs). The two less-powerful machines are in the P10 software tier, while the latter is in the P20 software tier. In a new twist on this kind of deal, IBM is specifying how much customers have to spend on a complete configuration to get the trade-in credit, and if you spend more, you get more, too. Here is what the discounts look like if you acquire a new System i5 520 machine before June 30:

If you buy after June 30 and before September 30, the trade-in credits are lower, but not bad:

As I said a few weeks ago, you have to remember that the i5 list prices I show in these tables are for bare bones machines, which have no main memory, no disk drives, and no other peripheral cards. And I think anyone buying a new machine in this deal should try to hit the top end of the deal because spending less means less savings and spending more means an effectively lower discount rate. The “Approx Discount” column in the table takes that trade-in credit and divides it by the cusp deal price ($80,000 or $140,000 or $200,000). These prices are uncharacteristically generous for IBM, which means Big Blue must be a little scared after sales declined in the first quarter.

Every time IBM announced one of these trade-in credit deals, I ranted about how IBM should just give a discount to the customer and stop messing around with trade-in credits. I have said this again and again, and apparently, in some cases, that is exactly what IBM does. According to Tim Schuetz, the System i sales executive who is responsible for these deals, and who I have talked to plenty of times in the past, the deals have a bit of leeway in them. Customers who buy directly from IBM–which means those reading the customer announcement letters, like I do–get a trade-in credit. But if you have access to the business partner announcement letters, Schuetz says that the partner is supposed to give new customers an actual discount, in the form of a rebate check equal to the trade-in credit, and then pursue the credit themselves from Big Blue.

This was news to me, and I asked Schuetz why this was not in the customer letters, considering that most OS/400 shops buy from resellers, and why, after I had been saying IBM should do this for years, none of the executives at IBM–and I know they read this newsletter–ever called me on it and pointed out that despite what the announcements said, this was indeed the practice. But Schuetz was very clear about IBM’s intentions that the customer benefit. I asked what prevented a reseller from selling a box at a slight discount and pocketing the difference between the striking prices and the rebates IBM was giving to partners.

“We designed this for the customer to get the benefit,” Schuetz explained, and he said that the majority of OS/400 shops that do such deals do indeed get a check back from the reseller. They do not get a voucher back from the reseller good for IBM goods and services.

Either way, IBM gets to book the System i5 sale at list price, and takes out the rebates to resellers as a cost of doing sales. This has the effect of propping up revenues, but keeping profits constant compared to the real street striking price for OS/400 servers. Schuetz said that practices vary from country to country, and that the rebate check from resellers was only possible in the United States and Canada, and that in the European Union and Asia/Pacific regions, it tends to be treated as a discount because of the local laws in countries.

IBM has also carved out the top global application solution providers from the ServerProven program and given them their own special deals to help bolster sales. This deal was launched at the end of February, and somehow, we didn’t see it. Last week, this deal was modified. (You can read the IBM announcement letter by clicking here.) Under this deal, if you acquire a new license to or an upgrade to a new version of the latest ERP solutions for the OS/400 platform from International Business Systems, Infor Global Solutions, Lawson Software, Oracle, SAP, SSA Global, and if you buy a new an i5 520, 550, 570, or 595 you can get rebates that range from $1,750 to $140,000. If you upgrade from an iSeries 810, 825, 870, or 890, you can get rebates that range from $1,200 to $38,400, and if you upgrade from a first-generation i5 520, 550, 570, or 595 to the current machines announced in late January, then you get a rebate of $525 to $42,000.

Under the modified deal, IBM has added solutions from CMS Software, Manhattan Associates, and Vormittag Associates to the deal.

This ISV rebate deal is an open-ended one–meaning it does not have an expiration date–and can be combined with the trade-in deal that IBM announced a few weeks ago, according to Schuetz. “We just want to get customers to stop and think,” he said. More like start to spend, really. The ISVs who are in this deal have been pulled out of the long-running ServerProven rebate deal, which gives rebates ranging from $3,000 to $68,000 to customers who buy ServerProven software and a new System i5. You can see the list of eligible machines in the ServerProven offering by clicking here. IBM’s X64-based xSeries 366 and 460 servers are available under the ServerProven offering, too.

And finally, IBM has a deal with resellers that allows customers who buy an i5 520 Value Edition or Express Edition machine and are upgrading from a vintage AS/400, and then buy the Turbo Edition configurations of these machines, you can get a $4,000 rebate. If you buy the Turbo RAID configuration, you can get a $4,000 rebate, too. And if you buy the Accelerator feature of the i5 Value Edition or Express Edition servers, which upgrades its performance, IBM is also tossing in a $4,000 rebate. Apparently, you can also ask for two free disk drives under this promotion, which is only outlined in business partner announcement letters.

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