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I have the dubious honor of being what some people may refer to as a mainframe pricing expert. In one fashion or another, I have supported or developed mainframe software pricing programs to support various generations of IBM hardware over the last twenty-five years.

Mainframe software pricing is one area that has lagged behind the many innovative improvements that we have seen on the mainframe. How can this be true when the mainframe is touted as being the best price/performance technology on the planet? Has the performance of mainframe hardware improved to the point that it offsets any deficiencies in software pricing models? Have we reached a point where the majority of software expenditures on the mainframe are for ongoing maintenance? If you are in maintenance mode, who is monitoring the cost and effectiveness of your software stack? Here are a few things that are holding back innovation in mainframe software pricing:

1. Software vendors do not publish their prices.


2. Pricing models (for example, sub-capacity pricing) die on the vine unless all major vendors actively support the models.


3. Customers have become accustomed to receiving steep discounts from vendors that may be having difficult times, so they rationalize that all mainframe software is overpriced, regardless of its origin.


4. Once locked in to the mainframe (good or bad), customers are forced to weigh the cost of converting from Vendor A to Vendor B to receive what they believe to be fair pricing. If a case cannot be made for converting, the customer typically tolerates the higher pricing on current products but commits to doing future business with other vendors (or platforms).

Software pricing innovations must occur for the mainframe just as they are occurring for the PC. For example, I found myself purchasing my first subscription license for a very large vendor’s PC office suite of products last week. The terms were simple, the pricing incredible; and I was guaranteed to be running the latest releases for the duration of the license. Ten years ago, this vendor had a virtual monopoly in the market and would not have considered this type of pricing model.

I see innovation and new mainframe workloads driving major changes in mainframe software pricing models. Have you noticed how the specialty engines continue to increase in popularity? New workloads are being created on the specialty engines, and that reduces the processing power needed for the traditional engines. It is not uncommon to see a customer upgrade to a new machine with the same or fewer traditional MSUs while adding 2-3 IFLs for new Linux workloads. The pricing on the specialty engines will become more sophisticated as vendors play catch-up to the technology. Initially, the specialty engine model has been to price on a per-engine or full-capacity basis.

When it comes to mainframe software pricing, there is no single silver bullet. However, a good start is to make sure that you develop a relationship with a prospective vendor as the first step. If the relationship works, doing business can be totally transparent and you will receive an excellent return on your mainframe investment. If a vendor doesn’t have a clear understanding of your business and what you are attempting to accomplish, it is virtually impossible for them to position solutions for moving your business forward.

Do you have an interesting pricing experience to share?

Best Regards,

Jon

While I was reading the business section of my local newspaper (The Columbus [Ohio] Dispatch) and enjoying my morning coffee, the following article (March 21, 2013) caught my eye: “IT contract expected to save $150M in five years.” The only thing more intriguing than the title of the article was the opening paragraph:

The state of Ohio’s IT mainframe currently takes up four floors and 350,000 square feet of space, and worse, it’s inefficient. So the Department of Administrative Services expects a $267 million contract with IBM will save tax payers millions in return.

I said to myself, “This is getting really interesting,” because IBM rarely “replaces” IBM technology.  IBM goes to great lengths to create equipment that is “upgradeable” on the floor, creating the impression that it never becomes obsolete. A customer finds it much easier to stomach a mere upgrade versus what may be considered a disruptive “replacement.”

Please respond to the next portion of the article:

“When thinking about better operation of state government, we think about areas like these,” said Beth Gianforcaro, a spokeswoman for the information-technology department. “IT tends to be the most expensive of operations.”

In fact, the state spent $830M in fiscal year 2012 to run its mainframe, which includes 5,000 servers that are each running at about 6 to 8 percent capacity.

Gianforcaro said that’s inefficient, and one of the state’s goal is to compile [sic] its 19 e‑mail systems into one that everyone could use.

Everything that I had read up to this point definitely positioned the mainframe as a major villain. Then the storyline went in a different direction:

That’s where IBM is supposed to help: getting the state’s servers to 60 percent capacity and cutting the IT budget by $150 million in five years. Plus the new mainframe is expected to take up one third of the square footage currently used.

The article goes on to cite Kevin Hill, the IBM executive in Ohio that will oversee the project, as saying that IBM will consolidate the state’s system in the next 18 to 24 months. After perusing the Internet, I came upon several other articles that put a different focus on the situation. Interestingly, none of the articles stated that this is an extension of another “five-year modernization project” that appears not to have delivered the anticipated results. I also find it interesting that the article failed to mention the investment being made in the infrastructure (more efficient cooling and electrical). And lastly, there is a big difference between 2700 servers (in the IBM press release linked below) and 5000 servers (in the Dispatch article), regardless of type.

What do you think?

—Jon

http://washingtontechnology.com/articles/2013/03/21/ibm-ohio-contract.aspx

http://finance.yahoo.com/news/state-ohio-awards-ibm-contract-134800920.html

http://www-03.ibm.com/press/us/en/pressrelease/40693.wss

IBM will move the state's computing center to the cloud

http://washingtontechnology.com/articles/2013/03/21/ibm-ohio-contract.aspx

Agreement will pave the way for more efficient State services, reduced costs and better access to technology

http://finance.yahoo.com/news/state-ohio-awards-ibm-contract-134800920.html

http://www-03.ibm.com/press/us/en/pressrelease/40693.wss

Here are five common mainframe myths dispelled:

1. Mainframe hardware and software are prohibitively expensive.
   
   
   
   • Hardware—Whether you are counting dollars per MSU (MIPS), terabyte of storage, blade server, any other form of hardware, mainframes and their peripherals are less expensive than ever.
   
   
   • Software—Software pricing on mainframes can best be described as flexible for most vendors. Most vendors offer purchase, lease, and rental terms. Usage-based pricing (also known as Measured Workload Pricing and Sub-Capacity Pricing) are excellent options for most customers. However, make sure that you examine the contract and reporting requirements very closely. Some vendors in the market will bill you for a minimum amount (regardless of your usage) that may be significantly more than what you are paying today.
     Some companies have not figured how to pay their sales staff commissions on amounts that change monthly.  Therefore, a sales person may take the path of least resistance and offer customers only traditional (fixed) terms. Make sure that your staff gets the terms that fit your business.
   
   
   
   


2. You cannot find technicians with mainframe skills: most are either retired or will retire in the next five years.
   I consistently receive résumés from talented mainframe professionals. CSI is also located in a city that serves as headquarters to a very large insurance company, utilities, retail, and fast food companies. All of these are large mainframe users and contribute to the local talent pool.


3. Colleges and universities do not offer courses that are relevant to the mainframe.
   IBM is leading the charge to get more mainframe courses in colleges and universities. Marist College has made a strong commitment to providing mainframe education. Companies like Interskill Learning provide an extensive lineup of online courses across all of the mainframe operating systems.


4. Everything on the mainframe is proprietary (closed), which eliminates/minimizes contributions from the IT community.
   All mainframe vendors accept requests for enhancements from their customers. My personal experience is that the best features and functions of products come from those closest to the solution─the end users. In addition, mainframes have been hosting Linux workloads since 1999. Linux is an open-source project and still relies heavily on the community for its content.


5. Customers that use mainframes are leaving the platform in record numbers.
   The number of unique mainframe customers is directly related to the world economy. As companies grow and acquire other companies, three machines may become two, or they may become a single machine with more processing power than three machines being used previously. In this example, the number of customers and machines declines though the number of MSUs and users/customers being served increased.

http://www.interskill.com/

http://enterprisesystemsmedia.com/article/it-management-are-you-getting-the-most-out-of-your-mainframe-investment

http://enterprisesystemsmedia.com/article/linux-on-system-z-new-beginnings

by Marcel den Hartogin in Enterprise Tech Journal

http://enterprisesystemsmedia.com/article/it-management-are-you-getting-the-most-out-of-your-mainframe-investment

 

http://www.interskill.com/

Current online mainframe training

by David Boyes, Ph.D. in z/Journal

http://enterprisesystemsmedia.com/article/linux-on-system-z-new-beginnings