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IBM Expands Subcapacity Software Pricing

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On August 19, IBM's Software Group quietly issued an internal memorandum that could have a substantial impact on what customers pay for IBM software. The memo spells out a new policy for offering subcapacity pricing on a broad range of software products to owners of multiprocessor (n-way) servers, including IBM's iSeries.

The IBM memo is the product of months of debate over how the company should price its software on n-way servers. That debate has been fueled by several changes that have been taking place in both the server and the software markets. Those changes include...

  • The spread of partitioning technologies--Over the last two to three years, server partitioning has moved out of mainframes and into UNIX, iSeries, and Intel systems. This has dramatically increased the number of customers who can run software within partitions. Those customers are asking that software prices be based on the sizes of their partitions rather than the number of processors in their servers.
  • The growth of server consolidation--The software pricing issue has been exacerbated by a sharp increase in consolidations to n-way systems with ever-larger numbers of processors. As the dominant vendor of large n-way servers, IBM wants to encourage server consolidation. However, traditional per-CPU pricing for software inhibits consolidation by increasing license prices on larger servers even when usage levels do not increase.
  • IBM's mid-market campaign--Now that the computer giant is trying to sell more of its software to medium-size companies, it is learning that these price-sensitive customers won't pay more for software just because it runs on a server with more CPUs. To get the mid-market to try its software, IBM has to price it based on usage rather than raw system size.

For years, IBM has offered mechanisms for pricing selected zSeries mainframe software on a usage basis for enterprise customers. This includes the Subcapacity Reporting Tool, which verifies that customers are running software within zSeries partitions and sends electronic reports to IBM on partition sizes. Unfortunately, such monitoring tools are not yet available on other partitionable servers used by smaller companies. This makes it impossible for IBM to verify subcapacity usage levels on other servers.

IBM's New Policy: The Details

After much consideration, IBM Software Group has developed an internal policy that seeks to respond to customer demands while addressing technical limitations on usage monitoring. Put simply, IBM will offer subcapacity pricing on new purchases of selected software to owners of n-way servers who can document that they will run the software in some type of partition. Since IBM cannot verify such documentation through electronic monitoring, customers will be on the "honor system" when it comes to subcapacity usage. Given this fact, IBM has decided to only offer subcapacity pricing on a special bid basis. There will be no announcement that publicly sets prices, and each request for a subcapacity license will be considered on its own merits. Customers who want to qualify for subcapacity pricing must request it through their IBM account representative or Business Partner.

Of course, there are many more details behind this simple declaration. Here are the most important ones:

  • The products--IBM's new policy applies not only to Domino products--as I reported in my article last week--but also to many WebSphere, Tivoli, and DB2 products. While IBM is keeping its product list close to its chest, sources within the company claim that it covers most software that can run within partitions. For iSeries customers, this includes the WebSphere products that have been available on a subcapacity basis for some time (click here to see the list). It also includes Domino Server, Sametime (now Lotus Instant Messaging and Web Conferencing), and QuickPlace (now Lotus Team Workplace). On the DB2 front, IBM's list includes auxiliary products such as Information Integrator, Warehouse Manager, Intelligent Miner, and Performance Expert. It is not yet clear which Tivoli products are on the list, but I hope to receive more information soon.
  • The prices--As a rule, you can expect IBM's subcapacity pricing to mirror its existing per-CPU pricing, but scaled back to the number of CPUs in your partition. Let's say, for instance, that you intend to run a new software product in a partition that consumes 2.4 CPUs of your 8-way iSeries. The product costs $4,000 per CPU and would therefore cost you $32,000 under a full-capacity license. Under a subcapacity special bid, however, IBM would likely price the license at $12,000, or $4,000 times three CPUs. Expect IBM to always round up to the next full CPU, just as it currently does on iSeries WebSphere products.
  • The servers--According to my sources, the subcapacity pricing policy will apply to many partitionable n-way servers. IBM's list includes all n-way iSeries models in the 8xx series and all partitionable 7xx models. It also includes the entire zSeries lineup as well as the pSeries 630, 650, 670, and 690. Since some IBM software products run on n-way UNIX servers from Hewlett-Packard and Sun Microsystems, Big Blue will also offer subcapacity pricing on many of these systems as well. For the moment, however, IBM's Intel-based xSeries servers are not eligible.

Of course, IBM has no intent of offering subcapacity pricing on existing software licenses. However, the company's new software policy could significantly reduce purchase prices on many new licenses. That could make IBM's middleware more financially attractive to mid-market companies in general and iSeries customers in particular.

Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at This email address is being protected from spambots. You need JavaScript enabled to view it..

LEE KROON
Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology.
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