The holidays are upon us, and people are thronging the stores to look for great deals on presents. In the spirit of the season, I am devoting this issue to a couple of great System i deals that have escaped the attention of most midrange customers. If you are looking for a cheaper way to put new hardware under your corporate Christmas tree this year (or on your loading dock next year), keep reading. IBM's elves may have cooked up just the thing for you.

IBM Experiments with User-Based System i

A little over a month ago, IBM quietly created two configurations of its System i Solution Edition that completely break tradition with how such servers are priced. While all other systems have their prices based on system performance, the Solution Edition Entry and Growth models are priced based on the number of users they support. In exchange for accepting either a 20-user cap on the Entry configuration or a 40-user cap on the Growth package, customers get a system that would otherwise cost two to three times more.

Since the devil is always in the details of great deals, let's take a closer look at what IBM is offering. From a hardware standpoint, the Solution Edition Entry/Growth packages are Model 520 Standard Editions with server feature #0906 and processor feature #8327. This means they are single-processor systems rated at 3,800 CPW that do not support green-screen applications. Of course, you can run such applications on these systems by converting them into batch workloads using Web-enablement tools from IBM and other vendors.

Like other Solution Edition packages, the Entry/Growth models must be purchased with applications from selected vendors. While customers normally must spend at least $25,000 on software, services, and training to qualify for most Solution Editions, they only have to spend $10,000 on the Entry/Growth packages.

If the Solution Edition Entry/Growth packages make sense for your company, you could save a bundle on them. The Entry configuration carries a list price of $13,900 and comes standard with 2 GB of memory, 142 GB of disk storage, and a RAID-5 controller. A similarly equipped Standard Edition configuration lists for $42,555...almost three times as much! The Growth configuration has 4 GB of memory and costs $25,900, which is roughly half the price of its Standard Edition counterpart. Of course, the Standard Edition supports unlimited users while the Entry/Growth packages are limited to 20 or 40 users, respectively. However, there are no governors on either configuration, so you're on the honor system with IBM.

Why is IBM offering such great deals on these configurations? According to sources inside the company, the Entry/Growth packages are an experiment to see whether such deeply discounted, user-capped configurations can significantly boost sales of entry-level systems. Since they are an experiment, IBM is selling the configurations only with qualifying software from second- and third-tier vendors. This becomes obvious if you look at the list of qualifying vendors. None of them are household names like Oracle or SAP, and nearly all of them serve niche markets overseas. This makes it easy for IBM to discontinue the packages with minimal impact if they fail to boost sales.

What will happen if the Entry/Growth packages turn out to be smashing successes? While it is not clear what will happen, I can tell you what will not happen. IBM will not scrap its performance-based pricing model for a cheaper user-based one. My guess is that the company would continue to offer user-based pricing for Solution Editions only, expand the program to include qualifying software from more prominent vendors, and add system tools that would monitor the number of users. Big Blue may also make its prices more granular by introducing price tiers between the current 20- and 40-user levels.

While the future of the Entry/Growth packages is unclear, I am hoping that they sell like hotcakes. The System i needs more offerings like these systems to compete effectively with Windows servers in smaller companies. If you agree and your company is a good fit for one of these packages, I encourage you to consider buying one. Your purchase could encourage IBM to continue its latest experiment.

Make the Most of Your Rebates

If you need to add disk capacity to a new or existing System i, you should know that IBM is currently offering rebates on its 35 GB, 70 GB, and 141 GB drives. By using a special technique that I am about to describe, you can leverage those rebates to buy additional disk capacity that is worth more than the face value of the rebates. To do so, you need to buy the drives from a reseller that is willing to have the rebates assigned to them and then use the rebates to buy additional disk capacity. By the way, you can use this technique to increase the value you get from other rebate offerings.

To understand how the technique works, let's look at the rebate announcement. As you will see, you can get rebates on purchases of 10 or more disks as well as on purchases of several disk packages. The rebates increase if the disks are purchased along with a new System i or a system upgrade. All disks must be purchased by the end of this year.

Let's say that your company needs to buy at least 20 of the 70 GB drives (feature #4327). These drives have a list price of $1,999 and a street price that is about 15% below list, or $1,699. With the rebate offering, you get an additional $460 off each drive you purchase by December 31. The following table provides the math for a 20-drive purchase in which your company gets the rebate. Note that the reseller is buying the drives at the industry-standard 26% discount.

While this is a good deal, you can improve upon it by assigning your $460 per-disk rebate to the reseller. The reseller then uses the rebates to buy additional disk drives for your company. Since the reseller can buy the drives at a lower price than your company can, your rebate dollars go further. As the following table shows, this technique would allow your company to buy 28 of the 70 GB drives for the same cost as 20 drives.

The bottom line is that you get 28 drives this year for the same price as 20 drives by assigning your rebates to your reseller. That's eight additional drives. If you had taken the rebate, you could have bought only five additional drives with your $9,200 check next year, when the street price per drive will be $1,699 with no rebates. The deal also benefits the reseller, who realizes a bigger profit ($5,444 versus $4,398) once the rebate check comes in.

Depending on your state's sales tax laws, you could realize an even bigger advantage from assigning your rebate to your reseller. If you take the rebate, you still have to pay taxes on the full amount of the invoice. However, if you assign your rebate to your reseller, who then marks down the price per disk on your invoice, your sales tax per disk drive will be lower. In states with high sales tax rates, the savings could be significant.

While assigning rebates to your reseller can be a win-win situation for both parties, be aware that not all resellers are willing to accept such assignments. While resellers can make bigger profits from assignments, they cannot realize those profits until they receive the rebate check. This imposes carrying costs that some resellers are not equipped to bear. Be sensitive to their situation and be ready to leave a little money on the table to compensate them for these costs.

There you have it: my tips on two great System i deals for the holidays. Consider them to be my gifts to you during this season of sharing.

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 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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