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IBM defers New Coke financing

z10 mainframes get 'buy now' Linux discount

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Launching a new server platform of any kind in this economic environment is never an attractive option - unless it costs a lot less money than the alternatives. With mainframes, just being a lot cheaper than last year's model is progress, and with the System z10 Business Class entry mainframes announced this week, IBM has cut the price for the server as well as for main memory and specialty engines to support Linux, Java, and DB2 workloads.

But the $100,000 price tag for an entry z10 BC is still a lot of money to ask, and IBM and its Linux partners have to do something to not only sweeten the deal, but to get customers to invest now rather than wait for 2009.

That is why IBM's Global Financing unit also this week announced a marketing program called Why Wait?, which gives qualified customers who buy a System z10 BC between now and December 31 no-interest, no-payment financing for 90 days. Basically, current and prospective mainframe shops are being allowed to get the machine and use it for three months before they have to pay for it.

The deal is offered worldwide and is, according to Dave Gelardi, vice president of worldwide client centers for IBM's Systems and Technology Group, designed "to help customers who might be feeling the crunch right now."

This deal is not like Sun's Try and Buy program, where Sun gives the iron to companies to use for 90 days without requiring them to ink a deal ahead of time. Sun is trying to get people to test its systems with the chance of converting to a sale, while IBM is trying to get a sale and to sweeten it with deferred payments and no interest.

IBM can do this because its cost to borrow money is - and has been for many years - much lower than a lot of banks. One way of looking at it: IBM is a big bank that has a manufacturing arm that supplies it with a stream of customers with products that they need to finance.

Commercial Linux distributors Novell and Red Hat - which charge an arm, a leg, a sizable chunk of the gluteus maximus, and a right eye for support contracts for their mainframe variants of SUSE Linux Enterprise Server and Red Hat Enterprise Linux - are also getting in on the act by offering deep discounts on Linux support contracts.

Specifically, Novell is offering a 40 per cent discount on per-core support contracts for System z10 BC mainframes. Since Novell no longer gives out mainframe pricing to the public, it is hard to say what kind of deal this is. Assuming SLES 10 prices have not changed since the summer of 2006, when this rev of the operating system was launched, then basic support for SLES 10 costs $11,999 per mainframe engine (not machine) per year, with a standard 9x5 support costing $14,999 per engine per year and priority 24x7 tech support costing $17,999 per engine per year.

In January, Novell offered customers a three-year support contract for the price of two years to try to spur demand, and it is unclear if this deal is still in effect. To sweeten the pot a little, Novell is kicking in a free SLES self study kit (which has a retail value of $1,095) to System z10 BC buyers.

Just so you have a little perspective, the per system, not per core, cost of SLES 10 support on x64, Power, and Itanium servers is a lot less expensive and has not changed in two years. A basic SLES 10 license, which comes with 90 days of installation support and a year of Web-based tech support, costs $349. It costs $799 for a standard 9x5 support contract with humans in the loop, and $1,499 for a priority 24x7 support contract with one-hour callback.

Over at Red Hat, RHEL support contracts for mainframes costs $15,000 per mainframe core for a standard 9x5 annual support contract and $18,000 per core for a premium 24x7 support contract for a year. But for the new System z10 BC, Red Hat is offering customers a 50 per cent price cut between now and June 30, 2009. Like Novell, Red Hat no longer publishes support prices for mainframes, so these may have changed since RHEL 5 was launched in March 2007.

It is hard to imagine that Linux support on mainframes got more expensive. But both Novell and Red Hat say that the uniqueness of the mainframe and the relatively small customer base justifies the higher prices because of the higher costs it incurs for support. While this may be true, it is also true that mainframe shops are used to paying absolutely ridiculously exorbitant prices for z/OS and related systems software - like hundreds of thousands to tens of millions of dollars per year across the scope of mainframes that IBM sells today. Linux, even at these prices, feels like a deal.

Anyway, while that RHEL 5 discount is surely appreciated by mainframe shops, x64 platforms are a lot less expensive when it comes to support contracts. The basic support for RHEL 5 costs $349, which includes one year of Web support with two-day response time. For $799 per year, you can get a 12x5 business hour support contract via a human being on the phone (plus Web support if you want it), and $1,299 gets RHEL shops on x64 iron a 24x7 premium support contract. The standard support subscription for RHEL 5 Advanced Platform (which has unlimited virtualization) costs $1,499, and it includes 12x5 telephone as well as Web support, and the premium support subscription costing $2,499. ®

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