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Big Blue bundles pound down mainframe prices

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IBM wants to get more workloads running on more mainframes, and is willing to slash prices to do so - but shops will have to put new workloads designated by IBM as "solution editions" to get cheaper iron.

Solution editions are nothing new at IBM - they've been peddled on the venerable AS/400 and successor iSeries, System i, and Power Systems midrange boxes for more than a decade.

To create a solution edition, IBM sets up a preconfigured system aimed at supporting a particular stack of application and systems software, tunes up a few variants with a few different pricing options, and cuts the price to entice customers to buy this setup rather than build their own stack in a piecemeal fashion.

The goal is not just to sell a bundle (of hardware and software) and make a bundle (of profit because the cost of sale is lower), but to compete against Windows, Linux, or Unix machines that compete with IBM's proprietary midrange and mainframe platforms.

In the case of the mainframe, the goal is to have a z/OS-based setup compete with high-end RISC/Unix boxes, and against the Itanium-based Integrity boxes from Hewlett-Packard now that Sun Microsystems has lost its bearings and has wandered into the opening maw arms of Oracle.

With the Power Systems machines running the i6.1 operating system, the kicker to OS/400 and i5/OS, the goal is to compete against the Windows platform, which dominates the midrange these days like AS/400s, DEC VAXes, and HP minis uses to.

IBM doesn't normally talk much about mainframe prices. And you can forget about list prices for this iron or monthly fees on its z/OS operating system or the DB2 and IMS databases, the CICS transaction monitor, and other software that typically ends up on a mainframe.

List prices for mainframes - which certainly do not establish a floor for street prices, but rather a ceiling to start discounting from - went out the door thirteen years ago when Big Blue wiggled out of the antitrust consent decree that had governed its behavior for 40 year. But Karl Freund, who is in charge of System z strategy and marketing (and had previously held that similar post in IBM's AIX server business), revealed some numbers on how the System z Solution Editions are expected to stack up.

Here's how the math works, according to Freund: the System z Solution Editions come with all of the hardware, software, and maintenance costs for a three-year or five-year term, and customers pay a single price for a mainframe that's set up for application development, data warehousing, disaster recovery, or risk mitigation. Other bundles allow the mainframe to act as a security hub for the entire enterprise, or run WebSphere middleware or an SAP ERP suite.

The total cost of acquisition is calibrated to be within 20 per cent of the cost of a comparable setup running on an HP Integrity server running HP-UX - meaning 20 per cent more, obviously. This puts the System z within spitting distance of a Unix box, heping the IBM sales rep to make the sale based on the nebulous total cost of ownership advantages that IBM always espouses for its proprietary platforms.

But here's the kicker - and why these Solution Editions for the System z boxes might see some traction: for the workloads outlined above, the Solution Edition costs anywhere from 50 to 80 per cent less than current mainframe prices for z/OS setups running the exact same software.

"This is not a fire sale," explains Freund. "This is a new pricing model for competitive System z value."

IBM may believe that, but is sure looks like a fire sale to help drive new workloads to the mainframe. And for good reason, since the mainframe has around 10,000 footprints and drives maybe $3.5bn to $4bn in hardware sales each year. These footprints drag along tens of billions of dollars in software, services, and support fees and deliver billions of dollars in profits to IBM's bottom line.

This is every bit as much of a fire sale on mainframe capacity for new workloads as is the Integrated Facility for Linux engines on mainframes, which are configured only to run Linux. The prices for these IFL engines started out being about a quarter the price of a mainframe engine, which runs to around $400,000 to $500,000 a pop, and has come down over the years.

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