From Computer Finance, a sister publication

Latest market research by the International Data Corporation would suggest that the cost of ownership of popular servers needs to be put under some degree of scrutiny before the true cost-efficiency of any system becomes apparent. The market analysts looked closely at AS/400, NetWare, SCO Unix and NT options and found some interesting differences. For instance, IBM continues to enhance its eight-year-old midrange system and can still manage to put up a convincing price-performance case for the AS/400 against rivals from Unix and Microsoft camps. In fact, the view that the AS/400 is a cost-efficient server choice is regularly supported in independent studies, as well as those of IDC. When the group put a low end AS/400 up against Windows NT, Unix and Novell NetWare servers in a 15-seat small business environment in the US and then mapped out a 5 year total cost of ownership model, it concluded that the AS/400 was as much as 30% cheaper to run than its rivals. The premise behind the IDC study is that the majority of the expense of running a system over five years is buried in the cost of operations and applications development staff. While this accounts for between 75% and 85% of the overall bill, hardware and software together account for no more than 15% for any of the major server environments. By reducing the cost of operations and applications development, therefore, the total cost of computing can be reduced.

Cost of ownership calculations

According to IDC, even though the cost of AS/400 software and hardware is almost always higher than comparable offerings from its competitors, this does not dramatically affect the overall picture. In some cases the per-transaction cost of an AS/400 is almost three times as much as other hardware but because this represents only a small proportion of the overall cost equation it becomes largely irrelevant – in small environments at least. IDC identifies five cost categories for these systems.

1.Hardware purchase price

The AS/400 is the only one of the systems evaluated by IDC not powered by an Intel processor. The systems running under NetWare 4.1, SCO Unix and Windows NT were all configured on Compaq Proliant servers. The AS/400 model used was IBM’s entry level system, the 9402-200. This hardware represented 10% of the total cost of the system over the five year period (adding up to $58 per user per month). Although the AS/400 is normally considered expensive from a hardware point of view, IDC argues that only SCO Unix on Intel is cheaper in this respect ($51 user/month). Both NetWare and Windows NT are marginally more expensive ($60 user/month). IDC argues that IBM’s re-pricing of the AS/400 range since the introduction of RISC processors in 1994 has effectively closed the gap between the system and rival commodity PC servers. It says that this trend is likely to continue until the AS/400 can compete head-on with Intel-based systems without any price premium. This means that IBM’s price-performance improvement curve will need to become even steeper over the next 18 months as Intel P6 and P7 processors come on-line.

2. Software licensing charges

Once again, IDC found that it is a misconception that AS/400 software is any more expensive than its rivals. AS/400 software costs were calculated at $31 per user per month. Here, only Windows NT was significantly cheaper ($27 a user/month). Novell NetWare and SCO Unix cost $30 per user per month. There are two critical factors here:

* Although AS/400 off-the-shelf software packages are typically 30% to 50% more expensive than those for rival systems, the fact that the AS/400 has a built-in database takes away a major cost.

* AS/400 users enjoy significantly lower operating system and application software support costs. For example, there is no monthly support charge on either the OS/400 operating system or the DB2/400 database.

3. Networking and infrastructure bills

Surprisingly, IDC argues that networking costs are only a minor part of the total system costs over a five year period. The general trend in the industry is towards a greater proportion of IT budgets being devoted to networking infrastructure and support. However, IDC makes an assumption that in small-business environments only simple network configurations will be undertaken. It may be that in larger environments with more complex and demanding software (such as transaction processing), the cost of networking will rise sharply. Nevertheless, the AS/400 proprietary APPC (advanced per to peer connectivity) protocols comes out as the lowest cost option, accounting for less than 1% of overall costs ($3 per user/month). This compared with $6 a user/month for SCO Unix running TCP/IP, and $5 per user/month for NetWare and Windows NT running NetBui.

4. Operations staff slary bills

IDC argues that operations is by far the most important factor over a five year period, representing 60% to 80% of the total cost for all systems in the evaluation. The most expensive platforms to support in real terms are NetWare ($656 a user/month) and Unix ($437 a user/month, in which 88% and 86% is spent on support, respectively). The lowest for operations is Windows NT at $363 per user/month, benefiting from the easy-to-use but comprehensive systems management tools built into Windows NT. The AS/400 operational costs are only slightly higher at $416. The AS/400 has a high degree of built in functionality, but in many cases requires a specialist AS/400 support person to fix problems. Basic system administration under NT can usually be undertaken by anyone with a good knowledge of any Windows desktop environment. IDC says that Novell NetWare trails the pack in operations because the systems administrator is required do many standard functions manually rather than through automated tools or routines. In addition, NetWare, even in its latest V4.1 incarnation, is far less easy to use for those without a thorough understanding of NetWare conventions. IDC says that the gap between Novell and its rivals will narrow over the coming years as more sophisticated management tools from Novell and third-party outfits become available.

5. Application development staff costs

Whilst the AS/400 bill runs to marginally more than Windows NT purely in terms of operations costs, IDC says IBM users benefit from significantly lower application development costs. Development staff for the AS/400 costs $76 per user/month, while Windows NT costs almost exactly twice that at $153 a user/month. The low AS/400 costs are accounted for by the tightly integrated development environment and the simple (though relatively unsophisticated) RPG programming language. In any event, RPG programmers are widely available and generally cost less to hire than those specializing in C++ for example. Also significant, is the fact that many small AS/400 users pass application development up altogether and use only packaged applications of which there are a wide variety, especially for niche vertical industries. The lowest for application development, however, is Novell NetWare. This is simply accounted for by the fact that very little development is done for NetWare (because of its inadequacies in this area). The vast majority of users buy packaged applications, or use the platform only for file and print behind client Windows or DOS applications.

A European cost model

As well as small businesses in the US, IDC also investigated the cost of running systems in very small businesses in Germany. Although salary rates change the numbers in the equation and NT was not considered because of a lack of European sites, the fundamental conclusions are the same in Europe as for the US. IDC calculates that in Germany, the total cost per user per month of a Novell NetWare environment is $578. Of this, $453 or 79%, is accounted for by operations and application development costs. A SCO Unix based system costs slightly less at $505 per head a month. Here, $388, or 77%, must be spent each month on development and operations. The AS/400 comes in with the lowest total cost at $419. The reason for this is that only $299 or 72% of the total, is accounted for by operations and development. Overall, the difference in cost between the AS/400 and its main rival is greater in Europe than in the US. In Germany, NetWare worked out 38% more expensive and Unix 20% and the total costs were also lower on all platforms. This is primarily accounted for by the fact that German businesses appear to manage the operations of all types of systems with less staff than equivalent businesses in the US. Taking all these factors into account, calculating the potential savings – or additional costs – for users, even in very small businesses in Europe or the US, is extremely significant. According to the US figures, the total cost of running an AS/400 environment for 15 users for 5 years would be just over $525,000 using the IDC figures. Windows NT would cost $546,000, SCO Unix $568,000 and Novell NetWare $726,000. While it is clear that the gap between the AS/400 and Novell NetWare is potentially crucial to the balance sheet of a small business, differences between the AS/400 and Unix and NT are far less significant. The vital question (and one that IDC does not ask) is whether the extra $20,000 or $40,000 required by Windows NT or SCO Unix is a worthwhile investment from a functionality point of view. After all, over a five year period, an extra $20,000 – or less than 5% of the total – is a small amount to pay for competitive advantage.There is simply no indication by IDC of whether the same level of functionality is offered across all the systems, how flexible the different architectures are, or whether a system is a low risk option from a strategic point of view.These questions are crucial in evaluating the cost of use over a long period. The systems may be cheap to run but may not necessarily deliver long-term business value to the end user. This question certainly must be asked of both the AS/400 and Novell NetWare, which are struggling, in sales terms, to compete with Windows NT and Unix. Slowing sales (analysts estimate that IBM’s AS/400 hardware revenue dropped by around 2% in the first quarter of this year) will have an eventual impact on the willingness of software houses to invest in porting their applications to the platform.Other analyst groups continue to raise serious questions about the real costs of the AS/400 when configured with anything other than turnkey OS/400 applications running in a straight two-tier server-PC/terminal architecture. Meta Group, for example, argues that businesses should be wary of expending incremental effort on custom AS/400 development. This is for two main reasons:

* Although new RISC processors continue to improve price-performance, a good deal of this is due to repackaging. The latest systems are, for example, configured with only a base level of disk and memory requiring additional investments in extra memory and disk at the time of purchase. All in all, Meta estimates that IBM is on a 40% price-performance improvement curve (comparable with Unix and NT hardware) rather than the 80% often claimed.

* AS/400 client-server functionality is badly trailing Unix and Windows NT. In order to achieve the same level of functionality on the AS/400 as Unix or NT, Meta Group believes that significant additional investment has to be made on the AS/400. Overall this makes an AS/400 based solution between 5% and 10% more expensive than its rivals – even taking into account the low cost of ownership identified by IDC. IBM for its part hopes to narrow any gap between Unix, NT and the AS/400 by a two pronged strategy:

* To improve client-server functionality of the AS/400.

* To further improve the scalability of the AS/400.

IBM recently mapped out aggressive plans to improve high-end system growth over the next three years.The current AS/400 range offers uniprocessor and four-way SMP based systems. By the third quarter of next year the company plans to add an eight-way system which, IBM says, will almost triple the power of the current top of the range system to 509 RRP (relative performance points). A year later a 12-way system with performance of 710 RRP is scheduled for release with a further iteration at the end of 1999 offering 978 RRP – almost 1,000 times the power of the original AS/400 introduced 10 years earlier. IBM’s plan is not only to improve price-performance in the 50-70% range consistently over the coming three years, but also to enable users to run just the advanced applications where Unix and Windows NT current excel – data mining, Internet serving and, perhaps most importantly, multi-tier ERP (enterprise resource planning) packages such as SAP’s R/3. Another problem for AS/400 users planning for future investment is that the cost of client-server processing on the AS/400 varies massively across the range. According to research conducted by US benchmarking company Client/Server Labs, some AS/400 models compete with the very best Unix systems in terms of price per unit of relative performance (RPMark) in a client/server configuration. For example, a four processor AS/400 model 50S 2121 costs $196 per RPMark compared with $242 for a Digital AlphaServer 2000. However, a uniprocessor AS/400 model 20S costs $380 per RPMark compared with $84 for a Dell PowerEdge server and $118 for an NEC RiscServer 2200. Studies such as that conducted by IDC clearly provides a useful confirmation of the low cost of ownership of at least the low end of the AS/400 range. However, the most significant fact is not that AS/400 is still just ahead in pure cost of ownership terms, but that Unix and Windows NT is now so close behind. At least in the minds of most industry analysts, both Unix and NT now offer superior functionality and represent a lower strategic risk than the AS/400 over the medium term.