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September 22, 1998

IBM SETS COURSE FOR USAGE-BASED SOFTWARE PRICING

By CBR Staff Writer

IBM Corp is steeling itself to abandon the way it currently sells mainframe software according to how big the system is, in favor of a model that charges customers according to how much use they make of its programs. In this way IBM hopes to exploit the continuing growth of the mainframe MIPS market by making OS/390price/performance competitive with other platforms and make it more expensive for users to move to Unix or Windows NT than to remain mainframe users and upgrade to new systems. From the beginning of next year IBM will begin metering specific S/390 middleware use and pricing it according to Measured Usage License Charge bands, in addition to the existing Parallel Sysplex License Charge. It will replace more than eight existing tiers of capacity-based software pricing including an acronym soup of price tags such as DLSO, GLMC and MOSL that will eventually lead to the scrapping of model group pricing altogether. The move is expected to especially benefit the growing number of users who have tens or hundreds of thousands of MIPS capacity but who under existing Level A, B and C price bands are netting less than a 5% discount on IBM software and are effectively paying the same cost per MIPS as a user with 2,000 or 3,000 MIPS. While users’ software budgets will never decline, Meta Group believes that IBM is the least of users’ worries in the wider scheme of things. IBM typically gets 45% of a mainframe customer’s software budget, while ISVs pocket the remainder, a reversal of the split a few years back. What’s crucial for users is whether ISVs will follow IBM’s model and scrap pricing according to system size in favor of usage-based models. Although IBM is supposedly in discussion with some ISVs, Meta says the chances that any are going to step up to the plate anytime soon is not very likely. And why should they? The biggest mainframe ISV, Computer Associates International Inc, does more than 50% of its revenue on mainframes and the long-term trend says mainframes are going to be around for an awful lot longer than was once thought. CA can therefore afford to keep its cash cow going until such time as IBM’s usage-based policies – or pricing pressure from Unix and NT applications such as SAP or Lotus coming on to the mainframe under the new pricing regime – force it to change course. In any case it’s not so much how many ISVs IBM may be able to win around to usage-based pricing but who they are. CA, CompuWare Corp and Boole & Babbage Inc are among the most prominent OS/390 ISVs.

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