I hate to tell you I told you so. No, really, I do. I didn’t want to be right about this. And as is the case with all prognostication, I was only partially right, so really, I didn’t want to cop to only being partly right. Back in January, in the lead story for the first issue of this year, it was reasonable to expect a maintenance price hike in 2013 on vintage System i and not-so-shiny Power Systems iron. There has indeed been a maintenance price hike, but it was on IBM i software, not IBM hardware.
See, so I got the vector, but it was pointed in a slightly different direction and, as it turns out, of a very different magnitude than I expected. On February 5, in announcement letter 313-006, IBM jacked up the price of its Software Maintenance (SWMA) technical support for the IBM i operating system. The price changes are rather dramatic and cover a large number of features. The price hike goes into effect on April 16, and as far as I can tell all current IBM i releases and the soon-to-be-retired i5/OS V5R4, which goes off regular support at the end of September this year, are having their SWMA prices increased. The base SWMA license price change ranges from a low of 23.1 percent to a high of 28.6 percent.
As you can see from the monster table I created from the announcement letter, the price changes not only affect the base SWMA charge for each software tier, P05 through P60, but also fees to convert from standard business to 24×7 support (an uplift in the IBM lingo) for both one year and three year contracts. Net-priced upgrades between tiers and used during hardware upgrades that involve machines with different numbers of processor cores and machines in different tiers, are also affected as shown in my monster table. It was not easy figuring all of this out, and IBM could make it a lot easier by just including the product description field, which is obviously in its master product and feature number database, along with the before and after prices. But, I guess this gives me something to do of value, figuring this all out.
I asked an IBM spokesperson for comment about the price hike for IBM i SWMA, hoping to get someone on the phone to explain the features and price change rational, which seemed pretty steep. People in the know about this pricing action were traveling, so I had to settle for this comment sent from said IBM software pricing experts to me through the spokesperson:
The industry standard for maintenance charges on software products runs at approximately 20 to 25 percent of the purchase price. The IBM i Group SWMA price has been significantly below that standard for many years. This price action for the Group SWMA brings the maintenance price more in alignment with the industry and IBM standards for software maintenance prices. The price of the IBM i Group SWMA is based solely on the purchase price of IBM i. While the Group SWMA includes 45 additional components, many of which carry an additional purchase price, the percentage is calculated using only IBM i purchase price.
I have no idea what they are talking about with the IBM i Group and its 45 additional components and am waiting for further clarification. But what seems clear is that IBM thinks it has not been charging enough money for SWMA on the IBM i operating system and its integrated database and middleware. So, for fun, I dug around for what I think are the current IBM i per core license charges, which are the same for IBM i 6.1, 6.1.1, and 7.1 as far as I know, and are as shown on the table below:
First of all, sometime in the past several years, SWMA fees went up and I didn’t see it. And no one else did either, and some of the stories I have written saying it was from $1,200 to $6,000 per core were wrong (probably during the Power7 launch) and it has been $1,300 to $7,000 per core. Well, starting April 16, it will range from $1,600 to $9,000 per core, depending on the software tier.
Now, as to the suggestion that the industry charges 20 to 25 percent for software maintenance, which companies like Oracle and SAP can extract from customers, that presumes that the underlying software is priced correctly. As I explained back in August last year, the DB2 for i database is priced correctly and more or less in line with DB2 for Unix, Linux, and Windows on comparable machines, and the underlying Application Server (what is really OS/400 and IBM i) compares well, particularly on Power 720-class and 730-class machines. So it may be that I helped IBM make its case for a maintenance hike there.
To which I would say: When you are trying to knock out Oracle, you can’t charge Oracle prices, you have to charge a lot less. And when you are trying to protect your base against Oracle, you similarly can’t raise your prices, no matter how good your technology is. Like it or spike it, the Oracle database is the default in many companies, and when it isn’t, Microsoft SQL Server usually is. Raising prices, whether on licenses or support, is exactly the wrong thing to do. The right thing to do was to show the competitive advantage that IBM i has against Oracle, not remove it. That’s what I was doing. IBM is just trying to buy back shares, not win hearts and minds. And that is just plain short sighted.