OIO—how much does a System z really cost?

IT managers invariably think the mainframe is the most expensive general computing platform. They are right, but it may not be as expensive as they think. For years IBM has been fiddling with ways to lower the cost of System z computing.

The formal program for doing this is IBM’s Open Infrastructure Offering (OIO).  Basically, you commit to spending a significant amount of money with IBM over a period of time and IBM will lower its prices for the products, services, and financing. In short, IBM is bribing you, a form of voluntary vendor lock-in.

OIO is one of a number of cost-related initiatives IBM seems to always have going. You can find some of these reduced rate programs here.

Mainframe managers report a number of ways IBM lowers prices, even without a formal program. Besides simply dropping prices, as IBM does periodically, companies can take advantage of the following:

  • New workloads—IBM loves companies to run new workloads on the System z. New workloads today involve SOA, BI, and, especially, anything Linux on z.
  • Consolidate competitors’ products—consolidate a bunch of HP or Sun servers running Java applications on Linux on the System z and IBM will slash the cost of IFLs, zIIPs, zAAPs, whatever it takes (and don’t forget the software licensing savings that come with running costly applications like Oracle on a System z Linux on an IFL).
  • Commit to a long term, high volume relationship—that’s the OIO approach.

In addition, there are the tried-and-true negotiating tactics that work with any vendor:

  • Threaten to leave the platform—prepare to actually make the change so your threat is credible. (If you already have other platforms in-house your threat automatically is credible.)
  • Stall your deal until the end of the month or, better yet, the end of the vendor’s quarter—every vendor likes to post good numbers
  • Work through IBM channel partners, who may cut you a better deal

At an analyst briefing this past spring, IBM unveiled a revamped OIO program. The company lowered the entry point and offered an OIO credit program. It also shortened the commitment period to two quarters and lowered the total contract value (as low as $10 million). Finally, it tweaked terms and agreed to include channel spending in calculating the total deal.

The real value of the OIO program may lie in how it can help System z shops that will spend a lot of money with IBM anyway by smoothing out the financial peaks and budgeting mismatches, especially in turbulent economic times. The actual discounts, typically in single digit percentages, may not seem that impressive. Still a 5% discount on, say, $15 million in spending ain’t exactly peanuts.

The System z can seem expensive to acquire. However, its TCO, especially when you figure in software license savings and lower energy costs, and the workload per dollar it delivers remain over time unmatched.

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