This newsletter has spent the past few weeks delving into the heart of the eServer i5 “Squadron” servers, their Power5 processors, and i5/OS V5R3. This week, I need to discuss IBM‘s marketing and income plan for the platform. in keeping with the good brass within the iSeries division, IBM is going to be pushing on a number of fronts to are trying to develop the OS/four hundred server enterprise and pump up the OS/four hundred ecosystem on which it depends.
I recently had a chance to talk to Al Zollar, general supervisor of the iSeries line, and Cecelia Marrese, vice chairman of advertising for the iSeries, about what they hope to achieve with the brand new product line. no longer that here's necessarily indicative of the fitness of the iSeries line, however from those meetings i will tell you that they each seem to be a lot more comfy and positive about where the iSeries is and where it goes. here's reflected as a whole lot in physique language as in what they said.
Zollar instructed me that he desired to keep the iSeries line, now the eServer i5, within the press and within the minds of purchasers as they believe structures. And one thing IBM will do to make this happen is to retain enormous iSeries announcements popping out at a gradual tempo and with the newest IBM technologies. “we're relocating faraway from massive bang announcements and moving on a roadmap where they now have some thing colossal to say to their valued clientele each quarter,” he defined. “this could maintain a degree of interest and vitality within the platform.” it'll also aid with publicity, as the IT trade press that's consumed via IT workers, from gadget admins to chief tips officers, will see a gentle flow of i5 announcements.
however the strategy goes far past that. whereas the consideration is good, the top-rated sort of earnings pitch is a aggressive cost for OS/400 servers and their related software. To that end, as they explained just a few weeks ago, IBM reduce reminiscence costs by means of 20 to 60 percent and reduce storage prices by using 20 p.c, it dropped the fee of activating Power4 and Power5 processors on the iSeries and i5 line, and observed that it will maintain the average add-ons (corresponding to server processors, reminiscence, and disks) at parity with the pSeries (quickly to be “eServer p5”) Unix server line, which has historically had lots lessen record price tags and a whole lot larger discounts than for the iSeries. while IBM will very nearly not at all close the hole on the retail level (besides the fact that consumers herald sun Microsystems and Hewlett-Packard with competitive Unix, Linux, or home windows techniques), the gap is considerably smaller, and the wonderful benefits of the iSeries over the options make it viable to sell towards these alternate options. earlier than, the sticker price was so high on the iSeries that enterprise partners couldn’t even get their foot within the information core door to make a pitch. With these fee cuts, which individuals like me have been clamoring for because the mid-Nineties, the data middle door has opened a crack, and the i5, with its refined partitioning and distinctive working device aid, has a decent probability of basically compelling CIOs and VPDPs now not handiest to open the door however also to usher in partners to pitch the machine to resolve their issues.
IBM has all the time understood that the field count number for the iSeries needed to continue to be high if the OS/four hundred ecosystem turned into to no longer only survive, however to thrive. And the price cuts are key to IBM’s plan to boost the container count coming out of the iSeries factories in Rochester, Minnesota, and in Dublin, ireland.
Of direction, with such huge price cuts for servers, memory, disk, and other core components, this begs the query of how IBM can retain iSeries hardware revenue, tons less boost it. I have argued for years that the OS/400 server market is extra elastic than IBM’s advertising and marketing model advised. IBM had its motives for charging excessive-fees–it necessary the margins as a result of its manufacturing prices were high, and to aid pay for its very aggressive fight towards sun and HP in the Unix market, the place it's arguable that IBM may no longer have damaged even as it uses pricing as a way of gaining market share.
Now that IBM has huge credibility with the vigour-AIX servers, and sun and HP have backed off just a little on cost cuts, IBM has a bit extra space. (I stated a bit.) IBM additionally has a bit bit more room considering the fact that the iSeries and i5 machines sold in Asia/Pacific at the moment are being in-built ireland, the place labor is more cost-effective and transport expenses to Asia are decrease. (The pSeries manufacturing for Asia/Pacific purchasers also has been moved to eire, and IBM also has a bulk contend with United Parcel carrier to ship from eire to Asia. This, mixed with tons of of tiny alterations within the supply chain of parts that go into the iSeries, and in how the product is manufactured and delivered, has enabled IBM to get iSeries fees decrease.
IBM cares plenty about salary growth, but it has at all times cared greater about earnings growth. So with fees on the iSeries pretty much cut by forty % with the i5 launch, can IBM grow revenues and retain earnings?
The reply seems to be sure. Zollar says that IBM’s plan is to promote more containers, which is obtrusive enough, but that he also expects IBM and its companions to be capable of promote richer configurations of the boxes. My bet is that the average promoting rate of a box is not as little as you may believe, because the mindset shift from spending as little as feasible to do the bare minimum of work on an iSeries to spending about the identical amount of cash or slightly more to do a lot more issues with an i5. this is the bet i'd make, and it is obviously the wager IBM is now making. (Heaven assist us all. and that i wish IBM had performed it 5 years ago.) “I believe there's a major pent up demand for reminiscence and disk storage,” says Zollar.
Marrese says that the eco-friendly Streak promotions in late 2000, which finally ended in the revamping of the iSeries line in January 2001, were the 1st step within the transformation of the OS/400 server into a aggressive field. however a beta examine in March of this year for the model 520 and OS/400 specific packaging that debuted in early may also looks to have been what pushed IBM over the area to birth slicing expenses. Italy, Marrese defined, has a labyrinth of tax legal guidelines that make it painful to run a large enterprise, and that's one of the vital explanation why the nation is teeming with small corporations. a lot of these small businesses, it seems, have received AS/four hundred mannequin 150 and mannequin a hundred and seventy servers. and they simply keep the use of them and don’t improve as plenty as IBM would like. in the beta application, IBM took an iSeries model 800, packaged it like the model 520 express laptop (low cost, loads of utility, ready to run out of the box), and found out that if it cut the fee of this configuration in half, compared with the charge of constructing it with standard iSeries model 800 pricing, it bought twice as many packing containers.
a different area that Zollar says he's focusing the iSeries division on is likely one of the average drivers of the product line: high availability. “on account of the traditionally high reliability of the AS/four hundred and iSeries, their consumers are very beneath-invested in high availability and resiliency.” while excessive availability and device clustering software had been the greatest drivers of AS/four hundred and iSeries revenue in the past decade, my wager is that simplest about 10,000 of the 215,000 OS/400 stores on the earth have implemented high availability options. With cheaper and less demanding-to-use excessive availability utility, and a good deal more affordable i5 containers, IBM should be able to make it up in extent.
Zollar says he has carried out a few different alterations to aid raise sales. For one issue, he referred to that the business is reaching out to the legion of small iSeries companions with best a number of dozen debts to try to get them back into the game. IBM is giving first rate discounts to partners that purchase mannequin 520 categorical configurations in blocks of 10 or 20, and the company will now not promote the brand new i5 machines direct in competitors with its channel, which accounted for about eighty five percent of iSeries revenue in 2003, in keeping with Zollar. whereas iSeries earnings boom in 2003 became in the “match double digits” for midrange and excessive-conclusion iSeries machines (Zollar talked about the number “all started with a two” once I pressed him to nail it down someplace between 10 and ninety nine p.c, and my guess is around 25 p.c revenue growth), it is the low volumes of entry machines that has been a drag on both iSeries shipments and iSeries salary. Shipments have been flat and earnings had been up 7 p.c in 2003 across the iSeries line. naturally, getting companions excited about promoting the i5 mannequin 520 categorical configurations is a key to the brand new approach.
nevertheless it is not the simplest opportunity IBM is looking at. Marrese says that IBM booked round $one hundred million in Linux-linked iSeries server revenue in 2003, an element of six larger than Linux revenue on the field in 2002. She says income to aid usual green-display functions became flat or down, and that Domino, excessive availability, home windows integration, and WebSphere are key drivers. but what has Marrese smiling is the coming guide for native AIX inside logical partitions on the i5 machines. because it turns out, virtually 40,000 OS/400 customers also have Unix servers of their shops, of which the huge majority are running HP-UX applications. Getting even a percent of these valued clientele to port their HP-UX purposes to AIX and stream them onto the i5 assisting each their OS/400 and AIX workloads will go a long manner toward boosting general iSeries earnings.
most likely more than the rest, the timing of the i5 announcement with a recovery in the global financial system is auspicious. Marrese says that, in 2003, iSeries income in Italy, German, and France picked up, that North america all started off powerful, and that Asia/Pacific countries like China are exploding (albeit from a extremely small installed base). “valued clientele had been buying to do the bare minimal,” she says, “but now they are becoming the green gentle to spend once more.”