Maxed Out

Because the System i can run at redline speed all day long . . .

July 10, 2007

Price More Than Horsepower Driving 515-525 Sales

Along the lines of yesterday's Q&A, Kevin Fratzke, vice president of System i Solutions Practice for MSI Systems Integrators, is seeing similar interest in the 515 and 525.

"We are selling quite a few i515s and i525s to our existing customers, and we have sold a few to new customers," Fratzke says. "The changes in packaging and licensing to user-based have helped a lot in approaching the smaller customers that have gone dormant and are on older hardware."

His point about dormant customers is a good one — and one that I hadn't considered before. The last time I heard much about IBM going after dormant customers was three or four years ago. In all the IBM-specific talk about the 515 and 525, however, none of the IBMers I've talked to have mentioned going after dormant customers as a strategy. Either IBM was pretty successful in 2004, or, more likely, the company is focused on driving new growth through the Vertical Industry Program (VIP).

Either way, there's obviously an opportunity for IBM Business Partners to get in front of customers who already have some affiliation with the i and bring them back onto modern solutions — and presumably (re)become System i enthusiasts. Of course, these customers are still very small customers and may have a questionable growth curve — you know, the idea that small companies become big companies . . . not always true, even if big companies like IBM, Oracle, and SAP are in love with the concept and spout it whenever they have an SMB strategy to share.

Pricing Is the Driver

With the full processor unleashed in the 515 and 525, which is more important to sales — horsepower or price?

"The pricing model is driving most of the activity," Fratzke notes. "The horsepower doesn't hurt, but it's secondary when approaching dormant accounts — they typically do not need performance — it's more economics. With new customers both factors are more equal."

The Up and Down of Cost

Obviously, selling a lot of low-cost System i 515s and 525s is a good thing for expanding the use, market, and knowledge base of the System i. The downside is the cost and the profit for both IBM and Business Partners. It's tough to sell a commodity product that's fundamentally different from the other commodities on the market — you need volume to make a profit, and volume is tough when you have to educate your buyers for nearly every new sale. There's no easy answer, and while Fratzke is seeing positive movement, it's not all glory and roses.

"Profitability is down due to the new pricing model on a per unit basis," he says. "IBM also has fewer protections in place for Business Partners who invest in i515 sales that can lower profits."

Net New Sales

Incidentally, while most of the 515-525 sales have been replacements in existing accounts for Sirius (as noted in yesterday's post), Sirius has made two sales into brand new accounts with no previous System i, iSeries, or AS/400 in place. If this were October, I'd be raining dogs all over this single digit number, but these boxes haven't been available that long. Baby steps, right?

Posted by cmaxcer at July 10, 2007 8:25 AM

Comments

The 515-525 boxes are considered handicapped by brand new prospect customers who never had iSeries exposure before. They're considered handicapped because they don't run Windows natively, just green screen, and there's no abundance of (modern) apps to choose from — despite what IBM says — compared to the Windows world.

I heard one small shop say they were aware of the legendary rock solid performance of the iSeries, but so do perform their Windows 2003 server machines — the days of the obsolete Windows NT4 with the almost daily outage and reboot have gone by. They told me they would consider an iSeries machine, but in the view of its (perceived) handicap, only at a price that is at least 25 percent lower than a comparable Windows server.

Posted by: ugeerts at July 10, 2007 4:15 PM

Stability, rock solid or otherwise, is not a selling point. No one is ever going to buy a computer because it is claimed to be rock solid stable.

Security is critical, and every enterprise should be considering the iSeries for cost effective secure performance.

That iSeries doesn't run Windows GUI programs is, as usual, a red herring. Neither does a Windows server when serving hundreds of users as an iSeries does. Just because Windows is also a client OS as well as a server OS, and iSeries is only a server OS, is irrelevant.

But in the end, companies choose software and a computer that runs it, not a computer and software that runs on it. Sure, if they already have a computer they'll choose additional software that runs on it, but no one is going to choose an iSeries for any reason and then look for software that runs on it.

Companies bought the iSeries family midrange line to run cost effective enterprise software. The real problem is that the market became saturated with a mass refresh for Y2k, while also downsizing in traditional U.S. markets such as manufacturing.

The iSeries and iSeries packages, which mostly all now have functional, aesthetic browser interfaces, will still compete for enterprise business when a solution is sought.

But the new 515-525 cost performance will help greatly in making the case for those iSeries software packages being considered.

rd

Posted by: Ralph Daugherty at July 11, 2007 12:51 AM

Why is it Windows people are always trying to say they are 'as good as' an iSeries?

Kind of like comparing a Pickup Truck (a PC) to a 18 Wheeler (the iSeries)? I've seen some customized nice looking, fast pickups on the road, but they are still a pickup truck with limitations. If I need to move a lot of something efficiently and safely, I'd get a big truck (not some souped up customized pickup).

I would never recommend my company run their business critical applications (no matter how pretty) on a machine that some kid in a trailer park can hack his way into. Instead I'll keep my business critical applications running on a secure, robust platform (the iSeries).

By the way I disagree with the comment "gone are the days of the almost daily outage and reboots" of PC based systems. Our PC Group is always in the office late at night and weekends, needing to reboot this, or apply a security patch for that. While our iSeries Operations guys are home at night, snug in there beds, with visions of hackers stopped dead in their tracks.

After being in the industry WELL over 20 years, and hearing RPG and midrange systems are an old dying technology, it is strange to me how many major companies rely on that so called "out-dated" technology for their business critical applications. I am keeping my critical eggs in my iSeries basket. PC's and PC Networks have their place — word processing, spreadsheets, and more importantly, connecting users to a real box like the iSeries, where the real transaction processing takes place, quickly and securely.

SMc

Posted by: Scott Mc at July 11, 2007 2:05 PM

The point that stability or rock solid performance was a selling point was never made. It was just an example of a non-iSeries shop who knew at least what an iSeries was or still is famous for. Most non-iSeries shops know "nada" about iSeries or will give you an answer when asked like "Gee, is this some kind of Univac system from the sixties? Does it still use key punched cards? And at what speed?"

IBM is really gonna have a though time selling these entry boxes. They won't face an iSeries manager mouth watering about the next model coming out, no, they will face a crowd that grew up with Windows, who on the other hand, are not addicted to the Windows/Wintel platform. Instead, I find most of them are definitely down to earth, very concerned about their business and willing to consider other IT options, and if IBM plays its cards right, they might sell more than a 2 digits number. I have a feeling the 515-525 boxes may break the door open with non-iSeries shops if the entry price is pegged another 50 percent lower.

PS: On a side note, the point was made by some that Windows servers never serve hundreds of clients simultaneously. May I refer to Citrix Server of Windows Terminal Server. Please do your homework before making unsubstantiated statements.

Posted by: ugeerts at July 11, 2007 2:07 PM

SMc, you missed the point entirely. The point is how to sell 515-525 boxes to NEW, NON ISERIES, SMB customers. How to convince SMB's, having less than 100-250 employees, in the deal, that is the question. Will IBM succeed? IBM is not that short sighted, they would like to let the platform survive for the next 10 to 20 years, especially after the aging and faithfull iSeries crowd has gone into retirement, so to them new blood is a matter of life or death.

Posted by: ugeerts at July 11, 2007 3:05 PM

It comes back to who and what is trying to sell an AS/400 solution. In case you weren't around, the predecessors of the AS/400 (the S/34, S/36, and S/38) were targeted specifically at 100 - 250 employee companies (or even less). Unfortunately it seems that IBM has lost its desire to court those kinds of companies directly, instead relying on business partners to do the legwork.

Back when the AS/400 was first announced, I used to work for an AS/400 business partner. We used to have IBMers in the office all the time, and most of the time accompanied one (or more) of them on sales calls. I don't think I've seen an actual IBM (employee) rep for over 10 years. Maybe that's the real problem.

Posted by: Uncle Dave at July 11, 2007 3:52 PM

To suggest that System i is handicapped because it doesn't run Windows natively illustrates just how misinformed the buying public might be. i5/OS is a far better alternative to Windows on the server side. You can stick Windows on a client if you must, but I don't want to expose the business to all of its vulnerabilities at the server.

And if the folks that are making these decisions really are down to earth, very concerned about their businesses and willing to consider other IT options, then they'll listen to the i5/OS story, understand that it delivers measurably more value than Windows and won't be looking for a 25-50 percent lower price.

Oh . . . and there are plenty of robust applications available for i5/OS. And, remarkably enough, I can keep adding applications to the same server without sacrificing stability. Meanwhile, you could spend the next decade trying to reach agreement on what it means to be "modern".

Posted by: kr at July 11, 2007 4:39 PM

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