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Published: 09 Jun 2011
Revised: 23 Jan 2013 - 3495 days ago
Last viewed on: 19 Aug 2022 (4049 views) 

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Where is the AS/400 Manufacturing Plant? Published by: Bob Cozzi on 09 Jun 2011 view comments

To to Reduce the Price of IBM i

AS/400 You're Dead to Me

Over the last 3 decades the IBM i operating system has had its named changed several times:

  1. CPF
  2. OS/400 aka "XPF"
  3. i5/OS
  4. IBM "i"

When System/38 first appeared, CPF was the OS and was built into the price of the machine. Upgrades cost you a few thousand dollars at the time, but then in the mid-1980s IBM decided it wanted all the money for CPF at once. So they changed the pricing. Existing customers could make a one-time payment to IBM for $22,500 and never have to pay an upgrade fee again. New customer could purchase a new or used System/38 and pay IBM $22,500 for a CPF license.

With AS/400 the pricing structure changed, there was the roughly $18,000 price for the B10 and B20 modules, and $22,500 for everything else. But soon the so call tiered pricing model took over. You could end up spending north of $50,000 for CPF, now called OS/400 when you purchased a high-end model AS/400.

Now I may be off by a little on the timing and numbers here, but this was the basic pricing model.

When the eServer iSeries came out, IBM continued the tiered pricing model but called it something else--but that name escapes me. A long-time Rochester Product Planner once said "We can't figure out how to lower the price of OS/400. It costs $22,000 and that's it."

In the last 15 years, IBM has lowered the price of CPF to well under $5000 for entry-level machines, but today it can still cost more than $54,000 on a high-end system.

Sponsored by: BCD Catapult

As the base-system performance has improved (today's entry-level POWER7 systems have more base horse power than 75% of the "i" customers need) so IBM has kept that entry-level system price relatively high compared to non-IBM i servers. The entry price for IBM i OS software starts at $2250 for 5 users, but while that might give you the illusion that IBM i costs $450 per seat ($2250 divided by 5), you have to add to that the on-going $750 SWMA. The 5-year cost ends up at $900 per seat at the entry-level. Is IBM i worth $180/year per user?

It doesn't matter because the value of software went out the window when PC's came onto the market nearly 3 decades ago.

Twenty years ago I charged $2995 for my utility software (similar to today's RPG xTools). I sold it often, but today I charge just $495 per system for RPG xTools and while is sells well, it sells no where near the numbers of the 1980s and early 1990s. But my research indicates that if I charge $59 or $500 the number of sales will remain fairly consistent--so $495 it is.

But Today, "penny software" is the norm. From iPhones, Droids, to iPads and Galaxy TABs, application software prices are rock-bottom. This is perhaps the only thing supporters of the Open Source movement fear (i.e., "penny software").  At some point the advantage of free/open source software goes away when it is compared to $0.99 applications. If you could license IBM i for $29 for your home PC, would you still install Linux simply because it's free? Except for the 1% of you who said yes, the rest of the World would not bother.

Even Microsoft is refining their software pricing model. I expect Windows 8 to be priced lower than Windows 7 (but not as low as Apple's MAC OS X at $29).  They have also introduced free online versions of their Office Suite that are low to no cost. They have $100 versions of Office, along with the more pricey box sets that range in price from $250 to $500+.

What is IBM doing about software for IBM i, their only business operating system that doesn't require a "big iron" mainframe?

Hardware prices are dropping, we saw it with disk drives, memory and server hardware. I would speculate (having no data to back this up) that the current Apple iPad 2 has more CPU power than the original AS/400 model B10 with 16meg of RAM. At the original B10 model with 4MB, I would guess that the remote for my car has more CPU power than the B10 had. And while hardware prices are dropping for everything, even IBM POWER6 and POWER7 systems, they are not dropping and staying low, fast enough. Certainly $5000 is an okay entry price for a full-blown POWER7 running IBM i server, but I don't want to pay another $180 per user per year with a 5 person minimum on top of that. Its as if the same people who came up with the 2-drink minimum in Comedy Clubs have designed IBM i pricing.

Problem is IBM is putting in more CPU performance and other subtle features but keeping the entry-level price up. Rather than providing more for less, they are providing much more for about the same price. What if I don't need "much more"? Why hasn't IBM i's price dropped? Certainly won't encourage me to buy an upgrade. Heck, the thing doesn't even have a GUI, but I digress.

Made in the USA, NOT!

IBM's former CEO Lou Gerstner said, "When a product becomes a commodity, we'll get out of that business."

We got to see this in policy put into place in the last 15 years twice:

  • The PC Hardware Market
  • The Hard Disk Drive Market

A recently installed entry-level IBM POWER7 system (I no longer know the contemporary name for the "AS/400") started failing. CE's were brought in again and again--it looks like it was a manufacturing defect. That's when I learned that the Entry-Level POWER7 boxes are NOT made in good old Rochester Minnesota. Nope, they are made in... wait for it... China!

Don't get me wrong, China makes Apple PC's, Dell PCs, HP PCs, and most other PCs that aren't made in Taiwan or Singapore. But POWER7 boxes! WTF?

The reason we pay a premium for hardware that runs IBM i is because  (A) it is reliable and dependable and never f'ing fails, and (B) it's made in the U.S.A.

Today, entry-level POWER7 boxes are made in China. Does this mean it has become a Commodity? Is IBM getting out of the entry-level POWER7 market? What happened to SMB being the only growth area of the economy?

High-end systems continue to be made in Rochester and are just as reliable as the one I purchased a few years back. Remember? It was in my basement which flooded when I was out of town. The system was literally submerged in water. I lifted it out of the water, placed it on a table and watched the water drain out of it. I left it to dry for a couple weeks and then attempted to IPL the box. Guess what happened? It IPL'd just fine and it continues to run to this day, without any issues.

This is why we buy IBM i POWER systems. But, while I hate to say it, things have now changed. I would speculate that an entry-level POWER7 box running IBM i that is made in China probably wouldn't have IPL'd in that situation. So should we still be paying a premium for these systems? I think not.

Call Me

Bob Cozzi is available for consulting or on-site training in RPG IV, SQL, and CGI/Web as well as perform contract programming. Currently many shops are asking Cozzi to join them for 1 to 3 days of Q&A and consulting with their RPG staff. The Staff gets to ask real-world questions that apply to their unique situations. Contact Cozzi by sending him an email at: bob at rpgworld.com

Bob's newsletter "RPG Report" is published on the 1st and 3rd Tuesday of each month. He accepts your questions for use in future RPG Report articles. Topics of interest include: RPG IV, Web development with RPG IV, APIs, C/C++ or anything else IBM i development related (except subfiles, data areas and RPGII/III because Bob doesn't care about that stuff) write your questions using the Feedback link on the midrangeNews.com website. 

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