IBM Entices iSeries Customers with Price Cuts

Analysis of News Events
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Earlier this month, IBM took action to make its current line of iSeries servers more attractive to customers. It slashed sticker prices on the i870, cut charges for upgrades to the i870 and i890 Enterprise Editions, and flattened fees for its Capacity on Demand offerings. It also offered a sneak preview of a new high-availability iSeries offering that will debut next week.

The good news started hitting the wires on February 3, when IBM released an announcement letter that listed price reductions with little commentary and no fanfare. As observant readers soon learned, the announcement included the following price cuts:

  • $200,000 off the Enterprise Edition of the i870 5/8-way
  • $100,000 off the High Availability offering of the i870 5/8-way
  • $100,000 off the Enterprise Edition of the i870 8/16-way
  • $50,000 off the High Availability offering of the i870 8/16-way

The new prices represent 21%, 15%, 8%, and 2% discounts off the old prices, respectively. According to sources inside IBM, the company cut the prices in response to customers that have shown interest in the i870 but have complained that its cost per CPW was higher than that of the i825 and i890. IBM's move makes sense, as the i870 could be an attractive server consolidation platform for thousands of customers that do not need the horsepower of an i890.

While IBM was in a price cutting mood, it also took aim at upgrades from the iSeries 820, 830, and 840 to the Enterprise Editions of the i870 and i890. After analyzing the price cuts, I've discovered that IBM reserved the biggest reductions for upgrades to the i870 and upgrades to the i890 that involve big increases in interactive CPW levels. The bigger reductions for the i870 upgrades make sense, as they include the list price reductions shown above. However, the price differences for upgrades to the i890 require a closer look.

As an object lesson, let's say that you upgrade an iSeries 840-2352 (an 8/12-way system) with 120 interactive CPWs to an i890 16/24-way Enterprise Edition (which has maximum interactive CPWs). Under IBM's new terms, your price will drop 13% from $1,583,000 to $1,383,000. However, if your iSeries 840-2352 has 2000 CPWs of interactive capacity and you upgrade it to the same i890, your cost will only drop 5% from $1,239,000 to $1,179,000. In other words, if your upgrade involves lots of interactive CPWs, you will get a bigger price break than someone whose upgrade involves fewer interactive CPWs.

Put simply, IBM is trying to make it more attractive for customers with small interactive workloads to upgrade to an Enterprise Edition. This partially addresses what I consider a flaw in Enterprise Edition pricing. As I explained in an article last year, the effective cost per interactive CPW of an Enterprise Edition is much higher for customers who require small amounts of interactive performance than for customers who run large interactive workloads. IBM's new prices help to close this gap for upgrades to the i870 and i890, though they by no means close it completely.

On another front, IBM made its Capacity on Demand (COD) offerings more attractive for i825, i870, and i890 owners. In its February 3 announcement, the company slashed its daily per-processor rates for Temporary COD prices in half. This means that you can now activate a single i825 processor for $550 per day, an i870 processor for $600 per day, and an i890 processor for $650 per day. Big Blue also reduced what it charges customers who prepay for 30 processor-days by 33%. While this is a significant cut, it now means that customers will no longer get a discount by prepaying for 30 processor days versus paying for individual days. Whether you prepay for 30 days or pay by the day, your daily cost will be the same. Either way, the new Temporary COD breakeven point--the number of processor days one must rent before it costs less to permanently activate a standby processor--now stands at 90 days.

There's one more thing you should know: If you've already prepaid for processor days and have not used all of your days, your remaining days will be billed at the new lower daily rates. Who says there's no such thing as a free lunch?

A New iSeries in the Wings

Besides enticing customers with lower prices, IBM also intends to woo them with a new iSeries package. That package, the iSeries 810 High Availability offering, will make its debut next week. The new offering will take the iSeries 810 High Availability promotion that IBM announced in the fall of 2003 and turn it into a formal offering with no deadlines. It is likely that the offering will have the same prices, terms, and conditions as the old promotion. For instance, since IBM offered a $15,000 rebate for the iSeries 810-2465 under the promotion, the 810-2465 High Availability offering should cost $15,000 less than the Enterprise Edition of that model. To get all of the details, read the article I wrote about the High Availability promotion last October.

As these announcements make clear, IBM is trying to get customers to acquire more iSeries capacity now rather than wait until it announces POWER5 systems later this year. By reducing prices, IBM is bringing its per-CPW costs closer to the levels that customers will eventually pay for POWER5 boxes. While the new prices are enticing, it is highly likely that they are still significantly above those of the next-generation models. As such, smart customers should ask IBM for information about future iSeries prices, then ask for further concessions on prices and other terms as a condition for upgrading now.

Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at This email address is being protected from spambots. You need JavaScript enabled to view it..