It's easy to get caught up in all the excitement over the new AS/400 product announcements from IBM. After all, faster and more powerful hardware coupled with new and improved IBM software only embellishes, in my opinion, an already outstanding and versatile computer system. But as the enthusiasm over these shiny new models wanes, we should beware of the dilemma that they can create for the average company.
As a mid-sized manufacturing corporation, we recently completed the process of selecting a new computer system to support our manufacturing, sales, and accounting functions. After a careful definition of our needs and tedious evaluation of software, we chose the IBM AS/400 B45 computer (only the B models were available at the time) and a non-IBM software package. We made a sizable investment in the system, implemented the software in record time, and have been running rather smoothly for about seven months. All things considered, we were pretty pleased with our accomplishments.
About midway through our implementation process, the AS/400 D models were announced. While the D models were newer and faster, we already had our plates full and viewed the impressive D models as a luxury that we couldn't quite afford. We decided to wait until we completed the system implementation before reviewing hardware needs again. As the D models flourished in the marketplace, it wasn't long before we learned of the rapid depreciation rate of our B45. This was quite alarming since the box was only six months old and we were still in the process of installing it.
When the E models were announced in February, we were at first relieved that we didn't get that D model upgrade so soon. We might now take advantage of the newer and even faster E model at an improved price/performance factor. Our happiness was quickly checked, however, when we saw the value of our B45 drop even more dramatically. Our B45, at the ripe old age of 17 months, is worth about 20 percent of its original value. So, we are almost forced into a hardware upgrade to salvage any hardware investment left in the B model, knowing that this vicious cycle will repeat itself with each new model announcement.
Enter the dragon. We decided to bite the bullet and go for the upgrade, but not before confronting the tiered pricing monster. The charge to upgrade our application software was, well, shocking. There is a 45 percent increase in the list price of our application software between a B45 and an E45. The software upgrade involves merely entering a new license key-there are no new features added; there are no new modules included. We pay a bunch of money for the same number of users to run the same software on the same machines with a faster processor card installed.
An upcharge of 45 percent of today's list price for AS/400 application software is a significant amount of money. However, there is more than just this initial lump sum to consider. Our annual maintenance and problem support fees (priced separately) for the software are based on a percentage of the list price. The E45 upgrade puts us in a higher price group in the tiered pricing strategy. The end result is that we pay now and pay later.
We are aware of the arguments both for and against tiered pricing and don't deny software developers their money. We realize that the E45 has more capacity and can support more users. But we don't need more capacity (speed-sure, we'll take it; DASD, connections-not necessarily). We're not adding more users. We're just trying to do a balancing act between protecting our investment and our bank account. This is the paradox of being on the cutting edge of technology. We can't afford the pitfalls of not keeping up with the technology, and we can't always afford the costs associated with keeping up with the technology.
What we believe companies similar to ours require is the cooperation of IBM and software developers who write applications for the AS/400. If IBM is going to roll out new models once a year at improved price/performance, then software companies need to price their product upgrades accordingly. IBM and developers need to work together to protect their customers, who find it increasingly difficult to bridge the gap between falling hardware values and rising prices for hardware and software upgrades with each new announcement. IBM needs to build more residual value into the older products. Developers need to ease the pain of upgrades, perhaps by including them as part of annual maintenance or allowing upgrades within the same model number. We shouldn't have to worry over the financial baggage associated with each new announcement. It is more fun to enjoy the new announcements for what they are: advances in technology to benefit us, the end users of these products.
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