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Software upgrade costs irk mainframe users

Users laughed at a recent article on the cost incentives of upgrading the mainframe. The joke? Hardware is cheap. It's the software upgrades that are killing users -- and forcing many onto other platforms.

While it may only cost a half-million to upgrade to a newer-model mainframe, it could cost a million and a half to re-license the software. But users say they're not getting any more for the money, and that the practice is unfair.

"It's like charging me more for a gallon of gas because I drive a bigger car," said Dave Thorn, senior technology analyst at SunGard Availability Services, Mt. Laurel, N.J.

Some users are so ticked off about what they consider to be unfair pricing practices they are seriously considering moving to other platforms. Others have already moved.

Jeffery W. Ream, a systems programmer with Columbia House Co., Terre Haute, Ind., said that all this talk about a mainframe revival isn't going to happen if vendors such as IBM, BMC Systems Inc. and Computer Associates International Inc. continue to charge unfair prices for upgrading software.

"Bring those costs down, and you might breathe some new life into the mainframe," Ream said.

IBM and CA did not were not immediately available for comment.

Users have balked about software licensing fees on the mainframe platform for as long as there has been a mainframe. Charging higher licensing fees for each upgrade is standard practice. And unlike other market segments, pricing is convoluted, said Clay Ryder, executive vice president with the Sageza Group, Union City, Calif.

"Mainframes have always had a special place in the pocketbook of the vendor," Ryder said.

Ryder said that the mainframe is the only server segment where users pay for the hardware but don't have the right to use it. "You have to pay for usage and a series of licenses," he said.

The cost, he said, is predicated not by usage but by the value of the applications running on the mainframe -- an assigned value determined by the software vendor. A database might have a higher workload charge than a Web server, for example. "It's about extracting value from the value of the system," he said.

BMC said in an e-mail to that it continually evaluates the market, customer needs and customer demands -- then adjusts its pricing options accordingly. "Every customer has different circumstances and plans for the future and, as far as licensing agreements are concerned, one size does not fit all," the e-mail states. "BMC offers a variety for a customer to choose which option is best for them."

Cost is just too high

But with companies being under increasing pressure to cut costs, the price of the software is often the deciding factor regarding whether to upgrade.

Few IT pros who have ever used a mainframe wouldn't argue that it's the most powerful, secure and scalable platform in the world. But they're moving to other platforms because they believe they're getting suckered into paying more for software licensing costs simply because of their choice of platform and they can't afford it anymore.

"When you need more capacity -- you've got 50 MIPs and you want to go to 500 MIPs -- you buy a bigger mainframe. Well, the software vendors start licking their lips," Thorn said.

And believe it or not, users are actually turning to IBM because they find its new pricing strategy much more attractive than that of Big Blue's competitors.

"IBM is also not exactly cheap," Thorn said. "But they are developing less-expensive alternatives to some of the third-party products to attract customers away from their current vendors."

Ream said that his company is always on the lookout for competing software products that might save money. The firm also keeps an eye out for strategies for moving applications off the mainframe. He admits he's looking to IBM to cut him the best deal.

"Nothing can process volume like a mainframe," Ream said. "There's nothing like CICS on any other platform. The push is still to get away from the mainframe because it's too expensive. Well, maybe it's not too expensive, but we just can't afford it anymore."

Will it ever change?

The idea of charging more based on value is a pricing strategy that dates back to the 1960s, when IBM dominated the market, Ryder said. In some respects, he said, it makes perfect sense. The more you're able to do with a system, the more you should have to pay.

"This is not new in the world of pillaging the customer" said Ryder, noting that railroads used to charge customers transporting goods more for certain items -- a loaf of bread would cost more than a sack of flour. "This is not something IBM thought of to screw the market. This is a pricing mechanism that has been used for a long time."

That's why, he said, IBM's recent announcement that it would eliminate some workload charges with the z990 T-Rex mainframe was such a breakthrough.

"That was one of the very rare times when there's been a departure from this workload-type charging," Ryder said.

A signal of things to come, perhaps, but Ryder said that major change isn't likely to happen anytime too soon.

There are tremendous profit margins on the mainframe, and IBM can throw the software in for free and still make out at the end of the day. So it's not completely surprising that IBM is offering better deals than its competitors to get customers to stay or move onto the mainframe, Ryder said.

But, he said, coming up with a wildly different pricing model would be a shock to the system, and IBM isn't likely to do it.

"I think we're going to see evolutionary change rather than revolutionary," Ryder said.

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