SAN ANTONIO – When IBM cuts the price of its midrange servers in half, does it leave any room for argument when it comes to buying one?
IBM thinks not and said its new "economic model" will be the force behind driving new sales.
The core of IBM's new economic model, played up during the COMMON IT Education Conference and Expo last week, is a radical pricing strategy that reduced the prices of some iSeries models and memory by as much as 80%. The new i5 models, which made their debut at the conference, start at prices that are less than half of what a comparable iSeries would have been before the price cuts.
This is all about IBM refusing to compete with rivals, such as Dell Inc. and Microsoft, on hardware pricing.
"We're not going to compete in the commodity hardware market anymore," said Ian Jarman, iSeries product marketing manager, IBM.
Instead, Big Blue is choosing where it wants to do battle with rivals, said Jarman, and that's on the value of integration.
"When customers buy a server, they don't buy a 'Dell,' they buy a solution. The value is in the software," he said.
Users have always been critical of IBM's pricing of the iSeries, particularly those in the small to medium-sized businesses, and IBM has lost many a customer to Microsoft simply because of price. So by pricing the iSeries to be more comparable to other servers, IBM has essentially eliminated cost as an obstacle to purchasing an iSeries, according to experts.
In a move that shocked some analysts, IBM has priced the i5 Model 520 at $48,000. This is nearly $30,000 less than an equivalent iSeries Model i810. An i5 520 Model Express Edition starts at under $12,000.
To level the playing field for users not ready to upgrade to an i5, IBM also cut the prices of the iSeries 800 line of computers to be more comparable with the i5.
The i5 server is IBM's next generation iSeries and the first server based on the Power5 chip. The new server was developed using technology from the pSeries and, as a result, the servers share common hardware. (A pSeries server using the Power5 chip will be introduced later this summer.) The two servers share common prices for common hardware.
Paving the way for ISVs
Jarman said that cuts were necessary to grow the platform. It was getting increasingly difficult for business partners to sell an iSeries because of pricing.
"It makes it easier for our partners to sell when they have competitive pricing. Before, they'd never get to that point [to sell a solution] because of the pricing."
Cecelia Maresse, vice president of iSeries marketing, said that the new pricing strategy, which originated with the company's successful GreenStreak pricing program two years ago, eliminates pricing as an obstacle to buying for customers.
"The smaller business is sensitive to the original purchase price," she said. "But when you look at the TCO now, there's no debate. We realized that price was a great opportunity for us."
Will it fly?
A lot more will have to come into play to get Microsoft or Dell customers to buy an iSeries, but analysts said the new prices certainly can't hurt.
"IBM is pricing the iSeries so that even the 150-person outfit can afford one and still find cost savings," said Jim Balderston an analyst with the Union City, Calif.-based Sageza Group. "Plus, it's pushing it through its business partners, which makes them happy."
Charles King, research director at the Sageza Group, said that IBM is trying to appeal to the people, the Wintel-type guys, who are going for the cheapest platform.
"It's cheaper than anything they've seen in the past," he said. "I haven't seen anything that would make a traditional customer balk expect to say Alleluia. They'll get a whole lot of benefits that they'd have had to pay for in the past."
Time will tell
But some current iSeries users are ho-hum about the pricing. Many are waiting for the price/performance realities to play out.
"How different is it from the previous model," asked Tom Delulio, programmer analyst, New York State United Teachers, a federation of teacher's unions based in Latham, N.Y. "Is it worth the price to upgrade."
Delulio is one of many long-time customers who recently purchased an iSeries under the old pricing model, which raises an entirely new set of issues. Did these users get ripped off?
"We have ways of reaching out to these customers," said iSeries general manager Al Zollar. Zollar said IBM, of course, anticipated this and the company will talk to these customers about it.
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