CEOs in Technology

There's another burr under IBM's mainframe saddle besides the Justice Department's investigation into its practices with the European Commission passing the DOJ notes - a Neon burr.

Neon Enterprise Software is a Sugar Land, Texas mainframe tools company 100% owned by John Moores, the "M" in BMC, who has reportedly poured a pretty penny into the place. And Neon thinks it can subtract an easy billion dollars a year from IBM's mainframe revenues. Now IBM CEO Sam Palmisano has been known to say, under other circumstances, that a billion dollars isn't material to IBM so maybe he won't miss it.

See, Neon's got this proprietary software trick called zPrime that lets a mainframe user move a lot of its workloads off the mainframe's central processor and onto the zIIP and zAAP specialty processors that IBM created to accelerate and run DB2 and Java, which can save the user millions of dollars a year.

Neon claims that the technique is perfectly legal, doesn't violate IBM IP and meets all the many use restrictions that IBM has ringed its mainframes with.

IBM's initial reaction to Neon was to write a letter to its mainframe customers over the signature of its zSeries CTO Mark Anzani suggesting that it wasn't legal. But one school of thought argues that if IBM had a legal leg to stand on it would probably have kicked Neon by now.

The letter - which Neon claims kicked off a "massive FUD campaign" by IBM against it - reads in part:

"In general, any product which is designed to cause additional workloads, not designated by IBM or other (software) providers as eligible to run on the Specialty Engines, to nevertheless to be routed to a Specialty Engine should be evaluated to determine whether installation and use of such a product would violate, among other things, the IBM Customer Agreement (for instance, Section 4 regarding authorized use of IBM program products such as z/OS) and/or the license governing use of the IBM ‘Licensed Internal Code' (frequently referred to as ‘LIC') running on IBM System z servers, or license agreements with any third-party software providers.

"IBM would also caution its customers regarding any claimed ability to reduce IBM Program license charges by off-loading workloads to Specialty Engines beyond the eligible workload identified by IBM. IBM's applicable pricing terms governing Eligible Workloads on zIIPs and zAAPs will not apply to zIIPs and zAAPs running anything other than IBM-specified eligible workloads. Therefore, customers should not anticipate any reduction (and may actually experience an increase) in the IBM Program License Charges associated with non-Eligible Workloads which may be off-loaded to IBM Specialty Engines, since the non-Eligible Workload running will cause the software running on the Specialty Engine to be chargeable. IBM cannot comment on the potential impact on the software charges from other third-party software providers." (See http://blogs.datadirect.com/media/IBM%20position%20document.pdf for the whole letter.)

Now IBM reportedly can't tell what users are running on their specialty processors, but the monthly bills will be in the mail soon to the 20 mainframe users currently in production with zPrime. They only started getting online in August-September and there's a two-month lag in billing according to Neon CEO Lacy Edwards, who says there's 150 companies in a line behind them to evaluate Neon's widgetry or already doing so.

Since that letter, dated July 10, just a few days after zPrime went live, IBM has taken to refusing to sell mainframe users additional specialty chips if it suspects they're for running zPrime, Edwards says. IBM doesn't want to put anything down in writing beyond the letter, he said, but is instead asking the user for a written agreement to a new set of rules, basically a pledge not to use the chips for zPrime.

The move, which seems kind of ill-advised in the middle of an antitrust investigation that might take exception to any hint of tying, is reminiscent of IBM's refusal to license z/OS for use on Platform Solutions Inc's Itanium-based machines before it bought PSI, took it off the market and squelched the company's massive antitrust suit.

PSI's relatively inexpensive widgetry could run the mainframe operating system as well as Windows, Unix and Linux; and HP wanted to buy it before IBM ran HP off.

Anyway, emboldened by their own lawyers' opinion that IBM has a contractual obligation to supply additional specialty chips, a handful of mainframe users are starting to push back - Edwards says - and threaten to buy their other gear elsewhere if IBM doesn't loosen up on the chips - and there are another couple dozen mainframe sites that say they're also willing to go to the mat with Big Blue - but IBM also has a way of checkmating a lot of protest by going upstairs in these accounts. Edwards, who describes it as "shadow boxing," is still hoping for mass protest.

After all, zPrime, which took six man/years and two calendar years to develop, is supposed to be able to cut 20% of the mainframe user's annual hardware and software costs under the conventional use-pricing structures.

Unlike any approach tried to date, it can reportedly put more than half of a z's workloads on the specialty processors, which have - or at least had - no usage charge and cost way less than the central processors and that includes stuff like IMS, DB2, CICS, TSO/ISPF and batch workloads.

Edwards says that zPrime could also cut the cost of third-party mainframe software, whose pricing model he finds "eerily similar" to IBM's, by maybe a half-billion bucks a year.

Neon has collected testimonials from early adopters. A credit card companies figures to cut its overall transaction costs by up to 50%.

Another company documented routing 90% of its mainframe Information Management System (IMS) online processing, 44% of its Customer Information Control System (CICS) online processing and 93% of its IMS and DB2 batch processing to zIIPs and reportedly determined it will not only slash its cost of MIPS on the central processors, but avert an impending MIPS use overage and associated cost penalties. And it won't have to upgrade its mainframe and add two central processing engines this year.

Which explains why IBM's having agita.

Neon will evaluate the market situation in January. There is of course the ongoing DOJ probe and complaints have been lodged with the EC, which if it launches a formal investigation is expected to be more aggressive than the DOJ. But if Neon finds itself stymied, it's prepared, Edwards said, to file its own suit against IBM.

Like PSI did and T3 Technologies still does, Neon believes that IBM limits competition and grossly overcharges customers.

Neon figures its sweet spot is anywhere from maybe 2,000-5,000 machines out of a total universe of somewhere between 6,000 and 8,000 companies and 10,000 mainframe sites. Apparently Neon is constantly massaging the data. Its pricing is tailored to each site and depends on variables like the size of the machine and workload but its rock bottom price is $250,000. It will do a cost benefit analysis for interested parties. The company also has a bunch of resellers representing it.