IBM Mainframes: The Indirect Approach

With its latest range of machines and a spanking new channel line-up to push them, Sean Hallahan thinks IBM?s move back towards the mainframe market could be a winner

IBM?s decision to sell its mainframe systems via the channel almost closes the circle it began to draw in 1981 with the launch of the PC.

Now, only the top-end mainframes, the parallel sysplex machines, remain totally in the hands of the IBM direct sales force. IBM appointed Alan Laidlaw as its channel manager for the System 390 for Europe, Middle East and Africa (EMEA) in January and has begun to select its resellers.

The decision to sell the non-parallel sysplex mainframes ? the P/390, S/390 and the Multiprise 2000 ? through the channels is a bold move. While IBM has always sold the PC through resellers and the mid- range AS/400 and RS/6000 have gradually been brought into the channel, the direct marketing team has always held the mainframe sacrosanct.

Those who still remember the heady days of the early 1980s will recall the shock waves that shot through IBM when the news broke that it was to put its future in the hands of third-party resellers. IBM had always prided itself on the service it was able to provide its customers, although admittedly they had to pay a very steep price for it. The company?s sales and support staff feared for their livelihoods and the move to the PC channel ran counter to every cultural tenet of the company.

There?s a simple reason why IBM chose to market its PCs through dealers ? traditional marketing methods were too expensive. As IBM?s self-styled ?super salesman? and marketing director, Buck Rodgers, makes clear in his book, The IBM Way, the PC was a low-cost product that could not sustain the levels of sales support demanded by higher systems.

?I must tell you that the personal computer has been a marketing challenge for IBM. The product could not absorb the high costs of IBM?s traditional marketing system and forced the company to look at less expensive selling methods,? Rodgers writes.

Now it is the mainframe that has become too expensive to market because of falling hardware prices. According to Phil Payne, an analyst with consultants Sievers, the price per Mips (millions of instruction per second) of a mainframe is about $10,000, but careful bargaining can lower that price to between $7,500 and $8,000.

The decision to sell mainframes through the channel has been prompted by the increasing commoditisation of hardware, up to and including the low-end mainframes. Payne says the mainframe has been under pressure from Unix systems and IBM promised in 1993 that its mainframe Mips would equal Unix performance by 1998. ?IBM is on target to meet this original objective but the problem is that Unix has come under pressure from NT systems and the Unix performance curve has improved,? Payne says.

IBM grossly miscalculated the impact of the PC on the corporate market, the traditional purchaser of mainframe systems. It misjudged the loyalty of its corporate customer base to the mainframe. Although the PC was never likely to displace the mainframe, it did allow many non-critical tasks to be offloaded onto the desktop and the PC Lan. In his book, The Fate of IBM, Bob Heller summed up the dominance of mainframe culture inside IBM and the company?s hostility to alternative technologies.

?The true myopics dismissed anything other than mainframes as having little present or future importance,? he writes. ?It was the long-sighted who saw how great ? and threatening ? that importance was going to be. But how could anybody take the next mental stumble ? to imagine that the tide of technology could be withstood simply by IBM refusing to enter the water? The reality is that selling mainframes rather than itsy-bitsy PCs appeals to every emotion inside the lifelong IBMer, for itsy-bitsy PCs earn itsy- bitsy profits, while large systems paid huge commissions.?

There is no doubt that IBM foresees a revival of the mainframe market, albeit in a different format. The launch of the Multiprise 2000 last September marked a new aggressive policy towards competitors such as Hewlett Packard and Digital. Although the official IBM line is that the machine is aimed at its installed base of S/390 systems running the VM operating systems, there is little doubt in the minds of the analysts that the company is targeting its competitors? installations with the Multiprise 2000.

IBM has already piloted mainframe sales through the channels in the US, Germany and Italy. The P/390, the PC-based mainframe, and the R/390, the Risc, will be sold through Vars while the Multiprise 2000 will be sold through IBM agents.

The difference between an IBM reseller and an IBM agent is that the reseller buys the machine from IBM and is free to add value in the form of additional hardware, software and services and then sell the system on at whatever price he can get. An agent will generally sell software packages and services but does not buy the machine from the manufacturer. The Multiprise agent convinces the customer that the machine is the right hardware for his requirements and IBM supplies the hardware.

According to Alan Laidlaw, IBM channel manager for System/390, EMEA resellers will be targeting the firm?s installed base, at least initially. IBM has already appointed two UK resellers, Cotec and Anix, but is still in the process of appointing Multiprise agents.

Big Blue will only have about six resellers and agents throughout EMEA. They are likely to be medium-sized software houses with S/390 expertise, says Laidlaw, adding that IBM plans to appoint only one or two multiprise agents in the UK.

There has always been internal strife at IBM as divisions battle it out for the same customer base. The decision to launch three new System 390 products extends the rivalry.

In the early 1980s, IBM had three divisions: data processing division (DPD) which handled the mainframe; general systems division (GSD) which sold the mid-range systems; and office products division (OPD) which supplied office automation systems.

Hostility existed between all divisions but particularly between DPD and OPD. It was rumoured that DPD sales reps would rather see a processor order go to plug-compatible rivals such as Amdahl than to GSD. The sentiment wasn?t entirely nonsensical. Much of IBM?s revenues were made up of storage products and software licences. A customer running an Amdahl processor would be in the market for storage devices and licences which IBM could supply.

The Multiprise 2000 falls within the remit of the Enterprise Systems division, which sells the high-end mainframe. The R/390 is an RS/6000 machine with an MCA card which contains the 390-instruction set and is marketed by the RS/6000 division.

Mark Goldman, London regional manager for Anix, believes that in launching three new S/390 derivative boxes, IBM has caused some confusion. ?IBM?s client managers in Enterprise Systems hate the R/390 because it is cutting across their territory. They are strongly pushing the Multiprise 2000,? he says.

?The PC/390 people argue that you can have a 390 solution for about #50,0000. But by the time you have added all the necessary software, you might as well have spent #100,000 on an R/390.?

According to Goldman, the enterprise systems division is enticing software developers by offering free OS software if they join IBM?s software developers partner programme.

Goldman believes the R/390 will sell well into specific areas, where customers are downsizing older applications from their mainframe. The problem with many of these old applications is that they were written in the 1970s and 1980s and they were largely undocumented. Offloading them to a smaller machine capable of running the MVS instruction set would allow an IT department to make necessary changes without compromising critical data on the mainframe. Goldman also believes the R/390 is a perfect engine for year 2000 compliance testing.

Goldman says resellers of the P/390 and R/390 do not necessarily have to be immersed in the technology of MVS and OS/390, but they do need to understand the mainframe environment. ?Most of the customers will have mainframe skills in-house, but the resellers will have to understand the mainframe environment and terminology,? he says.

He is confident that IBM will make a success of selling mainframe-class machines through the channels, not least because of its channel strategy. ?I believe that IBM?s channel strategy is by far the best in the UK ? better than HP?s or Sun?s. IBM has stuck to its guns and forced business through the channel,? says Goldman.

IBM?s other mainframe reseller, Cotec, has considerable OS/390 experience as well as being an RS/6000 systems house. According to Joe Stokvis, Cotec sales and marketing director, it has already sold one R/390 machine and has orders for others. Stokvis also identifies year 2000 compliance testing as one of the major markets. He thinks many software developers will use the machine to build 390 applications and that in-house programmers will use it for development. ?I don?t necessarily see this machine as a replacement for commercial systems but for developers it is superb,? he says.

Stokvis believes IBM will eventually target the HP market with the Multiprise 2000 and the other boxes. ?We are still thinking about the positioning of the machine but initially we will go for the IBM replacement market,? he says.

Like many in the industry, Stokvis detects a return to centralisation of computing after years of distributed processing and PC Lans. ?There is a change in the computer industry. Many people who did not downsize are looking again at their mainframes. The professionalism that goes with the mainframe is lacking in the Unix and PC worlds,? he says.

The decision to sell mainframes through the channel is a bold move that will be watched with interest by partners of IBM?s competitors and independent software developers.

The Multiprise 2000 will be sold as a solution system similar to the AS/400, with which to some extent it will compete. It is rumoured that IBM will eventually bundle Lotus Notes with the machine, which will make it attractive to many mid-range firms. IBM?s hope is that as its customers? businesses grow, they will eventually move from the Multiprise 2000 to the higher-end parallel sysplex systems.

Although the new CMOS (complementary metal oxide silicon) based mainframes are initially aimed at the IBM mainframe replacement market, there is little doubt that the real long-term targets are the Unix vendors and HP in particular.

By selling mainframes through two resellers in the UK, IBM is dipping its toe in the water of a mainframe channel. Should the experiment prove a suc- cess, it is difficult to believe the company will confine itself to only two partners. Anix and Cotec are experienced RS/6000 resellers and there are many more in the UK who might be eager to take the opportunity to sell the P/390 and R/390.

Similarly, AS/400 agents have considerable experience in selling packaged solutions and there is no reason why they should not acquire the expertise necessary to sell the Multiprise 2000.

There is no doubt that IBM will encourage software developers to write applications for the new machine and that there will never be a mass market for mainframes.

For software developers and Vars, the P/390, R/390 and Multiprise 2000 machines could generate considerable business.