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Mainframe competitors aim at Big Blue target

As IBM tries to consolidate its grip on the mainframe market, competitors see an upcoming product transition as a chance to steal some bones from the top dog.

Even as IBM celebrates the 40th anniversary of its mainframe line, the company is finding that competitors in that market haven't stopped trying to siphon money from that multibillion-dollar business.

IBM's competitors hope to profit from a major mainframe transition that will pressure IBM's customers to purchase new software and possibly new hardware by the end of September. After that date, customers will have to run their mainframe applications without IBM support, pay for extended support or consider purchasing a different server.

Big Blue is dropping customer support for the mainframe operating system OS/390 version 2.10 at the end of September and is urging customers to upgrade to z/OS version 1.4. The potentially large switching costs have such IBM competitors as Microsoft, Sun Microsystems and Oracle eyeing the Sept. 30 deadline as an attractive revenue opportunity.

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What's new:
IBM still dominates the mainframe market, but competitors such as Sun, Oracle and Microsoft are nipping at its heels as a key transition nears.

Bottom line:
In September, Big Blue is cutting support for older mainframes, driving customers to contemplate expensive upgrades of software, and perhaps software.

More stories on this topic

IBM is trying to move its customers to its more modern zSeries mainframe servers. Customers on G3 and G4 will be urged to move to G5 and G6 machines, which can cost millions of dollars for a complete system. The company is setting deadlines, in the form of suspended support, to entice customers to adopt the latest mainframe technologies.

The Sept. 30 deadline will be more problematic than most IBM mainframe upgrades, because in some cases it will require both a software and hardware upgrade, according to analysts. Another major overhaul will be required in 2007, according to research firm Gartner.

One place the mainframe is dying is Tulane University, which decided to retire one mainframe application last year and plans to shut down its mainframe system altogether within two years.

"Within two years we will be out of the mainframe business," said John Lawson, chief information officer and vice president of information technology at Tulane. "It's not all about price, although price is determining factor."

The university expects it will save about $500,000 per year in licensing costs by unplugging its mainframe and moving its current mainframe applications to Windows and Unix servers.

An initial project to relocate one budgeting application on a Windows server will save about $240,000. Lawson expects that the new Windows application will be as reliable as when it ran on the mainframe. But he says that Windows requires IT staffs to be more diligent in applying patches and understanding the operating system than the mainframe.

Wolves at the door
Competitors may be looking forward to the forced upgrades.

"For those who find themselves in a quandary, we will offer ourselves as an alternative, and we expect to get a fair share of that business," said Larry Singer, vice president of the global information systems strategy office at Sun Microsystems. "IBM Global Services has tried to paper over the complexity of this transition but at great cost."

Sun said that it earns hundreds of millions of dollars a year on mainframe migrations and has picked up about 150 customers in the past year. The company is preparing to launch a sales blitz to capture existing mainframe customers stuck in a difficult transition. With a program called Mainframe Rehosting, Sun says customers can move existing mainframe applications to Sun's high-end Unix servers and save money.

Microsoft, too, is zeroing in on IBM's mainframe customers and is pitching its Windows Server 2003 operating system running on PC servers as an alternative to IBM's "big iron."

"We've seen people try to get off of the high-cost proprietary Unix systems in the past," said Charles Fitzgerald, general manager of platform strategies at Microsoft. "Now I think the mainframe is ripe."

Microsoft essentially ignored the mainframe business in the past, but Fitzgerald said many mainframe customers have come to Microsoft, particularly from the airline industry, seeking "to get rid of mainframe economics."

Since the rise of client/server computing in the 1990s, PC manufacturers and Unix vendors have argued that the mainframe is too expensive and locks customers into a single supplier. IBM was so focused on its profitable proprietary mainframe systems in the early 1990s that it did not seize on the PC revolution, a mistake that nearly bankrupted the company.

Since then, IBM has sought to reduce dependency on mainframe business by adopting industry standards across its product line. But mainframe-related products and services still represent a substantial part of its revenue. IBM's overall server business pulled in $14 billion last year, but the company doesn't release separate mainframe revenue. It did say the zSeries hardware portion of its business grew 7.4 percent from 2002 to 2003. Analysts estimate that the combination of mainframe-related hardware, software and services brings IBM more than $10 billion annually.

IBM now dominates the mainframe market, with about 80 percent market share and growing, according to Gartner. Big Blue is enjoying increased sales, in part because it has invested heavily in its mainframe line to make it more price-competitive with other server options, analysts said. It is also offering more flexibility in how customers purchase mainframe systems.

"I think Microsoft may underestimate the degree to which IBM really has focused on mainframe total cost of ownership."
--James Governor, RedMonk research analyst

IBM's dominance in the market and unwavering commitment to the mainframe make it a tough nut for competitors to crack, said James Governor, an analyst at research company RedMonk.

"We've seen companies like Sun and HP (Hewlett-Packard) commit vast resources (to trying to get a portion of the mainframe business--and they really do understand operational management requirements (of data centers), but they've struggled," Governor said. "I think Microsoft may underestimate the degree to which IBM really has focused on mainframe total cost of ownership."

Still, IBM competitors are optimistic that lower-cost alternatives will win over mainframe customers, particularly during difficult technology transitions.

Oracle, for example, rose to prominence in the 1980s by offering an alternative to IBM's mainframe: Oracle databases running on Unix servers. Now the company is pushing its Oracle 10g "grid" databases, which are designed to run on several low-cost servers and deliver the same raw performance as high-end Unix systems or mainframes, said Robert Shimp, Oracle's vice president of technology marketing.

"We see grids as a better alternative because they have the reliability and scale people expect from mainframes," Shimp said. "We're very aware (of IBM's migration dates) and are talking to a number of customers."

Analysts note that the programming skills that businesses have in-house play a big role in a company's decision on whether to move from a mainframe to a Windows- or Unix-based system. Other software development technologies, notably Java, open-source software and Microsoft's .Net, have a more vibrant industry around them than the mainframe does, Microsoft's Fitzgerald said.

"Mainframes still have the advantage of 30 years of process. But that talent is dying off--there's no new blood, no innovation," Fitzgerald said. "Every day that ecosystem is dying."

Making the change
For the upcoming product transition in September, IBM customers will be affected in different ways, said Colette Martin, director of zSeries marketing for IBM. She said OS/390 version 2.10 customers have had "a couple of years' worth" of notice.

Generation 3 and generation 4 S/390 machines cannot run z/OS operating systems, so customers will have to upgrade both their hardware and software to continue to get software support. They can still run the old systems, but IBM will discontinue support. These machines came out in the early '90s, she said.

By contrast, G5 and G6 S/390 machines can run versions 1.4 and 1.5 of z/OS, so these customers can take a more gradual approach to upgrading. They would only have to upgrade software. However, the G5 and G6 machines will not be able to run z/OS 1.6 coming out in September. That OS requires a z800, 890, 900 or 990 mainframe.

Mainframe analyst John Phelps at Gartner said that these migration issues in September will affect mainly smaller customers and others who don't see the need for increased processor power and newer features of the latest zSeries software. He said competitors may indeed be able to entice some of these customers to look at Windows or Unix alternatives, but they'll need to consider the migration costs.

"Generally, the cost of moving off a legacy application is not worth it if you're just deciding to move off the mainframe to save money," Phelps said. "On the other hand, if you're going to totally re-engineer your application, then it's worth looking at where it runs best."

CNET News.com's Mike Ricciuti and Michael Kanellos contributed to this report.

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