IBM will have a hard time trying to justify its traditional iSeries price premiums.
IBMs iSeries, formerly the as/400, is at a turning point in its 15-year history. It is no secret that 2004 will be the year that IBM offers exactly the same hardware for both its iSeries and pSeries (Unix) servers. The way in which this new hardware generation is introduced is of enormous importance for the community of intensely loyal iSeries users. The choices IBM makes will determine if the technology they dearly love will prosper, grow and attract a new generation of admirers or if it will continue a drift toward irrelevance.
While satisfaction among iSeries users remains high, relatively few organizations that use iSeries servers are expanding their use into new areas. Many of them
might do so if the hardware pricing were more in line with Unix and Intel alternatives. Now, the debut of a new hardware generation forces IBM to make a key choice. IBM will have a hard time trying to justify its traditional iSeries price premiums while offering the same hardware at a lower price running AIX or Linux.
The iSeries loyal customers have been willing to pay a premium for the system because they believe advantages such as high reliability and ease of use justify it. The advantages have not been great enough, however, to motivate them to use iSeries for new applications in such areas as business intelligence, Web serving or e-mail hosting.
The upcoming hardware will be based on the fifth generation of IBMs PowerPC family of processors. IBM is already bragging that these Power5 64-bit processors will offer price/performance advantages versus comparable 64-bit Intel processors. If this turns out to be the case, IBM will need to prove the point by pricing Power5 systems aggressively. The combination of the unique strengths of OS/400 and dirt-cheap hardware could be a powerful one if IBM has the nerve to bring it to market. Premium hardware pricing has allowed the iSeries to deliver high margins to IBM, even as the total revenue generated has slipped from nearly $4 billion per year in the mid-1990s to just over $2 billion. IBM top management will be strongly tempted to look for ways to maintain that premium. Doing so, however, could represent a huge lost opportunity and perhaps the last chance to reverse the slow but steady loss in market share the iSeries has been experiencing for years.
The management team that runs the iSeries franchise is encouraged by relatively strong sales in the first quarter of this year. Its challenge will be to fight the conservative forces that will want it to keep profits high and sell management on a new strategy. Aggressive pricing and a commitment to expand into market segments that premium pricing has rendered off-limits to the iSeries could turn around this once-great franchise.
David Andrews is CEO of Andrews Consulting Group (www.andrewscg.com
). His e-mail address is email@example.com.