IBM Mainframe Niche Market Draws EU Regulatory Probe

By Wayne Rash  |  Posted 2010-07-28

IBM Mainframe Niche Market Draws EU Regulatory Probe

When European Union regulators announced an investigation into IBM's business practices in Europe, it was reacting to complaints from two companies that produce mainframe emulators for Intel platforms.

The two companies, T3T and Turbo-Hercules, claim that they are being cut out of the market because IBM won't sell its mainframe software to them for use on their software that allows x86 platforms to run IBM mainframe software. IBM faced a similar investigation in the United States in the past, and until 2000 was required by the Justice Department in the United States to decouple hardware and software sales.

The order by the DOJ has expired, and since that time, the last makers of IBM-compatible mainframe computers have gone out of business. However, a number of mainframe makers remain in operation serving their own markets. In this new European investigation, there are actually two actions. The first, regarding the sale of IBM mainframe emulators, was brought about because of the complaint. A second investigation was initiated by the European Commission's Competition Commissioner Joaquin Almunia in regard to its claim that IBM is favoring its own maintenance business over others, and that it is delaying deliveries of parts to third-party maintenance companies as a way to force them out of business. The European Commission is the Executive Branch of the European Union.

Right now the investigation is in the opening, or "Mutual Accusation," stage, in which the various players blame each other for whatever happens to be in question. IBM, for example, is saying it's all Microsoft's fault. This is a pretty easy thing to do, since, after all, when you're as big as Microsoft, everything that happens is really your fault.

Assuming that the EC investigation finds IBM at fault, it's possible that the company could be forced to pay a fine, just as Microsoft and Intel have had to do. But the investigation will take years, IBM will have the right to appeal, and that will take even more years. As you can tell, nothing is likely to happen anytime soon. Unless IBM decides that its proprietary approach is a bad idea (and it might), then the makers of emulators are in for some tough sledding for a while.

Doing Business with Mainframe Emulators Might Not Hurt IBM


But in fact, IBM could decide to do business with the makers of emulators. The reason is simple, and is a lesson that IBM learned the last time this happened. IBM makes a lot of money out of selling its operating systems. This is revenue that IBM wouldn't receive otherwise. It's unlikely to cannibalize mainframe sales because it's unlikely that buyers of an x86 server are really customers that would buy a mainframe.

But what will happen is that those same users will find out that IBM figured out virtualization a very long time ago. They'll learn that IBM mainframe operating systems are stable, robust and flexible. This is why IBM continues to sell mainframes in this day of standards-based servers.

But if IBM treats the emulator makers as a marketing opportunity instead of competition, the company will learn something else, too. Just as was the case back in the day, IBM's software customers will eventually come to realize that there's something to be said for the real mainframe hardware when it comes to high-end jobs. Now that IBM's mainframes are primarily designed as servers rather than multiuser machines with 3270 terminals, moving up to a mainframe from an emulated device running on an x86 server should be pretty easy.

Ultimately, IBM could find itself making a lot of money by letting the emulators buy its operating system because the company gets the licensing fees, but doesn't have to do anything to sell it. It's basically free money. Some of the users, meanwhile, will discover that they like what IBM has to offer and will move to real mainframe platforms, bringing the company business it wouldn't have had otherwise.

The EC Competition Commissioner, meanwhile, will find that IBM's mainframe business is a large, but not overwhelming, part of a rather small pie. While I haven't been able to find specific figures, it's likely that Apple is a much larger player in the computer world than is the IBM mainframe business. The remainder of the mainframe business in Europe, meanwhile, is alive and well and isn't threatened by IBM.

But the thought of Apple does bring up another question. Isn't that company, which is far larger than IBM's mainframe business, doing exactly the same thing as IBM? You can't buy Apple's products except as bundles. You can't buy Mac OS for anything but a Mac. So if the EC is investigating IBM, shouldn't it also be investigating Apple? Or is the EC playing favorites again?

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