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The Mainframe Tax: Every Year A Rebate.. from Sweden to Hong Kong, making SOA work

From my perspective there are few things in life better than a tax rebate. When the government sends you money and says you overpaid, everything becomes bright and shiny for a while.

Yesterday I was at a conference run by IBM Software Group, designed to position System z as a service oriented architecture (SOA) hub and spoke. I did some live blogging from the event here, here and here.

So why am I thinking about tax rather than software and systems gorp? We often think of IT infrastructure licensing as a tax. We talk about the Wintel tax, for example. We all dislike taxes. The traditional mainframe environment is kind of like Sweden; great quality of life, but the tax bill is pretty scary at first sight. Never mind all the benefits in education and healthcare, I have to pay what????!

But in the shape of its offload processors (Bob would prefer I call them specialty processors), zIIP, zAAP and IFL, IBM has a mechanism to slash software pricing for its customers and become more like Hong Kong. Java workloads can be consolidated onto zAAP, without paying mainframe fees for the capacity, basically eliminating a major problem for mainframes, which is that the traditional licensing model is based on total system capacity (measured in MIPs). But with IBM’s offload processors "modern" workloads- Java, Linux and in some cases relational data – are not counted towards the MIPs total, but are licensed seperately.

Organisations running WebSphere Application Server on z/OS can easily cut their related mainframe licensing charges by around 30% just by deploying zAAP. An example is Farmers Insurance, which used zAAP to cut its MIPs from 1200 to 700 in this way.

You can’t really argue with economics like that. These offload processors are like beginning to seem like annual tax rebates, and IBM has more in the pipeline.

What does all this mean? Well, if an organisation is thinking about consolidating SOA functions on the mainframe, as many are currently doing, the costs may be significantly lower than expected. Mainframe economics is a poorly understood science, which IBM has done a terrible job of making any clearer over the years. There is a good discussion of some of the issues here, about that expensive mainframe.

Most modern analyses of mainframe costs basically suffer from the problems of autistic economics.

To make SOA on z stick though, IBM will need to speak the language not just of non green-screen geek communities, but also lines of business. And what do lines of business understand? Tax rebates…

standard disclaimer: I am mainframe watcher of long standing so I may be biased. Reporter colleagues used to call me legacy boy. IBM SWG and STG are both clients.

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5 Responses

  1. Very interesting. I don’t know much about mainframes, but I’m fascinated by how modern economics gets things wrong.

    Didn’t know you were a legacy kind of guy…

  2. James – I’d like to pay my taxes in Hong Kong.

    But look again and you see that the tax rate has gone up over the 2 years that PWC cites. This is not like IBM’s mainframe.

    As you move from IFLs (I call these zIFLs by the way) on old boxes to zIFLs on new boxes you get the extra capacity of the bigger processor size – AT NO EXTRA COST. This also applies to zAAPs (z990/z890 to z9).

    So unlike HK taxes which are very low (but going up YtY) IBM mainframes are providing a tax rebate with every physical technology upgrade – eg. G5/6 to z900 to z990 to z9 to …. This applies equally to zIFLS, zAAPs and in the future to zIIPs.

    So great analogy – once again – and many thanks for the thought provoking set of ideas.

    Peter NorrisMay 5, 2006 @ 8:14 pmReply
  3. Your readers may want to check out this post which cites some really high-speed performance processing of web services using zAAP’s: http://artsciita.blogspot.com/2006/01/incredible-web-services-performance.html

  4. James – you forget…you have to apy the tax in the first place in order to qualify for the rebate.

  5. Anne: yep. legacyboy. as you know economics is often based on faith rather than real analysis. often its a very blunt instrument.

    Dennis: what do you mean i forget dennis? thats a key part of the analysis. in fact that was my point. mainframe shops tend to know their outgoings pretty well, so this is a chance to plan around cutting that budget for maintenance, and driving it towards new opportunities.

    philip: thanks. its always very useful to see some customer-driven benchmarking…

    Peter- thanks for taking the argument seriously enough to call me on the HK angle. What I basically meant was the HK is a low, rather than high, tax geography… but your feedback is right on.



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