James Governor's Monkchips

Big Blue winning: why IBM, HP, Oracle get so excited about the Systems and Hardware markets

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I have been watching the Systems market since 1995. In that time I have seen some fairly dramatic changes in terms of infrastructure choices. Given its now 2011, however, more than three decades into the PC technology or “commodity hardware”  era you’d expect that a lot of the margin had been engineered out of enterprise IT. You’d expect that the major players today sold solutions largely based on commodity hardware and open source software. But you’d be mistaken.

I have been covering the IBM mainframe since 1995 after all. The platform is doing so well right now that major competitors have even stopped calling it dead. Of course it helps that these competitors-namely HP and Oracle – both have some pretty isolated technology platforms to ringfence and maintain – namely SPARC and Itanium. IBM’s System z is benefiting from some hardcore divide and rule. Oracle and HP are now suing each other over support for Itanium- sending worried customers into the arms of the mainframe, now seen as a safe harbour rather than a risk factor.

In my time as a mainframe watcher I have seen IBM competitors spend hundreds of millions of dollars competing against the mainframe. But since the 1990s, particularly the early part of the decade, these investments saw a diminishing law of returns. Once we got to the core, committed, mainframe base, they weren’t going to budge, whatever Sun, Oracle or HP tried to sell them. That said- those vendors also have some incredible account control.

So just how much is a high end systems account worth to a systems vendor?

In a recent conference call IBM hardware supremo Rod Adkins updated the analyst community on his business since the SWG takeover (an Agenda for Smarter Computing).

Revenues were up+17% Q2 2011. System z, on the back of a major hardware refresh, grew a phenomenal 61% in Q2 2011.

But what struck me was the simple maths around just how much a major customer is worth, and why these firms will fight so hard for competitive winbacks. Of course I knew the numbers were big, but Adkins laid them out with clarity in context of reported competitive wins, which IBM claims have grown from a total of 65 in Q1 2009 to a total of 244 in Q1 2011.

Adkins claimed that these wins led to approximately $2.3 billion in revenue. Across 244 customers – nearly $10m per customer. Certainly worth fighting tooth and nail for.








  1. James, you have to remember that IBM’s revenue follows the 80/20 rule. 80% of their revenue comes from 20% of their customers, and IBM make sure that the 20% are happy. Oracle and HP never seem to grasp this. The ‘consultants’ and the ‘analysts’ of the 80/90s predicted the mainframe was dead and ‘client/server’ was the way forward. I recall attending Gartner Group Conferences in the late 80s where they predicted the death of mainframes. I would have discussions with their analysts, but of course they knew what they were talking about didn’t they? Many people claim that they said ‘The Mainframe is Dead, Long Live the Mainframe’ first. I said this in 1983!

  2. Grady Booch: “Software is the invisible thread and hardware is the loom on which computing weaves its fabric, a fabric that we have now draped across all of life.”

    Mainframe or other, it’s about architecting solutions that are fit for purpose. I posit that we need to transition from the current division between hardware and software to workload optimized systems (to whit, Oracle ExaData, Netezza, zIIP…). This requires R&D and innovation which requires funding, which comes from happy (loyal) customers whose business you earn by doing the right thing.

    Not to say that commodity, general purpose hardware doesn’t have it’s place, but the sheer velocity and variability of data is requiring some fundamental re-thinking of how to intelligently apply technology to solving problems that move the needle for customers.

    In the end, everyone needs to keep their customer happy but the productive relationships are ones built on mutual trust and confidence. My experience is that the large IT vendors seem to be losing their touch on this point.

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