Cutting IT Costs with IBM’s MSU Software Licensing

In practice, for some mainframe customers, Big Blue’s MSU technology dividend really does translate into significant cost savings.

Mainframe pricing can be a big pill to swallow, but IBM Corp. has taken a few steps to help make it a bit more palatable.

Take mainframe processing power, which increases steadily with each new rev of next-generation CMOS. IBM cites this trend as one of the mainframe’s most attractive value propositions: namely, while Big Iron processing power grows, Big Iron hardware pricing remains relatively flat.

In other words, IBM officials claim, users are getting considerably more mainframe bang for their IT dollars.

There’s another sense in which mainframe users are getting a better value—at least according to Big Blue. IBM officials refer to a System z "technology dividend" which, they say, makes it cheaper for mainframe shops to run z/OS applications on new Big Iron hardware. That’s because IBM and many mainframe ISVs license software on the basis of consumed millions of service units (MSU) or (alternately) in terms of total MSU capacity.

Big Blue’s newer, beefier mainframes typically have lower MSU ratings than do their predecessors. As a result, IBM officials claim, organizations can run their existing z/OS applications on upgraded hardware and actually save money.

That’s how it’s supposed to work, anyway. In practice, for many mainframe customers, Big Blue’s MSU technology dividend really does translate into significant cost savings.

Consider the case of Mike Moore, an IT manager with the Alabama Judicial Datacenter. Moore says he was able to sell his administrative leadership on a new System z9 U02 precisely because of IBM’s MSU technology dividend. By moving from its existing z800 mainframe (at 84 MSUs) to a new z9 U02 (at 73 MSUs), Moore estimated that his organization could save more than $120,000 in the first year. That cost reduction would taper off in subsequent years, as the Alabama Judicial Datacenter incurred IBM’s requisite maintenance costs, but—even then—Moore and company were still looking at annual cost savings of more than $40,000.

As a result, Moore was able to obtain the top-down backing he needed to successfully lobby for the upgrade. "Our Chief Justice (Sue Bell Cobb), our administrative director of courts (Callie Dietz), and our MIS Director (Mike Carroll) have each been a great help in making this last upgrade to the z9 a reality," he confirms.

Nor has he been disappointed in practice. "My first test of any hardware/software upgrade is whether it will result in a net savings for us. That means the initial costs of the product must be offset by the savings in software costs and/or maintenance costs," he indicates. "I just received the first invoice for COBOL on our z9, and it dropped from $1,219 per month to $971 per month. [That’s] a reduction of 23 percent. We expect to see the same reduction in the rest of our IBM software. That is [one] tangible result of the upgrade."

Benefits Not Spread Evenly

Not everyone benefits from the MSU technology dividend, of course. For one thing, it’s a z/OS-only proposition at the moment, so VM and VSE shops are effectively out of the loop.

"MSU is a software pricing method that exists on the z/OS operating system. We don't have that yet. Workload pricing, which is similar to MSU, was announced for z/VSE 4.1, [which will be] available in March," comments Tom Duerbusch, a principal with THD Consulting who currently contracts with the City of St. Louis.

"However, to use workload pricing, you have to have a z9 box and all VSE systems have to be at a minimum of z/VSE 4.1 It will be a few years before we satisfy those requirements."

VSE and VM shops aren’t completely locked out of next-gen hardware savings, Duerbusch continues. "The last couple of mainframes we [purchased we] had a migration discount for three years. That was substantial enough to make us migrate to a newer mainframe," he says. "I'm hoping that, as we will not be ready for workload pricing when our current discount expires, IBM would still have the discount available to move us to an IBM z9 BC processor."

There’s a another wrinkle, too. Just because IBM pegs its z/OS software charges to system MSU ratings doesn’t mean third-party ISVs have to play ball, too. That’s been the experience of Kim Reiss, an associate director of systems and services with a county municipality in the Great Lakes region. Reiss’ organization currently hosts its mainframe applications on FLEX-ES emulation systems from Fundamental Software Inc. His shop does plan to move its workloads to a full-fledged System z9 mainframe, however. In the FLEX-ES world, Reiss says, comparatively few vendors were willing to deal with MSU technology dividends.

"Software costs have been the limiting factor for us for many years," he says. "Were it not for the high recurring fees for software, both IBM and third-party, we would have expanded our processing power much sooner and to a much greater extent. IBM's latest software pricing strategy has lessened the pain significantly, but many third-party vendors have not yet seen the light."

Reiss concedes that his experience has been exclusively with purveyors of "utility" software solutions, and as such might not accurately represent the software licensing status quo. "In my experience excessive price hikes only serve to reduce the relative value of a product as you move to a larger mainframe. I know of very few shops that are expanding their mainframe capacity due to a large increase in the ‘traditional’ workload. Yet third-party vendors demand large rate increases for products that will see little if any increased use or value."

IT director Moore, for his part, agrees that not all ISVs are willing to cut users a break. That irks him, he concedes, but it also makes it easier to determine which vendors he and his organization want to work with in the future.

"Some of our software vendors don't care what machine you have when they price their software. We love those guys and always look to them first for solutions. Some of our vendors recognized IBM's reduction in MSUs and dropped the price of their software," he explains. "Other vendors cited Gartner’s MSU rates and actually increased our costs. Like I said, I always look to the cooperating vendors first for solutions."

In the final analysis, Moore observes, IBM’s MSU technology dividend is the real deal for customers such as the Alabama Judicial Datacenter.

"The IBM software savings were enough for us to make the move. Our z9 has a one-year warranty, so we have no maintenance costs for a year. That is a significant amount of money," he points out. "Once the maintenance charges start, they are less than what we were paying on the z800—and that has to be figured into the total financial picture. With the boost in performance and efficiency, it makes a lot of sense to upgrade to fairly current hardware."

Moore’s strategy probably isn’t for everyone, he acknowledges—but it could prove compelling for a large number of z/OS shops: "Each user will have to analyze the cost benefits in their environment but the last three mainframe upgrades we have made [moving from a 9672 to a Z800 to a Z9] have all resulted in very positive experiences for us both financially and in performance."

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