IBM’s Fundamental Impasse: At Least Both Sides Are Still Talking

Fundamental Software has run smack up against Big Blue’s refusal to sanction 64-bit mainframe emulation

Late last year, IBM Corp. and longtime partner Fundamental Software Inc. (FSI) reached an impasse of sorts. FSI, a developer of an Intel-based mainframe emulation solution called FLEX-ES, wanted to renew its licenses for several of IBM’s mainframe patents—including, crucially, patents for both 31-bit and 64-bit operation. It was on this issue, insiders say, that discussions ground to a halt.

Representatives from both IBM and FSI have been notoriously tight-lipped about the future of FLEX-ES and its PartnerWorld connection. FSI, for example, politely declined an invitation to speak on the record about the situation, citing company policy. "As a matter of prudence, FSI elects at this time not to grant analyst and press interviews," a Fundamental Software spokesperson said.

IBM, for its part, was unable to respond to repeated requests for comments, saying executives were not available. Sources with knowledge of the ongoing discussions were able to help fill in the back story, however.

For starters, multiple insiders have confirmed, there’s simply no question of FSI having somehow run afoul of IBM’s patent licensing requirements.

"[FSI was] well within their agreements with IBM as far as patent use," says one well-placed insider who requested anonymity. "Fundamental has a range of emulation products—it wasn’t just FLEX; they emulated other things like virtual tape systems, high-capacity storage devices. They did more than just the FLEX emulation for System 390 and zSeries. They spent a lot of time reviewing all of their patents and found that they were well within the scope of their use."

The issue was complicated in several ways. First, an otherwise business-as-usual legal climate had become suddenly—and alarmingly—distressing, thanks to Big Blue’s patent infringement lawsuit against mainframe emulation upstart Platform Solutions Inc. (PSI) (see http://www.esj.com/Case_Study/article.aspx?EditorialsID=2327).

This probably helped convince FSI that it couldn’t hurt to cover both its 31- and 64-bit flanks. It was in this respect that FSI ran smack up against IBM’s long-standing disinclination to officially sanction 64-bit mainframe emulation of any kind. When FSI pressed for a 64-bit software license in addition to its traditional 31-bit license, Big Blue cagily demurred, saying, in effect, that no such license was necessary.

"In the past, [license renewal] was more or less a rubber stamp process that they went through. In the fall when they went through with their renewal, they not only went through with 31-bit but also 64-bit patents. The latter would cover them for any of the PartnerWorld members; IBM’s claim was that you don’t need patent approval from us to distribute [64-bit licenses] to PartnerWorld members, and Fundamental believes that they do," this person indicates.

The salient point, one industry veteran notes, is that Big Blue is very protective of its high-end mainframe revenue. Eight years ago, for example, members of the System 390 group were reluctant enough to sanction FSI’s emulation play when it first got that ball rolling, even though—this insider stresses—the total revenue that IBM derived from the low-end MIPs space (the bread-and-butter market segment for emulation offerings) was, at the time, a drop in the bucket compared to those of its high-end mainframe practice.

"All along, IBM has been reluctant to give 64-bit patent usage out. When [FSI’s] 31-bit patents expired, they said, we want patent coverage not only for 31-bit but for 64-bit [software licenses] too. IBM came back and said, ‘You don’t need patent approval because you’re basically distributing these 64-bit systems to PartnerWorld members," this insider says. "I really think that Fundamental was doing the right thing to protect itself, and [that] IBM was reacting in a way that they thought was right, too."

All isn’t lost, however: both sides are still talking, says a source familiar with the discussions. "They are talking with each other, and I think that in itself is a positive. I think they have the lawyers out of the way and that’s helped. Since about the beginning of the year, it’s been [FSI’s] management talking with IBM’s [management], and this is an ongoing thing" this person says.

Of course, no one wants to—or really can—discuss the situation on the record. FLEX-ES users whose licenses are set to expire this year, for example, have been approached by IBM to sign non-disclosure agreements (NDA)—preparatory to learning what options IBM is willing to offer them (see http://www.esj.com/enterprise/article.aspx?EditorialsID=2550).

Large, Expensive Alternatives

Sources familiar with the terms IBM is offering say they’re long on System z9 and short on specific, affordable alternatives to the comparatively inexpensive FLEX-ES systems these customers currently use.

"Quite honestly, the options are nothing to write home about anyway. It’s like [IBM is offering] an inexpensive version of something else that doesn’t work. If you need a motor home for the road trip you’re getting ready to take to Alaska and somebody shows up at your house with a ragtop Jeep—that’s kind of what it’s like," one insider says. "What these folks really need is what they’re telling [IBM] they want, and that’s either a FLEX box or a replacement for a FLEX box. They need to have something that they can really just stick on the end of a desk."

Space, as it happens, is a major concern for many FLEX-ES users. Many FLEX customers run their PartnerWorld-affiliated businesses out of their homes—or out of similarly small office spaces. "Did I mention that I will have to allocate another office/room to house the two refrigerator sized boxes that will not fit in our server room?" noted Gary Blair, proprietor of Softbase Systems Inc., in a posting to a FLEX-ES discussion listserve. Blair listed a litany of other problems—starting first and foremost with System z’s price tag.

"As far as IBM coming up with an alternative, they have—buy a z9 or sign up for their time-share service," he wrote. "If you are thinking about a z9, think again. From what I understand … a 29 MIP z9, with about half the DASD I now have on my 40 MIP, $30,000 FLEX system, is going to cost somewhere between $125,000 and $150,000."

That’s just the tip of the iceberg, according to Blair. "In addition, I will have to run three-phase power into our office; I will probably have to install separate air conditioning, and neither the computer nor the air conditioning can be handled by our backup generator."

On the other hand, one insider says, there are scenarios in which a System z mainframe could turn out to be a surprisingly affordable option for PartnerWorld shops—provided, of course, they’re able to afford its physical (three-phase power) and environmental (custom air-conditioning, raised floor) requirements.

"I think overall there are some customers out there who’d rather have a FLEX system, but when you look at the pricing, IBM has done a pretty good job for some of these customers—the ones with raised floors, the ones with the right environment, who might have a few bucks to spare," this industry veteran says.

"If you’re in this for the long-haul, if these are developers and they think they’re going to be developing a product for the next five years, the z9 is not a bad choice for them. If they’re budgeting so much per month, they would’ve bought a zFrame [FLEX system] and pretty much had it on a lease for over a two-to-three year window for the same amount that a z9 is going to cost them over a 5 year window."

The benefits of going the System z route, this insider says, are substantial. "You’re working with a real mainframe. Of course, you have to commit yourself to an extra two years, but if you’re in this for the long haul, you would have upgraded [your FLEX zFrame] after two or three years anyway. So you’re paying $5,000 a month, and you’re getting a real System z [mainframe] with the encryption and the [Hipersockets] connectivity."

That’s for medium-sized, or stalwart, PartnerWorld vendors, this insider concedes. For smaller shops—and especially for PartnerWorld players who run their businesses in SOHO environments—System z probably isn’t the best option.

"The customers that are really hurting are the small customers that can’t afford a z9, even in some cases where they can afford it, they don’t have the environment," this person says, citing the example of a customer who—even granting that he could afford a z9—didn’t have anywhere to put it. "’Where would I put it, the closet in my bedroom?’ he asked. Look, IBM is making some decisions that they obviously feel are right from a business perspective. They’re trying to squeeze as much of the revenue out of the mainframe as they can, and I think they’ve really opened up a bag [of worms]. The PartnerWorld members’ business really depends on low-cost platforms, and telling them that their best option is to buy a z9, even at the low costs [IBM is] offering, doesn’t really help them."

Next week we explore the ramifications of Big Blue’s ongoing litigation against PSI and—finally—get IBM to go on the record about Fundamental Software and FLEX-ES.

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