Mainframe Reseller Market Consolidates

A prominent mainframe reseller gets absorbed by one of its competitors. What does the acquisition mean for its customers?

Strange things are happening in the mainframe reseller space, where Cornerstone Systems, a veteran IBM business partner, was recently acquired by one of its business-partner rivals, Mainline Information Systems.

The result, industry watchers say, is a bona-fide Business Partner Behemoth: Cornerstone and Mainline don't just resell System z hardware, after all -- they also market Big Blue's RISC-Unix, x86, and enterprise storage products.

Mainframe sales are -- and have been for a long time -- a bread-and-butter business for both companies, according to Mainline officials.

"Over the years, the death of the mainframe has been predicted many times," said Mainline president and CEO Rick Kearney, in a statement. "IBM's priority has always been to understand customers' business needs and through continuous innovation, support those needs. The System z server is the result of such a customer-centric approach to solution innovation," he continued. "Thus, System z is once again emerging as the leading platform choice by customers for running stable, reliable enterprise-wide solutions. So, bringing together two leading System z partners is a natural fit."

With this in mind, the acquisition highlights one of the New Realities for mainframe customers today: market instability.

Historically, IBM itself was the go-to source for most mainframe hardware, software, and support. Increasingly, however, IBM's business partners have been getting into the act. As Mainline's acquisition of Cornerstone illustrates, Big Blue's business partners aren't quite as immune to change.

"An increasing number of mainframe customers now procure their System z hardware through IBM business partners," write Gartner analysts Mike Chuba and Carl Claunch in a research note. "Gartner estimates that approximately 30 percent of System z revenue in 2007 was generated through business partners," the pair continues, noting that their estimate includes sales from "resellers, system integrators, and others."

What does this mean for customers who have existing contracts with either Cornerstone or Mainline? Probably not much, Chuba and Claunch conclude. Big Blue's "rules of engagement" basically prevent its business partners from directly competing against one another.

"We believe this consolidation represents a low risk to their customers. Most industry mergers, acquisitions, and consolidations bring the potential of less competition and hence the possibility of less-aggressive market pricing," they write.

"However, since IBM has 'rules of engagement' in place that effectively preclude IBM business partners from competing against one another, we think this acquisition is unlikely to have any impact on pricing." If anything, the analysts speculate, the combination of two such estimable IBM business partners could be a boon to customers, if not on the pricing front then certainly with respect to customer service.

"The larger size of the combined entities will likely increase the number of first-line resources available for existing clients, but clients should see no change in the current technical resources available from IBM," they indicate.

The upshot, Chuba and Claunch conclude, is that vigilance (but not concern) should be the order of the day -- for most customers, anyway. "System z mainframe customers should not be concerned, but a contract review is in order," they write. What this means, the Gartner duo counsels, is that existing customers should identify the unique terms and support specified in their contracts with Cornerstone: if the acquisition somehow threatens -- or raises questions about -- any of those terms, customers should contact Mainline to seek resolution, Gartner advises.

Elsewhere, Chuba and Claunch conclude, market disruption can frequently result in opportunity. In fact, they argue, customers can take advantage of market tumult to "seize a possible one-time opportunity to go to a competitive bid on [their] next mainframe procurement."

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