IT Management

When IBM announced the System/ 360 line in 1964, it was nothing less than revolutionary. Here was a family of machines, scalable to fit any organization’s needs, all able to run the same Operating System (OS) and applications. We take such things for granted today but pre-System/360, the norm was that a new machine meant significant application reengineering.

A huge gamble for IBM, System/360 paid off. The birth of these systems heralded a new era for commercial data processing. The System/360 encompassed a philosophy of over-engineering that positioned IBM as business process automation king. It has maintained that crown, with 80 percent of all corporate computing still performed on IBM mainframes.

Nearly four decades later, IBM remains provider of choice for largescale computing in the Fortune 1,000. Although IBM no longer retains its previous enterprisewide entrenchment on the desktop or within departmental computing, it’s still a significant standard- bearer for “big iron” computing.

IBM’s corporatewide dominance may be dwindling as alternative technologies such as Microsoft-Intel or Sun-Linux continue to encroach, but our reliance on the 99.999 percent reliability and legacy compatibility of the venerable mainframe remains constant. System/390 or zSeries still processes the bulk of the world’s financial transactions, and the Fortune 1,000 continue to implement heavy metal applications. But the future dominance of mainframe systems as we know them may be in question as IBM attempts to reinvent the industry it created.

With the cost of manufacturing and business operations increasing while sales margins decline, IBM has found itself caught between a rock and a hard place. To stimulate demand and new applications for System/390 over the last 13 years, IBM adapted System/370 and System/390 technology and lowered the entry cost. But lower profit margins have caused IBM to rethink this market niche.

In the past, entry-level technology contained compromises for all involved. The customer compromised on performance, while receiving legacy compatibility and a lower cost of acquisition. For IBM, the compromise was on lower revenue, while retaining customer loyalty, brand recognition, and encouraging new installations for potential future annuity revenue. But yesterday is gone.

IBM has made drastic changes to adapt to a changing, challenging market. These changes are having a significant effect on how IBM is handling the entry-level mainframe computing market.

Defining Entry-Level Technology

Entry-level technology has always resided in the “compromise zone” of System/390 architecture. This is an important market segment for many organizations since it represents a lower-cost solution for mainframe compatibility. Compromise is the vehicle that lowers cost to the end-user at the expense of performance and features.

This type of compromise is common and beneficial since it can radically lower the entry-level cost for powerful computing. As competition increases, or manufacturing costs change, so does the price. The only way to maintain lower end-user pricing is to introduce additional compromises or lower the profit margin. The latter isn’t an attractive option unless other benefits can be exploited.

5 Pages