Last week, an obscure organization known as the CCIA (Computer and Communications Industry Association) that claims to promote “full, fair, and open competition” in the computer marketplace filed an antitrust complaint with the U.S. Department of Justice regarding IBM’s mainframe business practices.  In its complaint, the CCIA alleges that IBM has refused to issue licenses for its z/OS operating system to competitors — a practice that the CCIA apparently finds unfair and monopolistic.  The Department of Justice has, accordingly, issued formal requests for information from IBM as it investigates IBM’s activity in the mainframe marketplace.

The CCIA has based its complaint, in part, on licensing and business practices that pertain to IBM dealings with Platform Solutions Inc. (PSI) and T3 — vendors that wished to sell IBM’s z/OS operating environment on Intel-based servers.  In these cases IBM declined to allow PSI and T3 to sell or transfer z/OS on Intel Itanium-based platforms.  IBM ended up buying PSI; and T3’s complaint was dismissed by the U.S. District Court in its entirety.

Still, the CCIA complaint does, however, raise a number of interesting questions with respect to IBM’s behavior in the mainframe marketplace:

1. Can it be successfully argued that IBM has a mainframe monopoly? 
2. Can it be successfully argued that customers are locked-into mainframes?
3. Should IBM be compelled to provide key intellectual property to whichever vendor wants to use it?  And,
4. Does the refusal to allow IBM intellectual property (z/OS) to be sold on other platforms really constitute anti-trust (monopolistic) behavior? 

The remainder of this blog examines these questions.

Does IBM Have a Mainframe Monopoly?
There are two ways to look at this question:

After considering both points, Clabby Analytics would concur with the opinion that IBM has a monopolistic position in the mainframe marketplace.   But does having a controlling, monopolistic position automatically translate into anti-trust behavior.  We would argue “No”.

The Real Issue: Running z/OS on Other Platforms
What the CCIA is really complaining about is IBM’s refusal to allow competitors to use its intellectual material against itself (in this case, IBM’s z/OS on other hardware versus z/OS on mainframe hardware).  And because IBM is not letting other competitors use z/OS, the CCIA apparently believes that IBM is guilty of an anti-trust activity by creating vendor lock-in.  And this alleged lock-in contributes to high mainframe hardware prices (a situation that the CCIA considers an anti-trust behavior).  

For the DOJ to make an anti-trust case, the DOJ will need to prove that mainframe customers are truly locked in?  Clabby Analytics would argue the opposite: 

If customers can move to other platforms, then they have a “choice” of which platform they can use.  And if a customer has choice, then a lock-in situation does not exist. 

As noted above, IBM customers can use other hardware configurations to build information systems environments that have the equivalent processing power of a mainframe.  So, if hardware isn’t responsible for creating lock-in — then that leaves the operating environment as the prospective lock-in entity.

Operating systems are control programs that enable applications and databases to make use of underlying computer resources (disk, printers, etc.).  And IBM’s z/OS is the most advanced operating environment in the world — the “gold standard” when it comes to virtualization and provisioning; the world leader in security (EAL) level 5; superior service management solutions; and more.  IBM has spent decades building and perfecting this operating environment — and has a right to recoup its ongoing investment in the z/OS operating environment. 

From our perspective, compelling IBM to allow other vendors to use its own operating system against it raises the following concerns:

1. Is it right for the legal system to dictate which markets IBM can compete in and how it competes in them?
2. Is it right for the legal system to force a company to use its own intellectual property against itself and to undermine its own strategies?

If the DOJ decides to pursue CCIA’s complaint, I will discuss these two questions in greater depth in subsequent blogs. 

Summary Observations
Ultimately, the big question on the table is whether other vendors should have a right to deploy z/OS on other platforms.  If allowed to do so, competing vendors could undermine IBM’s mainframe pricing structure by delivering lower cost alternatives to mainframe hardware.  And, to us, that would be really unfair.

The CCIA’s complaint is aimed at driving down mainframe hardware pricing.  But this is already happening — driven by natural market pressures.   Pressure from Unix servers that are moving up into traditional mainframe markets are forcing IBM to become more competitive in the mainframe pricing arena.  As an example, IBM has recently announced “Solution Edition  pricing (see a in depth description of this pricing at www.gomainframe.com), mainframe solutions that bring System z prices down by 50-80% for particular applications (like SAP).  Solution edition pricing takes direct aim at reducing the cost of mainframes by bundling hardware and software together and selling “solutions” at reduced cost.  So, it can be argued that IBM is already taking action to reduce its mainframe price structure — which is the whole reason for the CCIA’s complaint.  This solution set argument should also serve to show the DOJ that the market can take corrective actions by itself — without government intervention.

Also note that, in interviews with IBM mainframe users (and we talk to a lot of mainframe users), Clabby Analytics has identified three challenges that IBM faces in the mainframe marketplace: 1) price; 2) old technology; and 3) skill sets.  With respect to pricing, almost every mainframe customer will agree that mainframes are expensive.  But these customers also tell Clabby Analytics that their investments in mainframes are well worth it for the peace-of-mind that mainframes deliver.  These customers understand that mainframes offer the strongest RAS (reliability, availability, and security), the best virtualization, and the best management facilities in the industry.  So, although mainframes are costly, numerous mainframe customers have told Clabby Analytics that the investment is well worth it.

Finally, if customers see and understand that you get what you pay for when you buy a mainframe — and if IBM is already taking corrective actions to lower mainframe prices — then who is the CCIA really advocating for?  Perhaps this should be the topic of another blog…