It seems that whenever a hardware or software vendor gets backed into a corner these days, they turn to bundling as the weapon of choice to fight their way into a better competitive position. That’s the reason, perhaps, why IBM has announced two NT software suites (see Top Stories section) that package up many of its popular system programs for Microsoft’s midrange operating system.
By Timothy Prickett Morgan
Popular, of course, is a relative term. IBM is not having an easy time selling against Microsoft in the NT market, for obvious reasons. Microsoft controls the NT operating system and has put an immense amount of marketing muscle behind getting customers and software developers to make use of the system software that comes in the company’s BackOffice bundle rather than build or buy other systems software or middleware programs to support client/server and web applications. BackOffice has been a very successful endeavor for Microsoft, despite the fact that the BackOffice bundle has plenty of weak points. IBM is hoping that it can exploit those weak points by showing corporate Windows NT Server customers that Big Blue’s systems programs, soon to be bundled into small business, departmental and enterprise suites, are the best and easiest way to turn a PC server running NT into a corporate workhorse. The other reason IBM wants to bundle its software is because it needs to make more money selling software, and bundles work. This software bundling is not a new idea. It started with operating systems and has subsequently spread to other systems software – databases, connectivity tools and middleware – and even applications software. Most midrange platforms have long since come with basic systems software bundled free of charge, this free being a way for hardware vendors to artificially inflate their hardware prices and therefore be able to show better year-to-year hardware sales numbers than they might have been able to do otherwise. PC servers have been loaded with Windows NT almost as long as that operating system has been available; Unix vendors charge very little or nothing for their operating systems, mainly as a direct response to PC server sellers. IBM’s AS/400 is the last holdout in the midrange to bundle systems software; OS/400 V4R2 comes free on Apache AS/400e servers, although in reality it costs as much as $160,000 for an OS/400 license, which includes the base operating system and the DB2/400 relational data base management system if you want to buy it for a non-AS/400e RISC system.
Systems software bundle for NT
In late 1994, soon after it became apparent that Windows NT Server was not going to fall flat on its face even if it wasn’t, as yet, ready for enterprise computing, Microsoft created a systems software bundle for NT applications – again, database, connectivity, email and system management programs were included, which have been further expanded to include internet/intranet services with the latest BackOffice releases. A little more than a year later, Oracle, seeing that Microsoft’s BackOffice was a tremendous marketing success, jumped in with its InterOffice suite, which provided many of the same functions of BackOffice, but for Unix as well as NT environments. Larry Ellison was more than happy to learn a lesson from Bill Gates, the lesson being that customers would rather buy an integrated set of systems software from one vendor than have to shop around, try to plug things together and sometimes discover that they don’t. It doesn’t take a genius to figure this out, right? Well, actually, it took two geniuses and a whole division of IBM (that being the AS/400 division). The kind of tight integration that Microsoft offers with BackOffice, Oracle with InterOffice and now the Software division at Big Blue with its suites for NT gives to customers is precisely what the AS/400 division has been offering to its midrange customers for a decade. Mainframes, by the way, still don’t come with system software bundled on them, but IBM has offered a packaged version of MVS, called OS/390, that offers 30% to 40% price savings over the cost of separately buying all the dozens of mainframe programs included in the bundle. Aside from integration and simplicity in installation, price savings is the key to software suites. By putting all their big programs on one CD, software vendors like Microsoft, Oracle and IBM reduce their sales costs, give the impression of having an all- encompassing solution and – here’s the real beauty – get customers to buy more software than they might otherwise. How many customers would buy all the elements in the Office or BackOffice suites if they had to pay list price for each component program? Hardly none. Microsoft knows this, but it figures that its customers would buy maybe three out of seven components, and it prices the suite so it costs as much as four of those components.
Brand loyalty and laziness
It can claim to be giving customers a discount – which it is over the full cost of all elements in the suite – while simultaneously getting more revenue from those customers and increasing its profits because it only has to ship on CD instead of four. It really is genius, however obvious it seems now. Important side effects of suites, and ones that IBM is undoubtedly counting on, are brand loyalty and laziness. If you buy Office, when you need a database, most likely you’ll try the Access database you already paid for rather than shop around. Similarly, if you use NT and BackOffice for your accounting system, odds are you’ll look at Internet Information Server first when you want to set up your corporate intranet. IBM’s NT software suites, which began shipping in beta to selected business partners in April, were announced on May 5. Eventually, IBM plans to offer these suites on OS/2 and AIX; we expect IBM to sell the suites on HP-UX and Solaris as well, since most of the programs in the suites are also available for these environments. We wouldn’t be surprised to see IBM software suites for MVS and OS/400 suites, too, sometime before 1998 comes to a close, maybe even sooner if Big Blue gets the lead out. All the programs in the suites are already available for these two platforms, so it’s really just a matter of printing up the brochures and setting prices. IBM will want to present a unified marketing message across all of its strategic operating systems – that’s OS/390, OS/400, AIX, NT and OS/2, in descending order of importance – and making the same suites available on all platforms simplifies IBM’s marketing message. IBM can make a convincing case for its software suites, even against the overwhelming advantage that Microsoft has in the Windows NT environment, and is willing to pony up $20m to help its PC business partners sell its suites against Microsoft. While Microsoft owns the operating system, everybody using NT pretty much hates the Exchange mail server, and not everyone is thrilled by the IIS web server. Similarly, not all NT customers want the SQL Server database, especially those who are more familiar with the eccentricities of IBM’s DB2 family of data base management systems. There are three different IBM NT suites. The core of each one is the DB2 database and the Lotus Domino web and email software. IBM had originally intended to offer three NT suites, one for small businesses, one for larger departments and one for enterprise-sized installations. When May 5 finally rolled around, IBM only announced the two larger suites. They are now called IBM Suite for Windows NT and IBM Enterprise Suite for Windows NT. IBM Suite for NT includes DB2 Universal Database Workgroup Edition 5.0, ADSTAR Distributed Storage Manager 3.1.1, eNetwork Communications Server 5.01 (which provides connectivity to AS/400 and mainframe hosts), Lotus Domino 4.6.1 and Intel LANDesk Suite 6.1. This suite costs $2,459 per server plus $225 per suite user and $75 per LANDesk client, with discounts offered to customers with multiple servers and lots of users. The Enterprise Suite for NT includes DB2 Universal Database Workgroup Edition 5.0, DB2 Connect Enterprise Edition 5.0 (which allows Windows clients to access DB2 data bases via IBM’ DRDA protocols rather than Microsoft’s OBDC or OLE DB protocols), ADSTAR Distributed Storage Manager 3.1.1, eNetwork Communications Server 5.01 (which provides connectivity to AS/400 and mainframe hosts), Lotus Domino 4.6.1, IBM TXSeries 4.2 (which provides transaction monitoring akin to IBM’s CICS program for mainframes), MQSeries 5.0 (which is IBM’s distributed computing middleware), Tivoli TME 10 LAN Access 1.1.1 and Intel LANDesk Suite 6.1. The Enterprise Suite for NT costs $16,189 per server plus $375 per suite user and $75 per LANDesk client, again with discounts offered to customers with multiple servers and lots of users.
