The first effects of IBM's revamped software licensing model are catching customers off guard and driving up costs for some IT executives by more than 80 per cent.
Enterprise customers and consultants say the increase is the byproduct of the October kickoff of IBM's retooled Passport Advantage volume-licensing program, which among other changes now bundles base technical support and software upgrades into a single package called Software Maintenance.
"My yearly licensing bill went from $US60,000 to $110,000," says an IT executive for a mid-sized hospital using Lotus Notes/Domino. "You get the licence, the maintenance and the support whether you want it or not."
The executive, who is renegotiating the charges, called the Software Maintenance combination "outrageous. I don't know who came up with this but they are only thinking of IBM's profits".
IBM says Passport Advantage and its Software Maintenance provision assures customers have support, and streamlines the acquisition and maintenance of IBM products, including those from its Lotus and Tivoli Systems subsidiaries. As part of the retooling, IBM eliminated individual technical support programs for Lotus and Tivoli.
Under the revamped program, IBM, Lotus and Tivoli customers can no longer purchase licences for software upgrades without also purchasing technical support. In the past, cost-conscious or highly trained users often opted out of long-term base support contracts. Those users now have no choice but to pay for support along with licences that guarantee access to software upgrades. However, premium technical support services continue to be priced separately.
IT executives can waive Software Maintenance after the first year of a new licence, but will lose access to software upgrades and support by doing so. They also will have to pay a hefty penalty if they decide to rejoin later.
Paul Herzog, technical director for PowerPage, an electronic commerce hosting and development company in the US, says he recently received a reminder saying his licensing costs for DB2 and WebSphere would increase. "My thought was 'Oh geez, here it comes'," he says.
Herzog says traditionally IBM support is "not that great. You can eventually get to someone who knows something, but it can take a lot of time and money".
With Lotus and Tivoli customers folded into the same support structure, Herzog says he fears support will get worse. "They are going to need more people, and you have to wonder how qualified they will be and how it will drive up costs," he says.
Companies that have not been buying one of Software Maintenance's components - either software upgrades or technical support - will see a cost increase, according to a letter IBM sent customers in July. The amount differs from company to company because it is based on a complex, volume-based points system that IBM uses to calculate pricing discounts.
IBM officials say companies that already purchase maintenance and support services will have similar costs under Software Maintenance. Passport Advantage also has other provisions such as unlimited support calls, authorisation for any technical staff to initiate support calls, and the aggregation of all IBM software purchases as a means to calculate deeper discounts.
"It sounds like a subtle way to encourage people to buy more IBM products," says Jonathan Spira, chairman of consulting group Basex. "Everything you buy adds up to better pricing."
But IBM officials say it is what customers want. "We find that customers have questions [about products they buy], especially in that first year," says Rob Shook, director of worldwide volume software licensing for IBM. "We think customers will be happier with supported products."
IBM will work with customers who see what they consider to be unreasonable licensing increases, Shook adds.
However, many IT executives would rather retain the flexibility they previously enjoyed with their maintenance and support costs. Many buy technical support some years but not others, or for some products and not others, as a way to control costs. Some contract with consultants for support or have spent thousands of dollars to train in-house support staff in IBM's or Tivoli's Professional Certification Programs or as Certified Lotus Professionals (CLP), a qualification that proves technical support expertise.
A recent survey on CLPs conducted for Lotus shows that 68 per cent of companies and consultants have CLPs on staff.
Dave Bailey, e-commerce and messaging architect for Imerys and a CLP, cancelled support on 3000 Notes clients but retained upgrade rights on his last licensing contract. He has both support and maintenance on his servers. "I don't need support for the clients, which saved $10,000 over last year, and that was with 700 more users," he says.
If he renews his client maintenance licence when it expires, he will be converted to Software Maintenance and will again pay for technical support.
However, like others, Bailey was unfamiliar with the effects of the licensing changes.
"Maybe I won't renew my maintenance," he said when told he would also have to pay for technical support. "I have to talk to my Lotus rep about this. They tend to be flexible when I complain about these things."
However, if licences are not renewed and IT executives reconsider at a later date, they will have to pay a penalty.
The penalty varies by product and customer status under IBM's pricing structure. An "A" level customer with a Domino Mail Server would pay a penalty equal to 214 per cent of the cost of Software Maintenance renewal fee or $214 per $100 of licensing.
It isn't only enterprise customers that are feeling the licensing squeeze.
Chad DeMeyers, sales director for Eagle Technology Consultants, is concerned because his company provides technical support to Lotus customers.
"One of my fears is that people won't want us to support them because they are now paying IBM to do it," he says.