New IBM pricing model takes a cue from cloud

IBM is letting its cloud-service-provider customers pay for software as they use it

IBM is taking the pay-as-you-go pricing model of cloud services and applying it to some of its software products for cloud service providers.

The new pricing scheme will let application providers who offer their software as a service pay for IBM software, including WebSphere Application Server and IBM DB2, on a monthly basis as they use it.

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"What they've said to us on many occasions is, 'well, IBM, can't you charge me for the middleware in line with how I get paid for my solution?'" said Dave Mitchell, director of strategy for IBM's software business partners. Software-as-a-service providers typically charge customers only for what they use.

Mitchell compares the new monthly rental structure to mobile-phone subscriptions, where users sign up for a contract, committing to a certain usage level per month and agreeing to pay for additional use above that level. As with mobile-phone subscriptions, in IBM's monthly rental model, the more a customer commits to, the bigger the discount on the fee.

Also, IBM has chosen 20 of its most popular products and will let its customers mix and match the use of them in order to meet their monthly revenue commitment. For example, if a customer signs up to pay for $10,000 worth of software, the customer can use $7,000 worth of WebSphere and $3,000 worth of DB2, or any other combination that adds up to $10,000.

Without the new monthly rental structure, customers must buy an IBM license to use the software based on the maximum estimated amount of usage, even if the software is used less some of the time. They may also have to pay for the whole license up front. If they estimate usage too low, adding more users may be expensive and a hassle. Under the monthly rental model, adding users would be less costly.

Mitchell said a "very broad range" but not all of its software will be available under the new monthly rental pricing model.

IBM is also offering new financing options for companies that are building clouds, either for enterprises to use internally or for public consumption. Those customers have asked IBM for help spreading out their capital investment payments.

IBM is now offering zero percent financing on hardware, software and services for U.S. customers who are spending $500,000 or more and international customers spending $300,000 or more.

For larger deployments, IBM is allowing customers to defer their first payment for up to six months. That allows the service provider to build out and test the service and start recruiting customers before they have to pay.

IBM hopes the new models will encourage ISVs (independent software vendors) that have been holding back from buying software to do so, Mitchell said. He also hopes that ISVs using Java, that might typically gravitate to Oracle, might take another look at IBM.

The new offerings might indeed encourage some customers to go with IBM, said Joe Pucciarelli, an analyst with IDC. "Is it by itself the singular reason people will buy from IBM? Probably not," he said. "But it improves the overall offer. It does make the IBM offer even more competitive."

He expects these offers from IBM to represent the first of many promotions and offerings from companies trying to improve their price competitiveness. "The first quarter was a little slower than people wanted, so you see across the board everybody gearing up around competitive repositioning," he said.

Nancy Gohring covers mobile phones and cloud computing for The IDG News Service. Follow Nancy on Twitter at @idgnancy. Nancy's e-mail address is Nancy_Gohring@idg.com

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