IBM increase prices to promote cloud usage

This article “IBM increase prices to promote cloud usage” was contributed by Piaras MacDonnell, founding partner of LicenseHawk.

We reported back in June that IBM announced they’re “removing the entitled discounts for a select number of products traditionally deployed on-premises”. The announcement was made through the IBM notification system at the end of April with IBM Business Partners briefed shortly after.

The removal of entitlement discounts will have a significant impact on almost all new purchases of on-premises IBM products. These products are purchase under Passport Advantage and the discounts can be up to 20% (level J) depending on the Relationship Suggested Value Price (RSVP) level an organisation has at the time of purchase.
This will be an unwelcome price increase for companies whose IT budgets are already stretched from the impact of COVID-19.

Why the license price increase?

The removal of entitlement discounts only impacts on-premise products. IBM have made it clear that “on-premise[s] hybrid and multi-cloud” will not be affected. IBM are encouraging their clients to start moving to the cloud sooner rather than later.

A secondary benefit of removing the discounts now will be to boost lagging revenue in 2020 without officially increasing the price of products, a move which typically happens in January. From IBM’s perspective the announcement has been well timed as many organisations will be revising budgets in August/September and deciding on their orders of IBM products in November/December. The price increase will also impact many Enterprise License Agreements that are due to be renewed in December.

While your ‘Relationship Suggested Value Price’ (RSVP) level will not be impacted by the change, the products to which you can apply the RSVP level has been significantly reduced.

What IBM products are impacted?

More than 8,000 IBM parts under Passport Advantage will be impacted by the decision to remove the RSVP level discounts. A link to the full list of products can be found on the IBM website here.

Initial analysis indicates that products from all brands and categories will be impacted.
Although the statement from IBM focuses on new purchases (D-Part Numbers) some Subscription and Support renewals have also been included (E-Part Numbers).
Products that are being re-instated, which are treated as new purchases, will also be impacted by the removal of discounts. With a number specifically listed.

Will this have an impact on IBM license audits?

If your organisation is in an IBM license audit, you can also expect that to be impacted by this removal of entitlement discounts. Compliance gaps are closed through new license purchases and are very often a tactical purchase meaning more on-premises licenses. This latest change may well mean your audit has just become 15% more expensive.

Next steps

Organisations should assume the loss of the discount will take effect immediately for all new on-premises IBM licenses. You will also need to update your cost models and budgets to account for the increased costs.

Some support renewals, IBM S&S, have also been included in the list of affected products. Be sure to thoroughly check which, if any, of your IBM products are included in the list.

Now is also a good time to conduct a strategic review of your IBM product portfolio. The removal of these entitlement discounts signals IBM’s intention to put greater focus on cloud offerings and to make it increasingly difficult to buy on-premises licenses.

Remember…

Just because IBM have removed a discount does not mean you now have to accept the new price quoted. Your IBM Account Manager or Business Partner will always be open to “doing a deal” – you just may need to negotiate a little harder.