IBM Faces Antitrust Probe: Why Mainframes?

On its face, news of the Justice Dept. probe of IBM (IBM) seemed odd. Government trustbusters had opened an inquiry into IBM's business practices in the market for mainframes, those ultrapowerful computers that help banks crunch numbers and telecom providers process large volumes of information.

Yet the $6.5 billion mainframe market—about 85% controlled by IBM—is considered by many to be in decline, says Jeffrey Hewitt, who covers the mainframe market as research vice-president for IT consulting firm Gartner (IT). IBM's second-quarter mainframe revenue plunged 39%. For more than a decade many companies have moved from mainframes that can cost more than $250,000 and sometimes millions of dollars to smaller, less expensive servers. There's a widely held belief in the industry that servers—even if you need more of them—are less expensive, overall.

Why then would the feds care about mainframes? Fact is, the machines may be far cheaper to run than servers, making them more relevant to cutting-edge computing than meets the eye, says Susan Eustis, the president of WinterGreen Research who has spent three years comparing the costs of servers and mainframes.

Mainframes Can Save a Lot of Money Her conclusion, after studying large organizations in retail, banking, and insurance, is that in some cases mainframes can cost one-tenth the cost of running servers. Put simply, mainframes handle big workloads more efficiently than the data centers that house sometimes thousands of servers. For instance, with a data center, a company may have 3,000 applications running on 30,000 servers, Eustis says. But a company could instead run 3,000 applications on one mainframe.

Mainframes can be particularly useful in cloud computing, the increasingly popular trend for companies to shift computing tasks off their own machines and onto computers handled elsewhere, often by other companies. Data centers that distribute tasks over several different servers may not be reliable enough for applications that need to be run around the clock, Eustis says. Anyone who's suffered from a Gmail outage in recent weeks may be inclined to agree. "By the time you calculate the people, the test and development servers, and the security needed to run smaller servers, it's more expensive," she says.

In fact, when IBM moved from distributed servers to mainframes for its internal use, Eustis says the company was able to justify the costs based on the amount it saved in electricity to power all the smaller servers in the data center. Indeed, soaring energy prices have meant that it's nearly as expensive to run a server for a year as to purchase one in the first place. One mainframe consumes much less electricity than 30,000 servers.

Companies Wary of IBM's Market Dominance The potential for mainframes hasn't been lost on IBM, which recently introduced new mainframe software and in July named Tom Rosamilia, a 26-year Big Blue veteran, general manager of the mainframe business. Job One for Rosamilia has been making it easier for corporations to run new software applications on mainframes.

But critics say IBM operates unfairly in the business. The Computer & Communications Industry Assn., which urged the Justice Dept. to launch its probe, alleges that IBM makes it difficult for customers to switch computing platforms or use competing mainframe software or components. IBM has said it intends to cooperate with any inquiries from the Justice Dept.

Some companies are reluctant to adopt mainframes because they're concerned they'll become too dependent on IBM and at the company's mercy when it comes to price increases, Eustis says. Efforts to make the market more competitive might lessen those concerns and spur demand for the machines, she adds.