March 23, 2009 Rivals Say I.B.M. Stifles Competition to Mainframes By ASHLEE VANCE NY Times
http://www.nytimes.com/2009/03/23/technology/companies/23mainframe.html?ref=technology&pagewanted=print MOUNTAIN VIEW, Calif. I.B.M. has dominated the mainframe computer business since the category was created four decades ago. And it still gets about one-quarter of its $100 billion in annual revenue from sales, software, services and financing related to the machines. So when an upstart, Platform Solutions in Sunnyvale, Calif., developed software that turned standard servers into systems that mimicked I.B.M.s expensive mainframes, Big Blue fought back. After legal action failed to fend off the pipsqueak, I.B.M. resorted to a bear hug: it bought Platform in July for $150 million. And then it promptly terminated the innovative product. Despite eliminating the Platform threat, I.B.M. still faces the wrath of many in the computer industry. The Computer and Communications Industry Association, a trade group backed by the likes of Google, Oracle and Microsoft, described the Platform deal as a clear attempt by I.B.M. to purchase a company solely to foreclose competition in the mainframe marketplace, protecting its cash cow at the expense of consumers. And T3 Technologies, a small company that resold Platforms products and was devastated by I.B.M.s move, has filed an antitrust complaint against I.B.M. with regulators at the European Commission. Platform was not the only potential competitor that drew I.B.M.s fire. At the same time that it sued Platform, I.B.M. declined to renew a patent license with Fundamental Software, which also made mainframe emulation software. As a result, Fundamental sits in limbo with a once-popular product it cannot sell, hoping that I.B.M. will change its stance. Also, in 2007, QSGI, which refurbishes mainframes, complained about enduring anticompetitive practices that blocked it from aiding customers and said the company might exit the business. It now refuses to discuss the mainframe business publicly, according to a spokesman. In a paper commissioned by Microsoft examining the alternative mainframe technologies, Walter F. Tichy, a professor of computer science at the University of Karlsruhe in Germany, concluded that, as a result of I.B.M.s actions, customers have been denied the benefits of technological innovation and must instead pay above-market prices for I.B.M. mainframe solutions and premium wages for a dwindling mainframe workforce. I.B.M. said in a statement that it was confident no competition laws have been violated. No stranger to controversies about its clout, I.B.M. agreed in 1956 to an antitrust consent decree after a battle with the Justice Department. Long since expired it had to do with accounting machines, not mainframes the decree nevertheless helped companies like Amdahl, Hitachi and Fujitsu sell computers that could run I.B.M.s mainframe software, which they licensed from the company. By the late 1990s, all of the other mainframe makers decided to abandon the technology because it was too expensive to keep up with I.B.M.s custom chips and software. More recently, Sun Microsystems, Hewlett-Packard and Microsoft have made mostly unsuccessful attempts to pull mainframe customers away from I.B.M. by creating products that handle similar tasks but run on servers. I.B.M. is now negotiating to buy Sun for about $7 billion, and if the deal were to occur, I.B.M. would also gain a monopoly on the key storage systems used for mainframes. Mainframes crunch the data just about every time someone withdraws money from an automated teller machine, uses a credit card or buys a product from a large retailer. I.B.M. contends that the continued popularity of mainframes stems from its efforts to modernize the systems so that they can run more contemporary business software. However, A. M. Sacconaghi, an analyst at Sanford C. Bernstein & Company, suggests that I.B.M. has benefited more from the lack of competition than from updated technology. The growth rate for the amount of mainframe processing power sold each year has fallen during the last eight years, undermining I.B.M.s claims of rising interest in the products. I.B.M.s release of new mainframe systems has slowed to every 30 to 36 months from every 18 months or so. Platform argued that by running emulation technology on standard business servers, it had a cheaper, faster alternative that could meet the needs of smaller businesses, which had been neglected by I.B.M. The technology let customers run mainframe and server programs on the same hardware, meaning they could buy less and do more. It really was something that the marketplace wanted, said Ron Hilton, a former Amdahl engineer and later the founder and chief technology officer of Platform. Early customers included the University of Alabama Medical Center, Cascade Natural Gas and Polk County in Iowa. H.P. liked Platforms concept, and in 2006, it almost bought the company for close to $200 million. Just before the deal was to close, however, it fell apart when H.P.s lawyers discovered letters from I.B.M. stating that it would refuse to license its mainframe software to Platform. I.B.M. sued Platform weeks later, accusing it of infringing on I.B.M.s patents and undermining the companys immense investment in mainframe technology. Platform responded with a countersuit, accusing I.B.M. of seeking to eliminate choice in the mainframe market. It later complained to the European Commission about I.B.M.s alleged abuse of its dominant position in the mainframe market. Platforms lawyers considered Europe a more likely place for a legal victory, since regulators there tend to have more sympathy for antitrust complaints. Unable to sell products without an I.B.M. software license, Platform fired most of its staff, keeping five people to pursue the litigation. In November 2007, Platform got a jolt of cash when Microsoft joined Platforms existing investors, including Intel Capital and Goldman Sachs, to put $37 million more into the company, allowing it to rehire staff and work on a fresh product. But as the legal proceedings dragged on, Platforms investors grew weary. We were six to nine months from getting a new product to market, Gregory Handschuh, the former general counsel at Platform, recalled. The investors just didnt have the stomach for fighting a very difficult case. I.B.M., meanwhile, did not want to risk a lengthy European antitrust investigation, Mr. Handschuh said. I.B.M. maintains that it bought Platform for the companys technology and talent, not to kill a competitive product. Platforms engineers had explored ways to speed the flow of data between other computers and a mainframe, adding horsepower to jobs like encryption or data analysis. They also had a view of how they could extend these designs to include other accelerators, like I.B.M.s Cell chip. It was at a point where we could gain time to market with the technology, and that means money, said Mark Anzani, the chief technology officer for I.B.M.s mainframe business. While Platform has disappeared, its fight against I.B.M. lives on in a modified form. T3, the biggest packager of Platforms technology, is carrying on the battle with financial support from Microsoft. In January, T3 presented the European Commission with yet another complaint asserting that I.B.M. had abused a monopoly position in the mainframe market. You can just be pushed around by a schoolyard bully, or you can fight them and stand up for what you believe is right, said T3s president, Steven Friedman. We still want to provide an option for the mainframe marketplace. ================================================= George Antunes Voice (713) 743-3923 Associate Professor Fax (713) 743-3927 Political Science Internet: antunes at uh dot edu University of Houston Houston, TX 77204-3011 *********************************** * POST TO [email protected] * *********************************** Medianews mailing list [email protected] http://lists.etskywarn.net/mailman/listinfo/medianews
