Why IBM is in trouble with the antitrust police

Of course Microsoft is behind this government inquiry into IBM over antitrust issues. Ballmer is going nuts because he wants to own the glass house and for years he’s tried and failed to pry customers away from those fugly old mainframes. So now he’s turning to the government to fight this battle for him. Thing is, the government may have a case. Here’s why.

Frankly, this is a tough one for me because I hate both of these companies, the Borg and the Original Borg, so much. And for pretty much the same reasons. A love of mediocrity, treating customers like shit, stamping out competition. If there were some way that the government’s case could end up with both Microsoft and IBM being nuked off the planet, I’d call that a step in the right direction. Alas, probably not.

But yes, IBM is incredibly abusive to its customers. This shit has been brewing for years. I’m actually surprised that it took this long for the government to get involved. IBM drove everyone else out of the mainframe market, and as soon as they were the only game in town they began to squeeze the fuck out of their customers on pricing.

The customers have been howling for years, but it is almost impossible to migrate off a mainframe. IBM has made sure that this migration is so painful that you’d do almost anything to avoid it. Basically, IBM has got you by the balls, and they squeeze you on software pricing and maintenance pricing, and you literally have no choice. There’s no competition.

That’s why all of our big banks in the U.S. are still running mainframes. They can’t get off. It’s ridiculous. It’s as if all the major airlines were still using planes from the 1960s. Meanwhile new banks all around the world are all on newer platforms and have a huge advantage. So IBM is fucking over its own customers, forcing them to pay too much for compute power, and putting them at a huge disadvantage versus newer companies. Same is true for airlines — the old ones still rely on big shitty expensive mainframes, while the new ones, like Jet Blue, run new-age systems and save shitloads of money.

Better yet, once IBM got rid of the hardware competitors they set about consolidating the software business too. Read up on Compuware v. IBM. IBM was selling Compuware’s mainframe application software through its Global Services arm. They created a knock-off of Compuware’s program and started selling it cheap, practically giving it away, bundling it with other programs — the usual shit. Compuware sued. IBM dragged it out for years, during which time Compuware almost went out of business, because how could they sell their product when their only customers were IBM mainframe users and those guys were getting a clone of their product for nothing, or almost nothing? Finally, with Compuware on its deathbed, IBM settled the lawsuit for pennies.

Oh, these are not nice people, my droogies.

Then there are the clone upstarts — like Platform Systems, which came up with an emulator that would run apps that were created for the IBM mainframe OS. In other words, they gave you a migration path off the mainframe. IBM sued for patent infringement (just to fuck them up) and then eventually bought them and they were never heard from again.

Then there is T3, another cloner, which is also in a legal hassle with IBM, and partly funded by Microsoft. And yeah, the Borg won’t admit this, but they put money into T3 so they could pick this fight with IBM and draw them into an antitrust trap. Which now they’ve done.

The real story here is that this is about Microsoft trying to crack the glass house. They covet the billions that IBM makes with mainframes and have believed since the 1980s that they would one day take that business away from IBM. I distinctly remember getting high with Bill Gates in a hot tub at the Alexis Park during a Comdex in Las Vegas and having him tell me he’d control that market by the mid-1990s.

You have to hand it to IBM — they’ve done a brilliant job of defending the fortress, protecting the cash cow. They have to do this, because without mainframes, IBM is done. They’re out of the PC business altogether. A huge part of their services business revolves around servicing these big expensive mainframes. The mainframe is to IBM what Windows is to Microsoft — it’s the cornerstone of their business. Which is why Microsoft wants to destroy it.

So Ballmer is going nuts. He’s looking at all that money and he believes it should be his. He should be running the data centers for banks and airlines. It’s a fat market and Microsoft wants it. People think Ballmer is obsessed with Google — and he is. But this business, the glass house? This is the real white whale.

IBM will defend itself by showing how much the cost of MIPS has come down over the past N years. But the cost of MIPS statistic is misleading, because while the cost comes down, IBM keeps shoving more and more MIPS down the throats of its customers. How do they do it? Well, they roll out a new “update” of the OS, and it’s super MIPS hungry. They discontinue support for the old OS, and drive everyone to the new one, and the new OS forces you to buy 2x or 3x the MIPS you had before, even though you’re just running the same workload as before. In other words, this whole “update” is just a tax from IBM for being a mainframe customer.

To rub a little salt in the wound, IBM will put out a press release saying how they shipped a record number of MIPS this quarter, as if the world is all eagerly embracing the mainframe again, when really they just jammed those MIPS into customer sites. Then just for kicks they fuck their customers on software licenses and maintenance fees.

This is what mainframe customers have been screaming about for years.

So why don’t these aggrieved customers just switch if they’re so unhappy? Well, that’s kind of tricky when IBM either sues or buys up anyone that comes along with a migration path. And you can’t just up and move the whole data center. You need to do it in pieces. Guess what IBM does to you if you say you’re going to move part of your data center? What do you think happens to pricing on the rest of your data center, ie the stuff that’s still on the IBM mainframe?

Also, thanks to the magic of the big outsourcing craze from a few years ago, in many cases IBM Global Services is running the mainframes and data centers for its customers. In a lot of cases IBM even owns the data centers, and you may not even be able to migrate.

Even if you can, well, they’ll make sure that migration is painful as hell. Like, gee whiz, wouldn’t it be awful if during that migration your data center went down for 24 hours? Or 48? Maybe you ought to just stick with that good old reliable mainframe. Sure it’s expensive, but it’s a small price to pay for peace of mind.

This is how IBM operates — just like Tony Soprano. And that is how the mainframe still exists in 2009.

True confession: Way down deep, I secretly admire them. We all do. Ballmer, Gates, McNealy, all of us who came after IBM — we’ve studied them, and learned from them, and copied them.

They’re pioneers, really. And in a twisted way, they’re still the best at what they do. Not the tech. They suck at tech. But at the other stuff? No one can touch them.