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Rivals accuse IBM of stifling competition

Rivals accuse IBM of stifling competition
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First Published: Tue, Mar 24 2009. 12 42 AM IST

Battling on: Steven Friedman, president of T3 Technologies, which filed an antitrust complaint against IBM. Chip Litherland / NYT
Battling on: Steven Friedman, president of T3 Technologies, which filed an antitrust complaint against IBM. Chip Litherland / NYT
Updated: Tue, Mar 24 2009. 12 42 AM IST
Mountain View, California: Computer services provider International Business Machines Corp. (IBM) has dominated the mainframe computer business since it was created four decades ago. And it still gets about one quarter of its $100 billion (Rs5.05 trillion) in annual revenue from sales, software, services and financing related to the machines.
Battling on: Steven Friedman, president of T3 Technologies, which filed an antitrust complaint against IBM. Chip Litherland / NYT
So when an upstart, Platform Solutions Inc. in Sunnyvale, California, developed a software that turned standard servers into systems that mimicked IBM’s expensive mainframes, Big Blue fought back. After legal action failed to fend off the pipsqueak, IBM 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, IBM 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 Inc., Oracle Corp. and Microsoft Corp., described the Platform deal as “a clear attempt by IBM to purchase a company solely to foreclose competition in the mainframe marketplace, protecting its cash cow at the expense of consumers”.
And T3 Technologies Inc., a small company that resold Platform’s products and was devastated by IBM’s move, has filed an antitrust complaint against IBM with regulators at the European Commission.
Platform was not the only potential competitor that drew IBM’s fire. At the same time that it sued Platform, IBM declined to renew a patent licence with Fundamental Software Inc., which also made mainframe emulation software. As a result, Fundamental sits in limbo with a once-popular product it cannot sell, hoping that IBM will change its stance.
Also in 2007, QSGI Inc., which refurbishes mainframes, complained about enduring “anti-competitive” 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 IBM’s actions, “customers have been denied the benefits of technological innovation and must instead pay above-market prices for IBM mainframe solutions and premium wages for a dwindling mainframe workforce”.
IBM said in a statement that it is confident no competition laws have been violated.
No stranger to controversies about its clout, IBM agreed in 1956 to an antitrust consent decree after a battle with the US’ department of justice. Long since expired—it had to do with accounting machines, not mainframes—the decree nevertheless helped companies such as Amdahl Corp., Hitachi Ltd and Fujitsu Ltd sell computers that could run IBM’s mainframe software, which they licensed from the company. By late 1990s, all other mainframe makers decided to abandon the technology because it was too expensive to keep up with IBM’s custom chips and software.
More recently, Sun Microsystems Inc., Hewlett-Packard Co. (HP) and Microsoft have made mostly unsuccessful attempts to pull mainframe customers away from IBM by creating products that handle similar tasks, but run on servers. IBM is now negotiating to buy Sun for about $7 billion, and if the deal were to be sealed, IBM 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.
IBM 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 and Co. Llc., suggested that IBM has benefited more from the lack of competition than from updated technology.
The growth rate for the amount of mainframe processing power sold per year has fallen over the last eight years, undermining IBM’s claims of rising interest in the products. IBM’s release of new mainframe systems has slowed to every 30-36 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 IBM. The technology lets customers run mainframe and server programmes 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 (CTO) of Platform. Early customers included the University of Alabama Medical Center, Cascade Natural Gas Corp. and Polk County in Iowa.
HP liked Platform’s 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 HP’s lawyers discovered letters from IBM stating that it would refuse to licence its mainframe software to Platform.
IBM sued Platform weeks later, accusing it of infringing on IBM’s patents and undermining the company’s immense investment in mainframe technology. Platform responded with a countersuit, accusing IBM of seeking to eliminate choice in the mainframe market. It later complained to the European Commission about IBM’s alleged abuse of its dominant position in the mainframe market. Platform’s 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 IBM software licence, 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 Platform’s 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, Platform’s investors grew weary. “We were sixnine months from getting a new product to market,” Gregory Handschuh, former general counsel at Platform, recalled. “The investors just didn’t have the stomach for fighting a very difficult case.”
IBM, meanwhile, did not want to risk a lengthy European antitrust investigation, Handschuh said.
IBM maintains that it bought Platform for the company’s technology and talent, not to kill a competitive product.
Platform’s engineers had explored ways to speed the flow of data between other computers and a mainframe, adding horsepower to jobs such as encryption or data analysis. They also had a view of how they could extend these designs to include other accelerators such as IBM Cell chip.
“It was at a point where we could gain time to market with the technology and that means money,” said Mark Anzani, CTO for IBM’s mainframe business.
While Platform has disappeared, its fight against IBM lives on in a modified form. T3 Technologies, the biggest packager of Platform’s technology, is carrying on the battle with financial support from Microsoft.
In January, T3 presented the European Commission with yet another complaint asserting that IBM 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 T3’s president, Steven Friedman. “We still want to provide an option for the mainframe marketplace.”
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First Published: Tue, Mar 24 2009. 12 42 AM IST