mainframe

Prices for mainframe managed services have been declining for years – but in 2020 they leveled off (see Data Watch). A number of factors are driving this. Chief among them is that mainframes are still critical for hundreds of banks, insurance firms, retailers and public sector entities across the globe. Demand for this technology is not going away any time soon.
 
However, traditional mainframe outsourcing is changing. Many leading service providers no longer sell new mainframe managed services deals, although most will renew existing agreements. In its place, we’re seeing an increase in demand for Mainframe-as-a-Service, for which the buyer pays an all-in price – often per MIPS. But to reap the potential commercial benefits of this model, buyers need to improve their demand management capabilities.
 
The lack of onshore mainframe talent continues to be a major concern for CIOs (note: several India heritage firms are investing in training a new generation in mainframe technologies). Another forcing function is mainframe software. Costs are soaring, and licensing terms are becoming increasingly restrictive. This is leading enterprises to evaluate other options – like transformation.
 
Eventually, most enterprises will move these mainframe-based applications to the cloud – and some will do it via an application transformation agreement. For example, a number of providers are offering conversions from COBOL to Java over a multi-year AMS relationship. The hyperscale cloud providers also want these workloads, and they are providing conversion tools that systems integrators can use to speed the conversion to the cloud. But this transformation won’t be easy. Transforming just one application can take weeks or months, and the entire environment can take years.
 
Returning to the question: why have mainframe managed services prices leveled off? It’s a combination of factors, but two of the biggest are rising software costs combined with increased offshore labor rates. But the good news is that, for now, we see a strong pool of providers for buyers that simply want to keep their mainframes running as efficiently as possible – and for those that want to transform them.

Data watch

deal activity

M&A

The Insider will be taking a break next week. Stay safe, have a great weekend and talk to you in a couple of weeks.
 
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isg insiders

Stanton Jones, Alex Bakker, Cynthia Batty, Dr. Daniel Gerster, Doug Saylors, Missy Lawrence-Johnson, Mrinal Rai, Ron Exler, Sashidharan Balasundaram, Steve Hall, Sunder Sarangan, Troy Williams
 

contributing this week

Chris Pattacini, John Schick, Pedro Luís Bicudo Maschio, Ted Bedell, Tony Mataya