MoneyWatch Tech

Microsoft Takes Aim at IBM's Mainframe and Cloud Business

By Erik Sherman

Updated on: December 3, 2010 / 12:23 PM EST / MoneyWatch

For months, IBM (IBM) has been unhappy with French company TurboHercules SAS, because the latter has tried to develop an open source emulation of IBM mainframe systems. Moreover, TurboHercules is one company accusing IBM of anti-competitive activity in Europe.

Now Big Blue has greater cause of concern, as Microsoft (MSFT) has invested in TurboHercules. Not only might Microsoft be using the relationship as a way to attack its rival by proxy, but it could also see mainframe emulation as a tool in its quest to become a dominant force in cloud computing.

You can't overstate how important the mainframe business is to IBM. In its last reported quarter, System z mainframe product sales grew by 15 percent, year over year. That's at a time when x86-based server sales grew by 30 percent for the company and its proprietary UNIX-based Power Systems sales shrank by 13 percent. As IBM's customers move from proprietary to open architectures for servers, they also increase their spending in one area where the company has had a lock.

Not bad for a technology category that many mistakenly write off. Because the area is so mature, much of the development costs are long recovered, making mainframes an important source of profit. IBM ties its software to its own hardware through licensing and makes it difficult for customers to port their own internally-written mainframe applications to other hardware.

That's what makes TurboHercules such a thorn in IBM's side. TurboHercules wants to use emulation software as a basis for disaster recovery. That would mean potentially showing companies that they could move from mainframes to far less costly servers. You can see why IBM began to rattle its patent saber at TurboHercules.

But legal challenges can go two ways, and TurboHercules is one of two companies that have filed antitrust complaints in the European Union, which, in turn, based one investigation into IBM on them and started a second investigation on its own. In July, IBM said that the complaints were really the work of Microsoft and "its satellite proxies." Given the latter's investment in TurboHercules, IBM may have had a point.

Not that it matters, as such action wouldn't be illegal. What worries IBM is that Microsoft -- itself dealing with a slowly but steadily diminishing dominant position in client computing -- sees the cloud as a growth area. And IBM has tried to position mainframes as cloud technology.

Should one of the two investigations, started by the EU, into IBM's mainframe business result in regulatory action, Microsoft might then be in a good position to snap up technology that would force proprietary mainframe hardware to compete with conventional servers that are perceived as far less expensive.

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