Opinion: IGF — IBM's unseen competitive weapon

IGF now dominates the computer leasing business. Are there worthy challengers out there?

I started life in IT decades ago as a sales guy for a mainframe leasing firm attached to the Greyhound Corp. — yes, the bus company. Greyhound Leasing and Financial actually wrote the first lease on an IBM mainframe, thereby creating a niche industry that included the lease and resale of new and used IBM mainframe hardware.

I can't say I was good at it, but I did know some people who were. They were financial wizards that were appreciated both by their bosses and their customers for putting together multimillion-dollar deals that could, on any given day, include tax leveraging, take-out and disposition of installed hardware, deferred payments and upgrade provisions during the lease term. I also knew customers who were as savvy at playing the leasing game as the best salespeople on the street.

Those days are gone for two reasons: mainframes no longer rule the Earth, and IBM Global Financing (IGF) wiped out the likes of Comdisco and other big players.

IGF is as strong or stronger now than it ever was, and it's making an unusually obvious display of flexing its creative financing muscles with the announcement of the z10 mainframe. I see two reasons for the show of force. First, is that fear of recession in the minds of mainframe-buying chief financial officers will push z10 sales opportunities off into the future. So IGF brings back tax-leveraged leasing in the form of an Economic Stimulus Advantage program that essentially passes the investment tax benefits provided in the recently passed economic stimulus package back to the customer in the form of a lease rate reduction. Here, lease customers get a new equipment tax benefit as if they actually bought. You'll have to get out your financial calculators to see how much of this tax credit is actually being passed through, however, and IGF may be negotiable on this point.

Second is the inevitable "competition" from mainframes already installed under an IGF lease. You say you just installed a z9 a scant 18 months ago? "No problem!" says IGF. "We'll roll the z9 out, put the z10 in on a new lease, manage the cut-over and reduce your monthly payments." How can you refuse? Again, it might be wise to warm up your calculator and run the NPV numbers to make sure the deal is as good as it sounds. Diligence could buy you an even better deal if you're so inclined.

In my mind what makes IGF a competitive threat is that IBM uses IGF as a sales tool during the selling process, not just as an after-the-sale financing option. What makes IGF even more formidable is an aggressive willingness to wrap all kinds of other things into a z10 lease package like storage, software and services, making it difficult for a competing storage vendor, for example, to pull a DS8000 disk array out of a z10 lease proposal and replace it with a competing array.

So IGF now dominates the computer leasing business. Are there worthy challengers out there?

John Webster is a principal IT adviser at research firm Illuminata Inc. He is also the author of numerous articles and white papers on a wide range of topics and is the co-author of the book Inescapable Data: Harnessing the Power of Convergence (IBM Press, 2005). Webster can be reached at jwebster@illuminata.com.

Copyright © 2008 IDG Communications, Inc.

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