Bill Vitiello Interviewed by Chris Hayes

Mainframe Licensing: The Power of a Proactive Approach

The Anglepoint ITAM Executive Podcast

Chris Hayes: Hi, and welcome to the ITAM Executive Podcast. My name is Chris Hayes, I’ll be your host for today’s episode. Joining me on the podcast today is Bill Vitiello. He is one of the original founders of Direct Computer Resources, and they developed a data management solution for IMS, and this has been around since at least the late seventies. Among their clients are Global 1000 firms in mainframe technology and software licensing. He really is a thought leader. So Bill, thank you very much for joining us today.

Bill Vitiello: Thank you, Chris.

CH: Before we get into all of our questions and discuss all things ITAM and mainframe today, I’d like to get to know our guest a little bit better, and one of my favorite things to ask, just out of left field, and not related to ITAM at all, do you have a favorite ice cream flavor?

BV: Rocky Road. That’s easy.

CH: That’s an easy one. Perfect. Switching gears. We talked in our previous conversation. One of the comments that you made to me was that you continuously hear from people in the industry, that phrase, that “mainframe is dead.” Could you explain to our listeners why you disagree with that statement?

BV: Well the short answer is, I’ve been hearing it for 40 years, and they’re still predicting its demise. It’s not dead. It’s not at the forefront of all the new and exciting technology. But if you look behind the curtain, you’ll see that all of the new technology rolls back to the mainframe. You have a smartphone you check on average 37 times a day on your apps. All that information that you find on your iPad or your iPhone rolls back to the mainframe for processing. The mainframe high-processing capabilities of IMS or Db2, they have to be processed on a mainframe. Now there are people that are migrating off, but the mainframe is far from dead and it plays a critical role on many different levels. It’s here to stay.

CH: Yes, yes, I would tend to agree. That is interesting. So you have some new technologies and divergent technologies, everyone’s pushing Cloud options. I completely agree. The processing time alone is a good indicator. Maybe that’s an interesting followup question for some of our listeners. So what are some of the main ways that mainframe and cloud technology are different? So for those executives who say “Yeah we’ve got a strategy to go cloud native, everything’s going to the cloud, and this increases that concept that mainframe being dead. Why would you say that mainframe is still required even though we have a lot of adoption in the cloud? What are some of the key differences between clouded option and staying on mainframe?

BV: I don’t think it’s either/or Chris. I think that each has a role. The cloud is here to stay, it’s a critical component. It’s pretty much the front end in some applications for the mainframe. Or smaller applications that don’t need high capacity and processing speed can be handled effectively on the cloud. A lot of companies we’ve heard over the last couple of decades say we’re getting off the mainframe, it’s too expensive. The mainframe is getting faster, it’s getting better. It’s the growth in data due to IoT that is exponentially increasing the data. You have to look at the whole picture. Let’s just take the retail sector, the explosive growth in online shopping. All of that drives back to the mainframe for bill processing. All the airlines, government agencies, their growth in the mainframe continually expands. We see it in licensing, we see it in more capacity. Mainframes are getting faster. IBM is doing a great job in making it faster. But companies need more and more capacity.

CH: Yeah that’s interesting, especially with changes in the way of working. You mentioned the increase in online shopping. If mainframe is such a critically important component of successfully managing IT assets, your audience here is the ITAM executive who would be looking at either the maturity of their program or maybe just starting out, what would a kind of basic 30-, 60, 90-day plan look like? What would be your key recommendation for an ITAM executive who says, “Yes, I acknowledge the fact that mainframe and mainframe licensing is critically important, but maybe they don’t know where to start.

BV: What we see when we talk to people throughout the year and more intensely through the yuletide. Most of our clients have been with us for more than 26 years so we’ve been through numerous renewals with them, one of the common — I think it’s a mistake — is they pull out the old contract and they use the old contract as the baseline. Okay, senior management said we need to reduce our cost 20%, 30% percent instead of collaboratively going across the organization, speaking to the end users, speaking to the application owners, speaking to executive management, speaking [unintelligible]. As you probably know better than I do, sometimes there’s a disconnect between procurement and ITAM. Sometimes they join together, it depends on the organization. More typically they’re not. What we see is people pull out the old contract and say, okay this is what we did 5 years ago, this is what we need to cut. And they don’t look beyond that. Sometimes ITAM managers are not in a conversation with the people that use it, that rely on it, that need it. And in many cases, they don’t even understand what the software does. So we go through this education process, and what we found works and doesn’t work. We have a relationship across senior management, application users, the application management, the DBAs, the assistant programmers, procurement, and ITAM people. Then we have a more cohesive relationship and there’re more things that we can do. And there’s a lot of things when we renew or during the year that get us to that point of having a real partnership with our clients. And that’s why so many have been with us for as long as they have.

CH: So, it’s sounds like your key recommendation is very similar to a typical approach in the rest of an IT asset management program. That in terms of technology there might be some differences, different license metrics, but the concept of relationship building, relationship management with procurement, understanding and having an education application owner, is really going to go a long way. The main idea is to have a handle on the actual consumption and the actual condition relative to license overages or potential compliance risks going into the contractual event. You want to optimize your contractual event in mainframe and with those applications similar to how you would do that on an end-user device or in a data center. In essence, we should be looking at — as an ITAM executive — looking at mainframe very similarly. We need that trustworthy data, and that’s going to enable you to optimize. Is that correct?

BV: I would agree with that, yes.

CH: So you mentioned taking that last contract and plucking off 10 percent or thinking about the executive’s goals you know just kind of in a vacuum. Are there other common pitfalls when you’re dealing with mainframe licensing?

BV: I think the biggest thing that we hear when we sit down is, people have a hard time dealing with surprises. COVID absolutely crashed budgets overnight. Deployment of work from home workforces spent 12 months worth of budget in 6 months. Security is a major concern. The unpredictability of IT, even without a COVID pandemic is something that causes major problems to the business. We have a client that was considering going to an outsources, they were all set, the metrics made sense, there was substantial savings, and one software vendor, with their charges for moving the processing to the outsourcer, killed the deal financially. They couldn’t justify it anymore, so there’s a couple of things that can be done when we talk to clients about their budget constraints, they need compression on the budget, everybody has revenue pressures these days, what we try to do is we say, okay, your contract is for so many years, why don’t we amortize, or give you protection against the upgrades? Many things are hard to predict. If say a bank or insurance company has a breach, their capacity goes through the roof. Why? Because their customers what to contact through their website. They want to make sure “is my data safe?” and the traffic goes up tremendously. So they have a spike. Now you could have capacity planning, you could be spot on, but you have an event like that you can’t predict it. The Client’s faced with “Do we buy more than we need?” to absorb that or do we go lower than that and pay the upgrade fees as they come due. Each client, Chris, is different, and each client has different pain points. But I don’t think you approach the conversation with just one solution. What we found to be successful, and again the reason why clients are with us 10, 20, 30 years, in some cases 40, is we’ll sit down and we listen to what their needs are. Where is their business going. Are they merging, are they going to be taken out, what’s the growth factor going to be? What can we do for them that’s going to release some of that pressure. What can we do to give them some more predictability? During COVID we had some customers whose business went through the roof in a good way. We had other customers that their business dropped off substantially. So in some cases, with a long-term customer, a COVID discount is warranted. In other cases where they have a spike in capacity, and they’re facing a large upgrade fee, we amortize the payment, or we delay the payment into the next budget year. So it’s not one size fits all but rather honest conversation, both sides talking openly and saying yeah I do have to keep the costs down, how can we achieve that and what’s the best way to do it. So it’s just partnering with them. It’s no different than any other relationship.

CH: Absolutely. Bill from my side that’s a much appreciated point of view. Hypothetically, and I’m sure a lot of the ITAM executive audience who’s listening are saying okay We’re concerned about cost control but we’re also concerned about risk mitigation and compliance. And to hear from someone who’s so experienced in the industry on the publisher side say that you also appreciate those types of honest conversations. What I’m hearing is that trustworthy data and understanding the position is a portion but also working collaboratively with these clients from the publisher’s side that you appreciate the win-win type approach that an active vendor management and honest conversation would bring. So maybe the converse then, in the industry, do you see a lot of other players, because COVID has not only squeezed client budgets but also a lot of the software publisher and software provider budgets. So we see a marked increase in audit activity. In the compliance space with other mainframe licensing providers and license publishers are you seeing an uptick, are you seeing more aggressive audit approaches? Do you plug gaps in budgets in terms of mainframe licensing?

BV: That’s a good question and there are multiple ways to answer it. 1212 What we see is that everyone’s anxiety level is at an all-time high, and they have been for 2 years, whether it’s in our personal lives, or corporate life at any level in organizations there’s anxiety, and when somebody is out of compliance I don’t believe there’s somebody out there saying, gee, we’re gonna take an extra copy of this software, we’re gonna put it on another mainframe. Nobody that has access to that has any interest, it doesn’t benefit them directly. A lot of times it’s an honest mistake. An outsourcer will lift and move a CPU. So the keycodes are working but the CPU is under a different organization and it’s a licensing violation. Was it intentional? He probably missed it on the list. Or maybe the MNA activity was such that they didn’t catch it. The way that we approach it, we just had this a couple of months ago and we’re still working through it. A client put in a bid for software, we missed the transition to the outsourcer. And we had a long conversation and I said, look, there’re multiple ways to resolve this. It’s very simple, you’ve been using it for a year, we’re not going to charge you any penalties, but we need to catch up. If you want to move it to the outsourcer, we can amortize the payments to the new license over a period of time. And the response was really? We’ve spoken to ten vendors and you’re the only one who wants to discuss it. A lot of vendors come back and they say, “You’re out of compliance, there’s a fee, there’s a fine, you’re gonna pay it, and we’re turning it over to legal, and they take that approach. In fairness to some of the vendors, not all, but in fairness to some of them, they’re publicly traded companies or they’re private equity organizations — those people are under pressure. Their clients aren’t dealing with the owners of the firm, they’re dealing with a sales rep whose boss — the sales manager or the vice president of sales — is pressuring them: how did this happen? Why did this happen? How did we miss it? So there’s external forces that are creating higher anxiety, and it’s stressing the relationship with a lot of people. Same as price increases.

CH: That’s a really good call out. A common sense and reasonable approach on both sides really affords a lot more flexibility in the situation. So again you’re saying it’s not necessarily one size fits all approach but then you recognize their external stresses, their external pressure. So let’s all just dial the stress down, right? There’s the nascent stress level because of the pandemic is so high, let’s just take some of the stress out of the conversation. So, yeah, that’s very much a breath of fresh air. So my next question then, in your opinion, what does the successful license management practice look like for mainframe BV every organization is slightly different but the common theme is, if I were an ITAM executive I think I would understand better the software and the vendor or the publisher. Is it needed? We have one outsourcer that on their PO every year they ask, “Is this software needed?” and the person has to come back and justify it. But I think part of it is reaching out in the organization. Too many times we see the asset manager as, okay, I have to make sure we renew by this date so we’re not out of compliance and it’s a defensive approach versus a pro-active approach. And if they get it done and they get it renewed that’s great and we look like we’re okay for an audit, that’s great, compliance, I can check that box, and I’m done. It’s safe. Look at the old contract, I didn’t affect the user, he’s not raising his voice saying what’s going on with this. But it’s not pro-active. And the more successful clients that we deal with are the people that talk to us and really say, okay, this is what we have, this is how we’re using it, this is what we’re looking at going forward, this is what we’re anticipating. And we have constant dialogue. 1616 Not just at renewal time … throughout the year, four or five, six times a year and going forward. I think that a lot of the clients approaches and there’s not enough time to really understand from a collaborative standpoint what the vendor needs and also what the users need. Whether it's an internal user or application owner or in the outsourcer case, a client that you’re supporting. I think you have to do a little more digging. We are constantly surprised, by the fact that we’ll go out, a client will be using our software, 10, 15, 20 years, the same user, the same end user, we’ll offer training, we find that we have 30 new features, we find they’re only using two or three. And we find this across the board. So maybe my associates will use two or three different features but I am only aware of these features. And people will become a creature of habit. When my first child was born, 37 years ago, I was all excited. I went and bought the most expensive camera I could find, a fancy Minolta camera, and she’s now 37 and I’ve never taken off automatic. It’s been on automatic point and click. That analogy is really what some of our users are experiencing. We had a user the other day, he’s been using us since the mid-nineties, and he says “Who’s using it in the online capacity? Can you use it online?” We almost fell out of our chairs. I said, “You know you can fix production problems, right?” “You can?” He’s a long-time user! The reason we’re giving free training is we want to pick our user’s brains. And we what to hear what enhancements they’d like to see. Our best enhancements come from our users. So selfishly, we like to talk with them. So I think from an IT manager’s perspective, they approach this holistically and say I have to check the box, check with compliance to satisfy that individual, okay, I got it renewed, the user’s happy, it came within certain parameters for procurement, okay, I’m done, and that’s not taking advantage of the whole relationship. It just gets you to the next time a renewal comes up.

CH: That makes sense, and I think those are kind of the recurring themes that as an ITAM executive, one should approach the mainframe area in a similar way. So I don’t know if you’ve got any kind of benchmarking top of mind, Bill, but if, if an ITAM executive were doing this for the first time from wild west not managing mainframe environment to a successful and mature program, what are the types of percentage savings that uh that your average client, let’s say, in a Fortune 500 could expect out of successfully managing a mainframe environment?

BV: A recent quote that we passed on saved the client 50%. But it’s all over the lot. We’ve saved one client as little as 8 percent. They’re more on top of their licenses, We can save our clients a couple of hundred percent if you take into account the new upgrades. I think on a general, not considering the new pricing from some vendors, there are I would say we could save easily an average of 20 to 50 percent of their current spend. We’re not public. We have zero debt. And we can be more flexible within certain guidelines. Licensing as a result of COVID where we restructured some products and made it easy for people on data masking and security type products, that’s a way that we can be flexible. Other companies in fairness they’re great companies that have good software our competitors are formidable, but they’re locked in to quarterly results set by senior management saying this is the path we’re taking. So the reps and the account executives don’t have the flexibility that we have.

CH: That makes sense, that’s a definite call to action as well for you ITAM executives out there, look at your proactivity relative to vendor management in this space, 20 percent top line on what you’re spending on mainframe I’m sure you guys are doing a back of the napkin calculation right now. That’s material, that’s a big opportunity. WV: Here’s another point that they should keep in mind. Quotes are free, from us and from every other vendor. People welcome conversation during a time when it’s difficult to connect with customers. It is very hard. The common theme I hear from all vendors and software competition, they’re our partners on some bases they’re competitors on others. They’re having a hard time connecting with people. They’re not in the office. It’s hard for the ITAM managers in this environment because working collaboratively. When people are not in the office makes it more difficult. They can’t get up, walk to another floor and say, hey, do you really need this, what’s happening? We’re all dispersed, and as a result that makes it more challenging. It’s worth the effort, it’s certainly worth the effort. And the other thing that it does is that it keeps all the vendors on their toes. A little competition is good. If I’m an ITAM executive in one company, and I’ve been there for 20 or 30 years, and I haven’t engaged with Anglepoint or a similar firm, how do I know what the parameters are? All I know is the last renewal I signed, or what we’ve done over the years. Whereas you have hundreds of customers, and the experience your people bring to the table gives me that insight. That insight alone is probably one of the more valuable aspects of partnering.

CH: So really leveraging that trusted advisor relationship to get down to the nuts and bolts of how you optimize and what’s going on. That’s really a point as well. The last question I’d like to ask you today, Bill, is relative to kind of looking forward. In your opinion, in your expert opinion, where do you see the industry in the next three to five years? Where do you see the mainframe licensing landscape.

BV: I think you’re going to see larger companies being pulled along by better ITAM managers. The more experienced people will come up with creative ideas — I understand that’s your licensing model that this is what we can have from another vendor, that this is what works for us. We can’t deal with upgrades, so I’d rather pay a certain predictable percentage and have a flat budget on this item for the next three to five years. It used to be that people wanted the revenue and so extend the contract. When we talk to people it’s not just us wanting a five-year contract, we say, look, you can sign a 2-year contract, you can sign a 1-year contract, you quote all the options. What it is, it’s price protection. And I think in the next 3 to 5 years you’re going to see something that is similar to the late nineties. Software vendors believed that they had a lock on the mainframe. They convinced people that there were no choices. They told people, hey, if you don’t do it we’re pulling it or you’re not gonna get the renewal. And they held a gun to the client’s head. Nobody like that, absolutely nobody feels comfortable with that. And it’s destructive to any relationship the executives have built up. I think we’re entering that phase now because of certain mergers, certain divestitures, PE activity, private equity activity. You see the price increases that people are having, and it’s interesting, you talk to one client and they have the most disdain for this vendor. And you talk to another and they say no, no it’s this publisher I really have a hard time with. But all the ones they have a hard time with are those that are forcing these price increases without providing more value. When a publisher comes out and says, look your price went up but you can use all of our software. Well if I wasn’t using all of your software before what are giving me? What value is there? Most of us don’t need more snow. If that’s the case, then they’re missing the boat. If there is a certain stickiness to mainframe software, but there’s also this belief that it’s not as sticky as some people say. I think in the next three to five years what you’re going to see is a fallout. There’s tremendous volatility right now in the market. I think the vendors that don’t work on the relationship will in the long run they may make the next 2 or 3 or 4 quarter results look great but in 3 to 5 years I think they’re going to see the same revenue down pressures that they experienced in the nineties.

CH: What I’m hearing is similar to a lot of the other industry players, right. That this is in large part an industry built on trust and relationships. That market pressure, if you’re a firm offering mainframe solutions and you’ve got a specific vent and you’re feeling that cost pressure, turning that right around and kicking off an awful lot more audits and having an aggressive approach that might benefit the short term but in 3 to 5 years that market pressure will be felt, and that firms that will be successful will take the pro-active collaborative approach relative to actually serving their clients and fostering that relationship building. So in that way mainframe is complex, yes, expensive, yes, but it is not unlike a lot of other areas in IT asset management in that the principles of listening to your trusted advisors, having a very active vendor management capability, working with ITAM will serve both the ITAM executive well but also the market well. So, Bill, I appreciate what you’re saying that a lot of the changes, a lot of the value adds, are really driven from the client’s side. The clients are saying, look, I want to be creative with the solution. I know exactly where my trustworthy data is telling me where I need to be to leverage my vendor management capability. And push those requirements to the industry and see what that looks like.

BV: One comment I would make on what you said about complexity, the mainframe is I think far simpler than the distributed environment. We have distributed tools as well that work in the cloud or work with application modernization. If I was an ITAM manager and I was the only one in the company that had to handle this job task I would look first at the mainframe. Because I think it’s the low hanging fruit of the budget, and it’s easier. You may have 2000 copies of Microsoft Word, but I have to go down and I have to audit all of that. I know you have AI tools that help give them an instant snapshot, and that’s wonderful but if I’m looking for big savings quickly … I don’t have 2000 CPUs. I have a handful of mainframes. The biggest shops have 30, but they’re all contained in one place, and it’s fairly easy to audit those with big gains upfront. They should still do the full compliment. But if I was a single ITAM executive in the organization, I think I’d look first at the mainframe, because I think that while it’s the most critical to run production it’s still an area that you can get fast, quick gains. And I think that’s what I would do if I was a single ITAM executive. What most of our customers have.

CH: That’s a really good bit of advice as well. So again, for you ITAM executives, don’t shy away from mainframe. Dig in, and per Bill, one of the thought leaders in the industry, have a look. You can be surprised what quick wins and relatively large gains can be had in taking a look and applying the same principles. You’ve been listening to the ITAM Executive podcast brought to you by Anglepoint. Make sure to hit subscribe in your favorite podcast player and give us a rating.