1. ® IBM Software © IBM Corporation IBM Internal Use Only--Not to be shared outside the company until July 25, 2006 Processor Value Unit Licensing for Middleware Evolving the Structure to Provide a Foundation for the Future Processor Value Unit Internal Overview Education

2. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 2 General Education Agenda  What is this Announcement  Software Licensing Background  Changing Processor Technology  Software Vendor Licensing Response  Processor Value Unit Licensing  Summary

3. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 3 What is this Announcement?  A licensing structure and strategy for per processor priced middleware in Passport Advantage  Simple conversion from current licensing  Effectively software prices do not change for existing processors  Announcement/GA will be July 25 th  Do not discuss externally prior to announcement

4. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 4 Per Processor Software Licensing  Historically, one license entitlement for each processor core in the server  A significant number of SWG middleware products use per processor licensing Core Server 4 Entitlements Required Revenue is split fairly evenly between x86 and RISC  Double digit growth on x86 SWG Revenue on x86 vs RISC Platforms Intel Xeon AMD Opteron IBM Power Sun Sparc HP PA RISC HP Itanium

5. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 5 What Exactly Is the “Processor” Single-core Chip Processor Core Chip Socket 1 1 1 Dual-core Chip Processor Cores Chip Socket 1 1 2 2 1 2  IBM defines processor = core The number of processor cores required for a given workload varies by processor technology However, Not All Processor Cores Are Created Equal 1 Core Same Workload 1 Core

6. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 6 Historically, Fewer Processor Cores are Needed over Time Faster processor cores are capable of running more work  IBM Power processor core performance increasing  Intel / AMD processor core performance is expected to be flat Processor Core Disparity Will Increase 1 Core Constant Workload 1 Core 4 Proc Year 1 1 Core Year 3 Year 5 2 Proc 1 Proc Core Performance Time One Processor Core Improve Core Strategy Multi-core Strategy Core Disparity

7. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 7 This Has Added Complexity To Software Licensing... IBM has three different middleware per processor core license entitlement levels today Software Vendors Are Differentiating by Processor Type On x86 dual-core chips, 0.50 license entitlements are required per processor (IBM per processor policy for x86 dual-core is “1 entitlement for 2 cores”) x86 Server 2 Entitlements Required X86  2 Dual-core Chips  4 Processor Cores (Result: fractional licenses) * Microsoft per core entitlements are derived from their per chip licensing.

8. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 8... And gets even more complex over time “... [this Licensing approach is] tactical, not strategic or visionary… this model will not scale to address 16 core environments that will be commonplace…by 2010” (Source: Gartner Group, “Oracle Announces New Multicore Pricing and Licensing” 2/06) And Customers Want Licensing Granularity Future Server ?? Entitlements Required Demand ability to license to the processor core – or below RISC Server 1 DB2 License Required  1 Chip  16 Cores  2 Chips  4 Cores ApplDB2Appl XXXXXXXXXXXXXXXX X 4 8 12 16 3 7 11 15 2 6 10 14 1 5 9 13

9. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 9 Customer Focus Should be on the Total Effective Price  License requirements are only part of the effective price  Price per Processor = License quantity x Product price per License * Suggested Retail Price

10. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 10 Marketplace Needs a New Licensing Structure Objectives of Processor Value Unit Licensing  Industry licensing leadership with sustainable structure  Balance simplicity with granularity  Simple structure and conversion  No price changes for software on existing processors  Maintain license scalability and transferability  Minimum change, keep new license & maintenance renewal structure  More granular and avoid fractional core licensing  More flexible pricing to address disparate core performance  Particularly for multi-core chips  Enable sub-capacity processor licensing to the core  Continue to deliver software price performance  Clarity in licensing structure

11. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 11 Introducing Processor Value Unit Licensing  Middleware will be licensed in processor value units  Each processor core assigned a specific number of processor value units  Acquire the appropriate number of value units for each processor core  Each middleware program has a unique price per value unit  Processor value units are transferable among systems by product within the enterprise * Power PC 970 and Power 5 QCM dual-core chips require 50 Value Units ** T1 entitlements per processor adjusted with the elimination of fractional licenses.

12. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 12 Processor Value Unit Licensing has simple conversion…… With the new structure, customers will acquire the required number of processor value units for each processor core Server 30 x 8 = 240 value units  1 Octi-core Chip  8 processor cores T1 …..And Avoids Fractions Current per Processor Entitlements x 100 = New Value Unit Entitlements

13. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 13 Additionally, Simple Migration of Existing Entitlements  Existing Maintenance Processor Entitlements converted to Processor Value Unit Entitlements  Current Per Processor Entitlements x 100 = Processor Value Units  Same conversion factor for all processor types *

14. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 14 With No Price Changes for our Middleware for Existing Processors*  Consistent conversion factor to create product prices  Both New Licenses and Maintenance Renewals Current per Processor Price /100 = New Processor Value Unit Price  Customer price = # entitlements X price per entitlement... UNCHANGED!* WebSphere Application Server Network Deployment on RISC Dual-core (2 cores) Price per Entitlement Number of Entitlements Extended Price Per Processor$15,0002$30,000 Conversion factorDivide by 100Multiply by 100 Processor Value Unit$150200$30,000 * There may be slight changes due to rounding with the implementation of processor value units in some countries

15. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 15 Processor Value Units Provide Flexibility Through Granularity  Value Unit Licensing at the processor core level  Capability to enable sub-capacity licensing  Granularity to address changing technology  Flexibility to create new processor value unit levels  Deliver software price performance improvements Time Software price performance improvements will range over time depending upon a number of factors including market conditions Processor core performance levels will vary between chip vendors  Processor Value Units relative to core performance Processor Core Performance Price Performance # of Processor Value Units

16. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 16 Increased Clarity as New Processors Will Be Assigned Processor Value Units  Deliver price performance improvement  Over time, new processors will be differentiated based on relative performance  Overall framework balances precision and simplicity

17. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 17  Processor “Value Unit Calculator” is available  Contains a “table” which indicates number of processor value units required for each processor core of all available vendor chips  Calculates number of processor value units required for every hardware environment  Used to calculate price (number of value units X price per value unit)  “Value Unit Calculator” will be inserted in SWG supported tools  SQO  Distributed Software Price Book  BP eOrder  PA Online  Value Unit Table is downloadable from Lotus Notes Pricing Data Base for use with:  User developed tools  VADS who do not use BP eOrder Quote and Order Tools

18. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 18  Processor “Value Unit Calculator” Helps Determine License Quantities  Passport Advantage Online contains a link to the processor “Value Unit Calculator” New Tools to Determine Processor Value Unit License Quantities  Calculates number of processor value units required for every hardware environment  Used to calculate price (number of value units X price per value unit)

19. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 19 Benefits Of The New Structure Customer  Provides granularity balanced with simplicity  Simple structure with easy conversion  Maintains license scalability and transferability  Enables sub-capacity processor licensing to the core  More flexible pricing to address disparate core performance  Delivers clarity and predictability  No price changes for software on existing processors  Continue to deliver software price performance improvements  Over time, new processors will be differentiated based on relative performance  Sustainable licensing structure  Addresses key marketplace needs with flexible structure Sales  Provides an opportunity to capture additional revenue as customers migrate licenses to more powerful processors  Software price performance improvements is managed  Leverage flexibility and granularity to sell value with less discounting

20. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 20 Backup

21. IBM Software Internal Use Only--Not to be shared outside the company until July 25, 2006 21 Reference Material  See the Processor Value Unit Licensing Q&A for more details. This, and other education material, will be available on the Passport Advantage web site Passport Advantage web site  Questions should be directed through the normal software support structure. If they are unable to answer a question, they will have access to the Processor Value Unit licensing project office.