For decades, IBM i customers lived under a predictable model. Buy the hardware, pay once for a perpetual license, and carry that license forward through future upgrades. It wasn’t cheap, but it was manageable.
That era is over. IBM’s move to subscription-based licensing has fundamentally reshaped the economics, forcing small and mid-sized businesses to make hard choices.
The Myth That Licensing Is Just a Line Item
Executives often assume licensing is a minor part of the total cost of ownership. Buy the server, keep the software, and move forward. That assumption no longer holds. IBM’s subscription model has transformed licensing into a primary driver of cost, often surpassing that of the hardware itself.
Licensing strategy is now a board-level discussion, not a buried IT expense.
The Reality: Subscriptions Cost Three Times More
Here’s how the math looks today. In the past, transferring a perpetual license might have cost $5,000 to move 200 users from one system to another. Under IBM’s subscription model, the same move can run $180,000 or more, driven by per-core charges and annual renewals.
As one industry veteran put it, “It used to be you paid $5,000. Now they’re looking at $180,000, because of software subscription, and because you pay per active core.”
Subscription costs are no longer proportional to growth; they’re exponential.
Why Small and Mid-Sized Businesses Feel the Squeeze
Large enterprises can absorb rising licensing fees. SMBs cannot. The consequences are stark:
- Hardware upgrades stall because software costs now dwarf the server itself.
- Deferred investment leaves businesses running unsupported systems.
- CAPEX has turned somewhat unpredictable, eroding long-term planning.
The end result? CIOs across the mid-market are asking the same question: “If upgrades are this expensive, is the cloud my only option?”
Cloud as the Stabilizer of Cost and Compliance
Cloud hosting offers three forms of relief:
- Right-Sizing: You pay only for the cores and memory you actually use, not for oversized hardware you don’t need.
- Budget Predictability: Stable monthly OPEX replaces six-figure CAPEX spikes.
- Lifecycle Flexibility: If you need to exit in two years, you are not stuck depreciating a five-year asset.
The answer is simple: the cloud restores financial control at the exact moment IBM has taken it away.
If you’re weighing your next hardware cycle against subscription costs, a pilot cloud migration can give you real numbers to compare.
A Client Reality Check
One client we worked with recently ran the numbers. Under the old model, their upgrade would have been hardware at roughly $40,000 and migration software and services at $20,000. That’s a total of around $60,000. Under the new subscription model, the cost ballooned to more than $180,000. Their conclusion was straightforward. Skip the on-prem upgrade. Move to the cloud.
This decision wasn’t about innovation or chasing the latest trend. It was survival math. What this means for you: if you’re seeing numbers that don’t make sense, you’re not alone. The shift is systemic, and the escape valve is cloud hosting.
The Compliance and Audit Angle
Licensing changes aren’t just a cost issue. They also create compliance exposure. Auditors now scrutinize two areas closely:
- License Compliance: Are you paying for every active core you are running?
- Version Support: Are you stuck on unsupported operating systems to avoid licensing hikes?
Failing either check is not just a budget hit. It’s a regulatory risk. Cloud providers offer documented licensing, supported versions, and audit binders that satisfy compliance teams.
What this means for you: cloud solves not just the cost problem, but also the audit problem.
The Bottom Line for CIOs and IT Directors
IBM’s shift to subscription licensing has changed the economics of staying on-prem. What used to be a manageable capital expense is now an unpredictable, compounding operating cost.
For SMBs, this isn’t sustainable. The myth that “licensing is just a small line item” is dead. The reality is clear: subscription pricing is pushing companies out of the server room and into the cloud.
FAQs About Subscription Licensing and the Shift to the Cloud
Why Is IBM Moving to Subscription Licensing?
IBM, like many software vendors, is aligning with the broader SaaS trend. Subscription models create recurring revenue streams. For customers, however, this translates into higher costs and less control over long-term spend.
How Does Subscription Licensing Impact the Total Cost of Ownership?
Under perpetual licensing, software costs were predictable and amortized across hardware refresh cycles. Subscription licensing shifts that into a recurring OPEX line item that often outweighs the cost of the hardware itself. That significantly alters TCO models for SMBs.
Can SMBs Negotiate Subscription Terms With IBM?
Large enterprises often secure negotiated agreements. SMBs typically lack that leverage, which is why the cost impact is more severe. The subscription terms are standardized, leaving few options outside of migration.
Does Cloud Hosting Eliminate IBM Licensing Costs?
No. Cloud still requires licensing. The difference is in scale and predictability. Cloud providers optimize usage so you only pay for active resources, and they manage licensing compliance on your behalf.
What Risks Come With Delaying Upgrades Under Subscription?
Delays often mean running unsupported versions of IBM i. That creates compliance red flags and increases security exposure. What seems like cost avoidance can quickly turn into risk accumulation.
How Does Cloud Help With Audits?
Cloud providers document active licensing, maintain supported OS versions, and prepare evidence binders for auditors. That reduces the burden on internal teams and lowers the risk of findings.
Is a Hybrid Model Possible for IBM i Workloads?
Yes. Many businesses keep mission-critical workloads in the cloud while retaining specific applications on-premises. The hybrid model allows SMBs to control costs while preserving performance where it matters most.
Ready to Move to the Cloud?
Costs are just the beginning of the advantages of moving to the cloud. Reach out now to learn more about the advantages of managed hosting. Start your conversation with us today.
