For decades, the calculus for owning an IBM i server was straightforward. You bought the hardware, paid a transfer fee upon upgrading, and kept rolling. That math changed in 2025 when IBM eliminated perpetual software licensing.

With that change, the five-year total cost of ownership jumped significantly for mid-sized IBM i shops. Most hardware conversations are not yet accounting for this massive industry shift.

The Cost of an Entry-Level Power Server in Today’s Market

An entry-level Power server today requires an investment of approximately $36,000. That is roughly double the cost of comparable machines sold between 2010 and 2018.

This recent price increase from the manufacturer is not arbitrary. IBM manufacturing economics favor larger capacity because producing more compute costs less per unit. The smallest server available today ships with far more horsepower than most shops need. That initial purchase price is the starting point rather than the finish line.

With perpetual licensing eliminated, an IBM software stack requires an annual subscription payment. The subscription typically requires a three- to five-year commitment. Depending on your server tier, that runs roughly $10,000 to $18,000 per year. You must also add standard IBM hardware support on top of that base cost.

Working through the five-year total reveals an $70,000 to $100,000 commitment. This amount excludes necessary staffing, facilities, power, or server cooling expenses.

Cloud hosting for a right-sized LPAR supporting the same workload costs significantly less. Monthly fees range from $700 to $1,500, depending on system requirements.

The Impact of Right-Sizing on Your Total Cost of Ownership

The rising hardware costs present a unique opportunity to optimize your overall system capacity sizing. Most shops running Power 7, 8, or 9 hardware barely use their rated CPW capacity.

IBM measures its commercial processing workload benchmark in highly optimized lab environments. These testing environments feature hundreds of storage devices attached directly to the servers. Most mid-market clients operate their systems with only two to twelve attached storage devices. Practical throughput remains a mere fraction of the original nameplate specification. That massive capacity gap is where the majority of hosting savings actually live.

Bob Losey has spent more than four decades evaluating real IBM i capacity requirements. His extensive experience includes environments running JD Edwards, Infor, and custom RPG-based applications. He frequently works across logistics, food distribution, and complex municipal government sectors.

“80% of users can get by with 400 to 1,000 CPW, four to eight gigabytes of memory, and 300 gigabytes to a terabyte of storage. These programs were designed to be processing-efficient and storage-efficient because the cost of capacity and performance was so expensive on the computers designed in the sixties through the eighties. A lot of the software running nowadays in modern servers has its roots in the RPG developed during the eighties and nineties when the capacity of the servers was smaller.” – Bob Losey, Founder and President, Source Data Products

A client migrating off an older Power server does not need matching rated capacity. They need the precise capacity their daily workload consumes. For most regional manufacturers, a right-sized LPAR costs a fraction of what a mirrored configuration costs. It also performs comparably well under highly demanding real-world business conditions. The Cloud400 60-day free trial exists to let clients prove this point before committing.

Are you unsure how your current workload maps to hosted LPAR sizing? Talk to the Source Data team about running a workload assessment before making any major hardware decisions.

The ISV Transfer Fee That Almost Everyone Ignores

One expense consistently surprises clients who calculate their own hosting math. The independent software vendor transfer fee creates unexpected budgetary challenges during migrations. Roughly 40% of mid-market IBM i applications require the software vendor’s full cooperation. Moving to any hosted environment might require a hefty payment that nobody planned for.

These mandatory vendor transfer fees vary across different software providers. I’ve seen them range from reasonable to genuinely obstructive during negotiations. One client received an initial seven-figure transfer fee quote before being able to reduce it through negotiation. Another client secured a transfer fee agreement that was later retroactively restricted. The vendor limited the software to one year and one location during a five-site move.

The necessary discipline is to determine your ISV transfer situation before conducting any other financial analysis. If that number does not support a move, everything else becomes purely academic. If the fee is manageable, the rest of the evaluation can proceed on solid footing.

The Five-Year Cost Gap Is Clear

I’ve run this comparison with enough clients to state it plainly. The financial gap between owning and hosting is no longer in doubt.

Bob Losey founded Source Data Products in 1979 after spending six years at IBM. He has successfully guided clients through every major hardware and licensing transition since then. His extensive field experience with real ownership cost structures shapes this clear comparison.

“If you bought a brand new computer for $36,000 and you have five years of software support plus IBM hardware support, you’re looking at a box that could range between $70,000 to $100,000. Can he host that? He could host for $1,000 a month, $800 a month, maybe $700 a month, probably not much more than $1,500 a month. That is a no-brainer.” – Bob Losey, Founder and President, Source Data Products

Beyond the cost difference, a hosted LPAR removes the risks associated with on-premises ownership. IBM outsources support to independent engineers when equipment moves onto extended hardware maintenance. Independent support teams sometimes face challenges accessing proprietary tools required for seamless hardware board replacements.

A hosted environment keeps your system directly connected to official IBM diagnostic and recovery tools. A hosted LPAR in a professionally managed data center shifts that risk to the provider. For a deeper look, read our post covering the hidden risks of IBM extended hardware support.

The IBM i Managed Services model removes the staffing dependency that on-premise ownership creates. IBM i expertise is concentrated in practitioners aged 55 and older. Many of these professionals have retired from the IT workforce. New technology professionals generally have little interest in learning the legacy platform. That growing skills gap creates a real operational risk missing from standard hardware quotes.

Common Questions Regarding IBM i Total Cost of Ownership

What changed about IBM software licensing in 2025?

IBM eliminated perpetual software licensing for the IBM i platform in 2025. Customers purchasing new Power hardware must pay for software through annual subscription models. These subscriptions span three to five years rather than offering a one-time perpetual license. This change significantly increases the five-year total cost of ownership for self-managed organizations.

How much has the entry-level Power server price increased since 2018?

An entry-level Power server today costs approximately $36,000. Comparable machines between 2010 and 2018 typically sold in the $12,000-$18,000 range. IBM manufacturing economics favor producing larger-capacity systems at a lower per-unit cost. The smallest available server ships with substantially more compute than most mid-market shops utilize.

What is an ISV transfer fee, and why does it matter before a hosting decision?

An ISV transfer fee is a mandatory charge imposed by independent software vendors during migrations. Vendors charge this premium when a customer moves licensed software to a new hosted environment. These fees vary widely, ranging from nominal to genuinely prohibitive amounts. Organizations must assess their ISV transfer situation before conducting any buy-versus-host financial analysis.

What workload fits inside a right-sized hosted IBM i LPAR?

Most small to mid-sized shops running standard ERP applications operate comfortably within strict hardware parameters. They generally require 400 to 1,000 CPW and 4 to 8 gigabytes of system memory. These stable environments also need roughly 300 gigabytes to one complete terabyte of total storage. Software built on RPG decades ago was specifically engineered for processing and storage efficiency. Real-world consumption for most mid-sized clients typically mirrors that efficiency rather than the maximums on modern server spec sheets.

How does professional cloud hosting enhance your overall system reliability and ensure continuous operation?

IBM eventually moves aging equipment off active maintenance and onto extended hardware maintenance contracts. The manufacturer then outsources critical technical support to independent, third-party field engineers. Those independent engineers may lack the proprietary tools needed to relink replacement system boards to their original serial numbers. Replacing a system board during extended maintenance often introduces highly complex and unpredictable recovery challenges. A hosted LPAR inside a professionally managed data center shifts that hardware risk to the provider.

Is a 60-day trial enough to validate the performance of a hosted IBM i?

A 60-day trial provides enough time to run actual production workloads through a right-sized hosted LPAR. This duration lets teams confirm that daily system performance meets their business requirements. It effectively surfaces ISV connectivity dependencies and unexpected network latency considerations before a long-term commitment. The trial also reveals unique edge-case processing demands that a simple lab assessment would miss.

What does the IBM i Software Maintenance Agreement (SWMA) cost after the perpetual licensing change?

Annual maintenance costs for a new Power server typically run $10,000 to $18,000 per year. The cost depends on your selected tier and chosen processor group. Over a five-year term, that ongoing maintenance requirement adds $50,000 to $90,000 to your bill. Organizations unaware of these new licensing changes often operate using an incomplete total cost estimate.

What types of organizations benefit most from hosted IBM i?

Small to mid-sized enterprises running business-critical applications without a dedicated infrastructure team see massive benefits. Logistics companies, regional manufacturers, busy insurance firms, and complex food distribution operations represent common client profiles. The combination of rising hardware costs and the elimination of perpetual licensing makes hosted economics compelling. This financial strategy perfectly suits shops that cannot justify a massive full data center investment. Our IBM i on Power Server page covers the detailed hosting model in much greater depth.

Your Five-Year IBM i Cost Calculation Needs an Update

The numbers no longer support traditional ownership for most IBM i shops. Rising hardware costs and mandatory subscriptions create a widening gap over a standard five-year period. Hosting closes that gap while aligning system capacity with actual workload demand.

Source Data Products works with clients to assess performance needs and identify the most cost-effective infrastructure strategy. Our team brings decades of IBM i experience across complex environments. Contact Source Data today to evaluate your options and validate a smarter path forward.

Bob Losey is the founder and president of Source Data Products. He has been a Premier IBM Business Partner continuously since 1992 and holds IBM i Technical Certifications spanning 2000 through 2020. He served as President of the Association of Service and Computer Dealers International (ASCDI) and founded the Cloud400 hosting platform serving IBM i environments across logistics, manufacturing, insurance, and municipal government.