Processor Value Unit Internal Overview Education

1. Processor Value Unit Licensing for MiddlewareEvolving the Structure to Provide a Foundation for the Future Processor Value Unit Internal Overview Education

2. General Education Agenda • What is this Announcement • Software Licensing Background • Changing Processor Technology • Software Vendor Licensing Response • Processor Value Unit Licensing • Summary

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 25th • Do not discuss externally prior to announcement

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 Server Core Core Core Core 4 Entitlements Required SWG Revenue on x86 vs RISC Platforms • Revenue is split fairly evenly between x86 and RISC • Double digit growth on x86 IBM Power Sun Sparc HP PA RISC HP Itanium Intel Xeon AMD Opteron

5. 1 Core 1 Core 1 Core 1 Core 1 Core 1 Core 1 Core 1 Core 1 Core Same Workload What Exactly Is the “Processor” Dual-core Chip Single-core Chip 1 2 1 2 1 1 2 1 1 • IBM defines processor = core However, Not All Processor Cores Are Created Equal The number of processor cores required for a given workload varies by processor technology

6. Year 1 4 Proc Year 3 1 Core 2 Proc Year 5 1 Core 1 Proc 1 Core 1 Core 1 Core 1 Core 1 Core Constant Workload One Processor Core Improve Core Strategy Core Disparity Core Performance Multi-core Strategy Time Historically, Fewer Processor Cores are Needed over Time Faster processor cores are capable of running more work Processor Core Disparity Will Increase • IBM Power processor core performance increasing • Intel / AMD processor core performance is expected to be flat

7. X86 X86 X86 X86 Software Vendors Are Differentiating by Processor Type This Has Added Complexity To Software Licensing . . . x86 Server • 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”) • 2 Dual-core Chips • 4 Processor Cores 2 Entitlements Required IBM has three different middleware per processor core license entitlement levels today • (Result: fractional licenses) * Microsoft per core entitlements are derived from their per chip licensing.

8. XXXXXXXXXXXXXXXX X X X X X X 3 7 11 15 2 6 10 14 4 8 12 16 1 5 9 13 . . . 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) Future Server • 1 Chip • 16 Cores ?? Entitlements Required And Customers Want Licensing Granularity RISC Server Demand ability to license to the processor core – or below • 2 Chips • 4 Cores Appl Appl Appl DB2 1 DB2 License Required

9. License requirements are only part of the effective price Price per Processor = License quantity x Product price per License Customer Focus Should be on the Total Effective Price * Suggested Retail Price

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. 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. T1 T1 T1 T1 T1 T1 T1 T1 Processor Value Unit Licensing has simple conversion…… Current per Processor Entitlements x 100 = New Value Unit Entitlements …..And Avoids Fractions With the new structure, customers will acquire the required number of processor value units for each processor core Server • 1 Octi-core Chip • 8 processor cores 30 x 8 = 240 value units

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. Current per Processor Price /100 = New Processor Value Unit Price With No Price Changes for our Middleware for Existing Processors* • Consistent conversion factor to create product prices • Both New Licenses and Maintenance Renewals • Customer price = # entitlements X price per entitlement . . . UNCHANGED!* * There may be slight changes due to rounding with the implementation of processor value units in some countries

15. Software price performance improvements will range over time depending upon a number of factors including market conditions Price Performance • Processor core performance levels will vary between chip vendors • Processor Value Units relative to core performance Processor Core Performance # of Processor Value Units Time 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

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. Quote and Order Tools • 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

18. New Tools to Determine Processor Value Unit License Quantities • Processor “Value Unit Calculator” Helps Determine License Quantities • Passport Advantage Online contains a link to the processor “Value Unit Calculator” • 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. 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. Backup

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 • 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.