The Complexity of IBM Licensing

The difficulty of IBM licensing lies in the wide range of products and services on offer, the complexity of the licensing agreements, and the different licensing metrics. According to IBM, there are tools that can help detect and control license use. However, no matter how good these tools are, they still need to be correctly set up and implemented, and they cannot replace real expertise.

Who is IBM?

IBM, short for International Business Machines, is one of the world’s largest tech companies. The company is known for its hardware and software products, including computers, servers, storage systems, networking equipment, and for its consulting, technology and business services, such as cloud computing, data analytics, and artificial intelligence (AI).

IBM has a long history of innovation, dating back to its founding in 1911. The company has played a key role in the development of many important technologies, including the punched card, the mainframe computer and the relational database. It is also a player in the field of artificial intelligence with its Watson AI platform. IBM’s products and services are used by organizations of all sizes, from small businesses to large enterprises.

What products does IBM offer?

IBM offers a wide and diverse range of products and services across multiple domains of technology such as blockchain, cybersecurity, the cloud, IT infrastructure, and more.

Popular products include:

IBM Software & Cloud Solutions

• SPSS Statistics – Comprehensive statistical analysis software platform offering advanced statistical analysis, a vast library of machine learning algorithms and data analysis capabilities, enabling organizations to analyze and interpret complex datasets to inform data-driven decision-making.
• Watson Studio: Develop, train and managed AI models in an integrated environment. It provides tools to collaboratively work on data and build models on any cloud that uses visual modelling or open source code.
• Watsonx Assistant – Provides customers with quick, reliable and consistent answers across any device, application or channel.
• Cognos Analytics on Cloud – Watson co-pilot ensuring businesses can navigate through their data in a secure cloud environment. Providing customers with smart analytics.
• Maximo – This suite offers integrated asset management, providing insights and tools for monitoring, management, maintenance and security.
• Blueworks Live – A cloud-based business process modelling tool helping organizations fostering collaboration among teams and facilitate better workflows.

IBM Mainframe Systems (Hardware)

• IBM Z (zSystems) – IBM’s family of enterprise mainframes, offering advanced security, AI integration, and cloud capabilities. The latest iteration, IBM z16, features on-chip AI inferencing for real-time fraud detection and high-speed processing.
• IBM LinuxONE – A mainframe designed for Linux workloads, offering secure, scalable, and energy-efficient solutions for cloud-native applications.
• IBM DS8900F – A high-performance storage system optimized for IBM Z and LinuxONE, providing ultra-low latency and cyber resilience.
• IBM Z Hybrid Cloud Solutions – Combining on-premises mainframe capabilities with cloud environments for seamless integration and workload flexibility.

About IBM Software Licensing and Contracting

IBM frequently acquires software companies, divests companies, and rebrands products. Thanks to its large portfolio of software products and a wide variety of license metrics, IBM is a moving target in terms of compliance. This makes IBM one of the most complex software vendors to manage from a license compliance perspective. The majority of IBM’s current software sales are on-premise software, alongside new cloud and SaaS products. LicenseQ has deep technical, licensing, and auditing knowledge across IBM’s software portfolio and the expertise to overcome IBM licensing challenges.

How to license IBM products

IBM software licenses typically include a base license and the first year of support, called Software Subscription and Support. You cannot buy these components separately as they are offered as a composite solution.

After purchasing a new IBM software license, you have the option to renew the IBM Software Subscription and Support annually. To maintain access to software subscription and technical support, you must renew your subscription each year.

International Program License Agreement (IPLA)

The licensing terms and usage conditions governing the use of IBM software are specified in the International Program License Agreement (IPLA). It outlines permissible and impermissible uses of the software, ensuring users adhere to stipulated guidelines and limitations. Additionally, the IPLA addresses legal and contractual obligations, liabilities, warranties, and other aspects to ensure regulatory compliance in software usage. It is a global framework, but it may have country-specific terms.

International Passport Advantage Agreement (IPAA)

IBM offers software licenses through two main programs: the International Passport Advantage Agreement (IPAA) and the International Passport Advantage Express Agreement (IPAEA). The IPAEA is aimed mainly at smaller organizations and does not have a minimum purchase requirement.

What is the IPAA?

The IPAA is generally aimed at larger enterprises. It is a comprehensive licensing agreement that allows customers to purchase IBM software licenses, subscriptions and support under a single umbrella – similar to Microsoft’s Enterprise Agreement. A customer can sign up to the IPAA by submitting an enrollment form. This can be done online or through an authorized IBM Business Partner. The online enrollment option is not available for all countries.

After you are enrolled on the IPAA, you can purchase IBM software licenses through the IBM sales office, through a business partner or online via Passport Advantage. This last option is only available to existing customers. For more information on the IPLA and/or the IPAA, please visit the IBM website here.

Main benefits of the IPAA

• Volume licensing discounts
• Flexibility – range of licensing options
• Software Subscription & Support – offering access to software updates, releases, and technical support
• Online portal to manage licenses
• One single agreement
• Global reach – designed for global organizations
• Some offerings in IPAA also facilitate access to specified IBM Cloud services, aligning with modern cloud-adaptive business models.

You can find more information on the advantages of the IPAA here.

How to renew your IPAA

Your renewal quote for your IPAA will be sent roughly 100 days before your anniversary date. The Relationship Suggested Volume Pricing (RSVP) is calculated based on the initial purchase of your licenses and subscriptions. It is recalculated after each transaction, taking all entitlements purchased in the same agreement into account.

Top challenges IBM licensing

• Complexity of Licensing Models: Navigating the various licensing models, suites and bundles as well as keeping up with updates, specific terms, documents and compliance can be intricate and overwhelming for customers.
• Variety of models: IBM software is licensed using a variety of models, including user-based, capacity-based, and other licensing. IBM software that is licensed on a user-based basis can be easily over-deployed, as there are no built-in controls to restrict usage.
• Licensing per Tebibyte (TiB): IBM licenses storage-based products by Tebibyte (TiB), which is 1.1 terabytes. This can be confusing for customers, as it is a non-standard way to measure storage.
• In-depth Knowledge: You need in-depth knowledge on your transactions, migrations, metrics, quantities, order owners, etc. to understand all the details in the licensing agreements and to be able to reconcile licenses and support transactions.
• Managing and Optimizing Licenses: Keeping track of licenses, usage and budgets in line with dynamic licensing needs, cost-effectiveness and ROI is challenging, especially for large organizations.
• Software Audits: Ensuring continuous compliance with licensing terms and preparing for audits requires diligence and robust SAM practices. The rights and limitations of IBM software licenses are described in the product license information documents and announcement letters, not in the contracts themselves. These documents are published online and can be changed by IBM at any time. IBM’s sub-capacity licensing, which allows for licensing less than the full capacity of a server, can be complex to manage and requires stringent reporting to ensure compliance.

IBM’s Transition to Subscription-Based Licensing

IBM has been shifting towards subscription-based licensing models, aligning with industry trends that prioritize flexibility, scalability, and predictable costs. Unlike traditional perpetual licenses, which require a significant upfront investment, IBM’s subscription model allows organizations to pay for software on a term basis—typically 12, 24, or 36 months. This approach provides ongoing access to IBM software along with Software Subscription and Support (S&S) throughout the contract duration.

For businesses, this transition introduces both advantages and challenges. Subscription-based licensing enables greater agility, allowing organizations to scale usage up or down based on evolving business needs. It also ensures access to the latest software updates, security patches, and technical support without the need for separate maintenance contracts.

However, moving from perpetual to subscription-based licensing requires careful evaluation. Organizations must assess their long-term software needs, potential cost implications, and compliance obligations to ensure a smooth transition.

Key considerations include:

• Cost Analysis – While subscriptions may lower upfront costs, long-term expenses could be higher than perpetual licensing if not managed strategically.
• Contract Flexibility – Understanding renewal terms, pricing structures, and any potential cost escalations is crucial.
• Compliance & Usage Rights – Subscription licenses come with specific entitlements and restrictions that differ from perpetual models, requiring close management to avoid compliance risks.
• Exit Strategy – Organizations should have a clear plan for license portability and what happens when a subscription term ends to avoid operational disruptions.

IBM Cloud Paks: Licensing, Compliance, and Optimization

IBM Cloud Paks are comprehensive, containerized solutions designed to streamline software deployment across hybrid cloud environments. By integrating IBM software with Red Hat OpenShift, Cloud Paks provide a standardized platform that enables organizations to modernize applications, improve scalability, and enhance automation. These solutions cover various business needs, such as AI, data management, security, and automation, making them an essential part of IBM’s cloud strategy.

Understanding IBM Cloud Pak Licensing

One of the key advantages of IBM Cloud Paks is that they bundle multiple IBM software products under a single license, simplifying procurement and reducing overall licensing complexity. However, this also introduces challenges in tracking entitlements, consumption, and compliance. IBM Cloud Pak licensing is primarily based on Virtual Processor Cores (VPCs), meaning organizations must accurately count and allocate VPCs across their cloud and on-premises environments.

Additionally, organizations need to be mindful of IBM’s License Metric Tool (ILMT) requirements. While IBM Cloud Paks allow for greater flexibility, failing to correctly track and report usage can lead to non-compliance risks, resulting in unexpected licensing costs or audit penalties.

Optimizing Cloud Pak Licensing

To maximize cost efficiency and compliance when using IBM Cloud Paks, businesses should:

• Conduct regular entitlement reviews to ensure they are not over- or under-utilizing their Cloud Pak licenses.
• Validate ILMT deployment and maintain accurate records to avoid compliance risks.
• Optimize workload placement to leverage Cloud Pak benefits in the most cost-effective way.
• Review bundled software usage to confirm that all components are necessary and aligned with business needs.

Hybrid & Multi-Cloud Strategies: IBM Cloud Paks & Microsoft Azure Licensing Considerations

IBM Cloud Paks and Red Hat OpenShift are frequently deployed alongside Microsoft Azure and Azure Kubernetes Service (AKS) to support hybrid and multi-cloud strategies. Organizations leveraging both IBM and Microsoft cloud solutions must carefully assess workload portability and license mobility to optimize costs and maintain compliance.

1. Bring-Your-Own-License (BYOL) Options

Both IBM and Microsoft offer BYOL programs, but the licensing terms differ:

• Microsoft Azure Hybrid Benefit allows organizations with existing Windows Server and SQL Server licenses with active Software Assurance (SA) to use them in Azure, reducing cloud costs.
• IBM Cloud Paks bundle IBM software entitlements under a subscription, offering flexibility in deployment across on-premises, private, and public clouds, including Microsoft Azure. However, IBM’s BYOL approach is more restrictive when migrating standalone IBM products to the cloud outside of Cloud Paks.

Organizations using both platforms should evaluate the cost-benefit trade-offs of BYOL strategies to avoid redundant licensing fees and ensure compliance with IBM and Microsoft’s cloud policies.

2. License Mobility and Hybrid Deployments

When deploying workloads across Azure and Red Hat OpenShift environments, enterprises must consider:

• IBM licensing models: IBM software licensed via PVU (Processor Value Unit), VPC (Virtual Processor Core), or Cloud Paks may have specific deployment conditions that impact cost efficiency.
• Microsoft licensing models: Azure’s pricing model varies based on whether organizations use pay-as-you-go, reserved instances, or Azure Hybrid Benefit for their infrastructure.
• Red Hat OpenShift licensing: OpenShift subscriptions can be deployed in Azure Red Hat OpenShift (ARO) or managed on-premises, but organizations should check compatibility and pricing implications when combining IBM workloads with Microsoft services.

3. Avoiding Unnecessary Costs

To optimize cloud spending when using IBM and Microsoft solutions together:

• Assess the best platform for each workload: Some IBM software may run more cost-effectively on IBM Cloud, Azure, or OpenShift depending on licensing terms and infrastructure costs.
• Monitor entitlements: IBM Cloud Paks include bundled entitlements, so organizations should ensure they are maximizing their included licenses before purchasing additional ones.
• Align cloud migration strategies: Microsoft offers cost savings with reserved instances for Azure VMs, while IBM clients may benefit from multi-year Cloud Pak subscriptions—choosing the right model can lead to significant savings.

IBM’s Authorized SAM Provider (IASP) Offering

IBM’s Authorized Software Asset Management Provider (IASP) program provides organizations with a structured and proactive approach to managing their IBM software licenses. Unlike traditional audits, which are often reactive and initiated by IBM or third-party auditors, the IASP program allows organizations to work collaboratively with an authorized SAM provider to continuously monitor and optimize their software assets.

Benefits of the IASP Program

By partnering with an IBM-authorized SAM provider, organizations can:

• Reduce Audit Risks – Regular compliance assessments help detect and resolve licensing gaps before they become costly audit findings.
• Enhance Visibility – Gain deeper insights into IBM software consumption, entitlements, and license optimization opportunities.
• Improve Cost Efficiency – Ensure software investments align with business needs, avoiding unnecessary spending on unused or misallocated licenses.
• Validate ILMT and Other SAM Tools – Confirm that IBM’s License Metric Tool (ILMT) and other asset management solutions are correctly implemented and reporting accurately.
• Strategically Plan for Renewals – Use IASP insights to negotiate better terms for Enterprise License Agreements (ELA), IBM Cloud Paks, and other licensing contracts.

How the IASP Program Works

Organizations enrolled in the IASP program receive ongoing support from their designated SAM provider, who helps them:

1. Assess Current Licensing Position – Conduct a detailed analysis of IBM software deployments and entitlements.
2. Identify Optimization Opportunities – Recommend adjustments to improve licensing efficiency and cost-effectiveness.
3. Ensure Compliance and Avoid Penalties – Implement best practices to maintain compliance with IBM licensing terms.
4. Prepare for Contract Renewals and Changes – Provide data-driven recommendations for upcoming IBM contract negotiations.

How to Deal with an IBM Audit

Navigating an IBM software audit can be a multifaceted process and involves thorough preparation to ensure compliance with IBM’s licensing terms. The high number of different licensing models and documents in IBM software licensing make compliance challenging. Additionally, IBM has a large number of metrics that may be difficult to measure, which can make reliable reporting methods unavailable for all IBM software and metrics.

The auditing process typically begins when a customer receives an audit notification from IBM or one of its authorized auditors.

Guide on how to deal with an IBM audit, incl. common challenges:

1. Preparation: Have a defense strategy in place. Understand your licensing entitlements, including license metrics, quantities, and any restrictions or conditions. Verify all purchased licenses and ensure accurate documentation through Purchase Orders, Invoices, and Proof of Entitlement (PoE) documents.
2. Software Asset Management (SAM): Leverage a SAM tool or hire a SAM consultant to inventory and manage software installations, usage, and licenses. Ensure IBM’s License Metric Tool (ILMT) is properly deployed. Remember: a tool cannot replace expertise!
3. Internal Audit: Conduct an internal audit before the official IBM audit to identify and address any non-compliance or discrepancies.
4. Review Obligations: Review all contractual obligations, including the IPLA and any specific License Information documents. Understand IBM’s sub-capacity licensing and reporting obligations.
5. Involve Key Stakeholders: Engage with IT, legal, procurement, and business units to ensure collective understanding and collaboration in managing software assets.
6. Documentation: Maintain comprehensive documentation of all licenses, renewals, software deployments, and usage.

Software audits are time and resource-intensive and may disrupt regular operations due to the effort required to compile and validate information. Get support—contact our licensing professionals now.