This article is an interview of Software Concepts founder Stephen Cataldo, written by Timothy Prickett Morgan and originally published in IT Jungle, The Four Hundred. Minor formatting edits have been added for readability.

Time may pass in the IBM midrange, and systems and business practices have evolved, but the one thing that does not change is that some companies, especially those on the smaller size with limited resources to devote to IT hardware and software, want a simple system that just lets them do the work they need to do.

A bit of history

The simplicity of the System/3X family, which has its start way back with the System/3 in 1969 and runs up through the System/38 in 1979 and the System/36 in 1983, up through the AS/400 in 1988 and up through the iSeries, System i, and finally to the Power Systems-IBM machines of today, is only half of what makes the machine popular with small and medium businesses operating on a limited IT staff and often a limited IT budget. The application software – it was called the Application System/400, after all – was always the thing that clinched the deal and got a machine in the door at SMBs. The hardware was leading edge, to be sure, and the systems software with the integrated database was cutting edge and yet easier to manage that a lot of other systems, but it was the tens of thousands of software packages in the IBM midrange ecosystem that really made this whole business work.

These companies are still, to a large extent, at least half of the lifeblood of the IBM i platform today, even if there are still plenty of companies that do their own RPG and Java development on the platform and either do all of their own code or do some and integrate with modules in third-party software packages. This is how it always was, and it is refreshing to run across companies that still play it this way.

Software Concepts is one such traditional OS/400 and IBM i application software vendor, whose DS90 distribution management, light manufacturing, and financial system has been around for decades. In 1979, the company’s founder, Stephen Cataldo, went straight from his accounting degree from Bentley University in Waltham, Massachusetts, and started working on IBM systems to automate financials at his first software company, called Williams Associates. In 1988, as the AS/400 was coming to market, a California software company called International Customer Solutions bought IBM’s Order Management System (OMS) suite for System/3X gear and the financials from Williams Associates with the intent of creating a combined product that merged the two. ICS called it the Distribution System for the 1990s, or DS90 for short, but by 1991 it had run out of money and Cataldo bought all the rights to the code and started Systems Concepts in Billerica, along the famous technology corridor that leads out of Boston.

On-premise and in the cloud

Since that time, Cataldo and his team of developers have expanded the product, moved it over to ILE RPG and modernized the interface on the DS90 suite – using the Newlook Smartclient tool from the former looksoftware (now owned by Fresche Solutions) – so it looks and acts like a modern Web application. The company has also worked with a key IBM i cloud provider (whom Cataldo does not want to name for competitive reasons) to offer a true cloud version of the DS90 suite that comes with a relatively inexpensive subscription price. While about half of the DS90 customer base is still running on premises, the cloud version has only been available for the past two years and all but one customer whose machines were either getting long in the tooth or coming off lease and needed to be replaced have moved to the cloud version of DS90.

That is one very interesting statistic.

Here is how the math works. A private partition on the cloud in a recent DS90 deal that had 500 GB of disk on it, enough oomph to run a few end users, backups to virtual tape libraries every night, and snapshotting to a geolocated datacenter for disaster recovery cost $172 per month for the hardware. An annual subscription for the DS90 suite costs $699 per user, so all in, the whole shebang cost $5,559 for a five-user setup for a year, or $1,112 per user. So it is not a surprise that the cloud option is popular. And it is all an operating expense for the customer, with no depreciation hitting the books and no big cash outlay on the front end.

Compare this to owning the system. The typical DS90 customer that has its system on premise tends to stretch them out for five, six, or seven years. A five-user perpetual license to the core DS90 suite costs $11,250, plus the requisite 18 percent of maintenance per year. It might cost $25,000 to buy a very skinny IBM i machine that can run the DS90 suite for five uses – a single core Power S812 or Power S814, maybe even an old Power7+ machine in the same power class. That perpetual software license will cost $21,375 for five years, or $23,400 for six years, or $25,425 for seven years. If you do the math, that works out to $1,855 per seat over five years, $1,613 per seat over six years, and $1,441 per seat over seven years. To match the per user cloud price for the DS90 software and the cloud partition, you would have to spread that cost out over 10 years.

Perhaps more interestingly, no one knows they are on IBM i when they are using DS90 in the cloud, and Software Concepts does not have to explain anything about the platform to prospective customers who might otherwise buy any number of the dozens of applications, from QuickBooks from Intuit, Microsoft Dynamics, to the Sage suites to name some popular ones that Software Concepts comes up against. The company also runs into SAP, VAI, Infor, and Oracle from time to time, too.

Catering to smaller, emerging businesses

The low-end of these well-known suites, which are really aimed at larger midrange shops usually with more sophisticated manufacturing or retail workloads, starts at $50,000 for perpetual licenses for a set of core modules and can scale up to $100,000. That is simply not possible for the companies that Software Concepts is targeting.

“There is a lot of great software out there from the Infors, the Oracles, and the VAIs of the world,” concedes Cataldo. “Their software does a lot of things and they are well respected in the community and deservedly so. But they come with their own challenges, and they are designed for medium-sized businesses, not for companies with five to 15 users, and their software is more complex. Our customers are looking for something succinct, from quotation processing all the way to general ledger. They want it to be easy to use and implement, and that is where we are.”

Cataldo says that most customers get the full DS90 suite, and most of them buy it using the per seat subscription licenses. The software has core financial modules such as general ledger, accounts payable, and accounts receivable plus an application control module that manages the stack and its updating and security. The core distribution software has order management, inventory control, purchasing, sales analysis, commission management, remote order entry, and light manufacturing, the latter of which is really intended for those who make durable goods and need distribution as well. In some cases, the DS90 financials are used by companies that have a homegrown ERP manufacturing system, and in others they pick up the distribution modules.

The typical DS90 customer is at a wholesale distributor that has somewhere between $5 million and $15 million a year in revenue and a handful of end users who just want to get stuff done and not be writing software; that said, Software Concepts has some big customers, too, including one shop that does over $100 million in business each year. Those companies that want to tweak the code can buy a DS90 Enterprise Edition license, which costs a little bit more, to get the source code and they can hack as they see fit.

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