IBM bids OS/2 farewell

Dec. 27, 2005 | by Tracy Kitten

IBM's farewell to OS/2 next month shouldn't take anyone by surprise. Long before Big Blue announced its plans to pull the plug, industry watchers were drafting OS/2's obituary.

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At the turn of the millennium, ATM deployers began working toward, or at least thinking about, transitioning their fleets from OS/2 to Windows. Now, five years later, some like San Francisco-based Wells Fargo & Co. have successfully made the switch.

So, most experts agree, when IBM discontinues its manufacture of OS/2 products Dec. 23, and stops standard support of OS/2-related products Dec. 31. 2006, the impact won't be significant.

"IBM hasn't released anything new (for OS/2) for the last nine years," said Alois Pirker, senior analyst of Boston-based Celent Communications' securities and investments team. "In IT, that's a century, and I think most institutions have moved on."

But in the financial institution sector, where IT investments live in a vacuum of sorts, not much has moved forward over the last decade. In fact, only in the last couple of years has the industry really seen a big shift away from OS/2.

At the end of 2004, 70 percent of all new ATMs shipped throughout the world were Windows-based, said Martin Macmillan, chief executive of London-based ATM software specialist Level Four. As manufacturers make the shift, deployers, ready or not, will follow suit.

NCR and Diebold, which dominate the FI ATM market in the United States, are expected to stop shipping ATMs with OS/2 at the end of the first quarter of 2006. Carrie Kandes, a Diebold spokesperson, estimates that 90 percent of Diebold's global shipments are now Windows-based ATMs. However, an estimated 50 percent of Diebold's FI-installed U.S. ATMs are still operating on OS/2.

Wincor Nixdorf, a dominant ATM manufacturer in Europe, has already stopped shipping OS/2 machines.

start quoteVirtually all customers still operate at least some OS/2 ATMs. Deployers typically move to Windows-based ATMs in stages ... by upgrading their existing fleet over a planned cycle.end quote

-- Steve Risto,
NCR Corp.

"I'd say most institutions in Europe are using Windows now or are going through XP migrations now," Macmillan said. "There are lots of these upgrades going on."

IBM spokesperson Michael Corrado said IBM has less than 100 customers with site licenses, and most of those customers are in Europe.

For the last three years, IBM has made no bones about its opinion of Windows. The company has openly encouraged FIs to shift from OS/2 to Linux, an environment that is more open (and in turn less expensive) than Windows.

"It's kind of proprietary versus independent, when you compare Microsoft to Linux," Celent's Pirker said. "It appears now that Microsoft is in the lead, but I think there will be some opportunity for Linux (in the ATM space), especially with the support of IBM behind them."

Migration to Windows slower than expected

By 2005, industry analysts expected 65 percent of the U.S.'s FI ATMs to be running on Windows. In reality, estimates Jerry Silva, an analyst with Boston's TowerGroup consultancy, only 30 percent of those ATMs are now on Windows. And even that estimate, said Tony Hayes, vice president of Hitachi's Dove Consulting division, is optimistic.

In western Europe, however, the Windows migration has steadily increased since 2000, according to United Kingdom-based Retail Banking Research Ltd.

"This growth is at the expense of OS/2, whose deployment continues to fall," wrote Dominic Hirsch, RBR's managing director, in an e-mail. "OS/2 usage is therefore decreasing by around 8-10 percentage points per year, and will be more or less phased out over the next 4-5 years."

In 2004, nearly 49 percent of Western Europe's ATMs were running Windows.

"In the U.S., change has been more diversified," said Level Four's Macmillan. "I think the U.S. is still a little more segmented, with the lower- and mid-tiered banks holding on to OS/2 as long as they can. There's a lot of legacy hardware that's still out there."

What's Important

Most FIs continue to own and operate OS/2 machines.

Only 30 percent of the U.S.'s FI ATMs have made the switch to Windows.

FIs should prepare themselves for long-term investments when it comes to operating in a Windows environment.

Level Four is pushing its ATM Developer product - a product that allows FIs to upgrade the flow of states and screens on OS/2 machines.

  1. "There are some banks out there that are saying, 'We know OS/2 has come to end of its shelf-life, but we don't want to make a big investment.' So we can help them smooth the path to Windows."

Many FIs in Europe and the U.S., Macmillan added, are running their OS/2 machines in a Windows mode, and they don't see an immediate need to replace them. And since IBM will continue to provide support for OS/2 on a contractual basis after Dec. 31, 2006, a substantial number of OS/2 machines could remain on the market.

Steve Risto, director of NCR's Aptra Software Center of Expertise for the Americas, said the move to Windows didn't happen all at once, as many analysts predicted. Instead, FIs have made gradual investments. "Virtually all customers still operate at least some OS/2 ATMs. Deployers typically move to Windows-based ATMs in stages … by upgrading their existing fleet over a planned cycle."

Some deployers have been reluctant to make the shift, namely because of the upfront investment. And TowerGroup's Silva said IBM's decision to drop OS/2 isn't likely to have a negative effect on those deployers, since "OS/2 doesn't break."

"The reaction has varied, but most customers have understood that the change in underlying OS technology is well overdue for the self-service industry," Risto added. "Strategically minded customers have especially recognized the many benefits, as well as the issues, associated with Windows-based ATMs, especially with regard to better alignment of self-service with the enterprise infrastructure and strategy of the financial institution."

Check 21, Triple DES and Americans with Disabilities Act requirements have all favored a migration to Windows, said Jonathan Velline, Wells Fargo's senior vice president of ATM Banking and Distribution Strategies. "Some FIs and deployers say Triple DES allowed them to make the upgrades they've wanted to make for a while but couldn't get approved."

Realizing the promise of Windows

Madhavi Mantha, a Celent analyst, said FIs should get used to investing in their ATM channels, since realizing the promise of Windows is going to cost them.

"Those who have not yet moved over to the new technology have operational support elements that they have to consider," she said. "Security, software, etc., all of that operational infrastructure will require some investment. If you look at a very large bank, however, they have planned for those costs. But they have to realize that the investment doesn't stop when they upgrade."






Topics: ATM Innovation , Bank / Credit Union , Manufacturers , Other , Software , Trends / Statistics

Companies: Diebold, Incorporated

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