IBM Confidential 1

Passport Advantage Entitlement Slope Change

September 9, 2005

WW Business Partner Communication

IBM Confidential 2

Price Action Overview

Structural Change Highlights:

• Effective Tuesday, October 11, 2005.• Formal Channel Announcement is September 13, 2005.• This price action, in general, affects most products. Several products,

however, will not experience an entitled price change.• No other passport program modifications have been made.• Effective September 13, new products will be priced using the new slope.• Effective October 11, existing products will be priced using the new slope.

Business Partner Opportunity:

• Business partners will improve their margin by continuing to sell on value.

Passport Advantage Entitled Discounts

D E ED F G GV H I J

Effective Customer Price Increase 5.4% 6.4% 0.0% 5.7% 5.5% 4.7% 4.7% 4.7% 4.7%

IBM Confidential 3

Discussion Points: Why are the Passport Advantage Entitled Discounts Changing?

• Improved functionality, security, stability, and new product releases have been provided across IBM’s entire software portfolio (see “Portfolio Product Improvements” chart).

• Service support and development costs continue to increase, on average ~5% per year.

• The entitled increases are consistent with competition and IBM prices remain very comparable.

• Major competitors have recently raised prices, such as a 25% increase in Microsoft’s SQL Server, and Oracle’s 4% annual increase embedded in maintenance agreements.

• Improvements have been made to Passport Advantage Online for customers:– Allocate Entitlement tool available to eligible customers to help manage their enterprise’s central

software purchasing with distributed deployment strategy.– Improved software download capabilities: primary and back-up contact can pull a report of who is

ordering media and how many times they are downloading the software.– Media ordering from the Internet.– Implemented a multi-year maintenance agreement.– Improved the entitlement process and linkages of changed products for asset management.

• New pricing flexibility has been announced (sub-capacity, dual core x86, entry pricing), offering better price performance to customers.

• No SRP/List Price changes are occurring.

• Cost of acquiring new versions is still less expensive than the new license.

IBM Confidential 4

Concluding Comments

• Key Opportunity: This announcement can be used to motivate the remaining 3rd quarter business prospects to purchase before the pending price increase.

• Additional information is available:

– FAQ document

– A list of recent product improvements for each software brand

IBM Confidential 5

Portfolio Product Improvements

IBM continues to deliver product improvements across the entire portfolio.

Brand Product Introduction/Enhancement Date

AIM WebSphere Voice Server V5 3Q04WebSphere Application Server v6 4Q04WebSphere Message Broker 3Q05TPF V5.1 3Q05WBI Process Server for Multi v6 3Q05WebSphere Adapters v6 3Q05WebSphere Business Modeler v6 4Q05WebSphere Business Monitor v6 4Q05

IM DB2 UDB/Everyplace/Data Warehouse V8.2 3Q04IMS Performance Monitor 3Q04DB2 Automation Tool 4Q04Rational Data Architect 4Q05WebSphere Information Analyzer 4Q05WebSphere DataStorage 4Q05WebSphere Quality Stage 4Q05

Tivoli Tivoli Service Level Advisor 3Q04Tivoli Storage Manager 4Q04Provision Manager v3 2Q05Intelligent Orchestrator 2Q05Federated Identity Manager 2Q05Total Storage Productivity Center 1Q05Tivoli Monitoring 3Q05

Rational McKinley SR3 3Q04McKinley SR4 4Q04

WPLC IBM Lotus Messaging and WebSphere Portal CEO Bundle 3Q04Lotus Workplace Bus. Controls & Reporting V2.5 4Q04Workplace Services Express 4Q04Workplace Version 2.5 4Q04Major Release: Notes/Domino 7 3Q05