On November 22, 2023, Broadcom completed its acquisition of VMware leaving many wondering what the impact would be at a customer level. Fortunately, or unfortunately, depending on perspective, they didn’t have to wait very long. In the days following the acquisition, Broadcom made significant changes to VMware’s offerings that will affect countless enterprise customers. And this is likely just the beginning.
It’s fair to point out that VMware customers aren’t strangers to IT buying headaches. Thanks to its own aggressive acquisition strategy, VMware’s range of offerings has grown to over 40,000 constantly changing SKUs. Complex bundled offerings have been the norm and getting detailed line-item rates for them (or list pricing in general) has been notoriously difficult. Historically, deals for similarly scoped customer requirements have varied widely. Even renewals within the same customer relationship look vastly different between iterations.
Will Broadcom’s acquisition of VMware alleviate some of these challenges? It’s difficult to say. The vendor has already made licensing and pricing changes that will require careful navigation. And if previous acquisitions are any indicator, customers may find it more difficult to do business with “VMware by Broadcom,” despite Broadcom’s efforts to simplify VMware’s portfolio. Here is a preview of what enterprises can expect.
Aggressive Changes to Licensing Starting with the End of Perpetual Licenses
Customers have long lamented the complexity of VMware’s offerings and SKUs. VMware by Broadcom has seized this opportunity to simplify the VMware product portfolio by eliminating the sale of perpetual licenses, Support and Subscription renewals for perpetual licenses, and certain credits. From the announcement:
- A dramatic simplification of our product portfolio that allows customers of all sizes to gain more value for their investments in VMware solutions. The portfolio simplification across all VMware by Broadcom divisions stems from customer and partner feedback over the years telling us our offers and go-to-market are too complex.
- Complete the transition of all VMware by Broadcom solutions to subscription licenses, with the end of sale of perpetual licenses, Support and Subscription (SnS) renewals for perpetual offerings, and hybrid purchase program/subscription purchase program (HPP/SPP) credits beginning today (effective dates will vary). Additionally, we are introducing a bring-your-own-subscription license option, providing license portability to VMware validated hybrid cloud endpoints running VMware Cloud Foundation.
VMware by Broadcom will allow customers to continue using perpetual licenses with active support contracts and will continue to provide support as defined in contractual commitments. They will also provide pricing incentives via a trade-in program to buffer the cost of moving away from perpetual licenses. But the cost impact will likely be high for some customers as they’re forced to expedite the transition to cloud and subscription offerings.
Repricing Is a Real Possibility
VMware by Broadcom has said it will cut subscription list pricing in half for its Cloud Foundation hybrid cloud suite, although the base pricing remains unclear. On the surface, this could be good news for customers – but it’s too early to get a true and full picture of price comparisons and there is reason to be concerned that this is a one-off instance versus a trend.
Broadcom has a history of dramatic repricing of acquired solutions. Customers that lived through acquisitions like CA and Symantec have experienced price increases ranging from 60% to 400%. These deals also resulted in a slowdown in innovation and support for acquired products, which made it even more difficult for customers to tolerate higher costs.
Get Ready for Tougher Negotiations
Broadcom’s reputation for tough negotiation tactics has left many customers apprehensive about their bargaining power for upcoming VMware purchases or renewals. And for good reason. Broadcom doesn’t always play fair once an acquisition has been absorbed. Negotiations can be “all or nothing.” Often, customers have no choice but to switch vendors if they can’t get on board with new pricing and terms. This should be a wake-up call to VMware’s customer base given the vendor’s deep entrenchment in the enterprise IT ecosystem.
Prepare Now
The fallout from Broadcom’s acquisition of VMware is ongoing and, despite the bold changes already announced, the acquisition is still fresh. It’s too early to determine exactly how these changes will play out for existing customers with upcoming renewals. But the writing is on the wall. There will be massive changes and enterprises with sizeable VMware spend should start strategizing their cost mitigation approach.
Until a clearer impact picture emerges, NPI recommends enterprise customers do the following:
- Perform price benchmark analysis on any upcoming VMware purchase and renewal. Now is not the time to let your guard down on price negotiations. Securing and locking in the lowest price possible at time of purchase or renewal is key. Broadcom is your new business partner now – and they are vigilant about extracting the maximum revenue from each client, even if the client relationship is on the line.
- Make informed licensing decisions. Analyze and select the options that best align with your current and future requirements. Seek granularity for bundled offerings to avoid overpaying for unnecessary functionality. NPI will provide guidance as we learn more about the in-the-trenches impact of licensing changes.
- Start evaluating competitive alternatives. To say that VMware is entrenched into the enterprise IT ecosystem is an understatement – their customers include 100% of the Fortune 500. But licensing and pricing changes have the potential to shift dynamics, but only if VMware by Broadcom senses a credible competitive threat. Begin competitive evaluations now (they take time, as do the migrations) and be prepared to come to the negotiation table with suitable alternatives and a realistic timeframe for potential transition.
The VMware by Broadcom situation is evolving quickly. We will keep you updated as things unfold, and changes make their way into actual deal pricing and negotiation experience.
Do you have a VMware purchase or renewal on the horizon? NPI can bring clarity, confidence, and cost savings. Contact us today.
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