In a discussion that Hock Tan, President and CEO of Broadcom, presented to investors in August 2019 he offered his thoughts surrounding “franchises,” such as the recently acquired Symantec, and what is needed to drive profitability from them. Tan states that while business with small enterprises and SMBs tends to be less sticky, core Global 2000 accounts which comprise 75 percent of Broadcom’s business have grown because core IT infrastructure cannot be easily displaced or removed. Furthermore, according to Tan, some 80 percent of overall IT spend is spent on core infrastructure which can be considered “keep the lights on” reliable spend.
Tan makes no effort to hide Broadcom’s intent to focus on its bread and butter – large enterprise clients – where lock-in is most assured. It’s a solid strategy and Broadcom is by no means the only IT vendor to depend on this reality. The concern is how this vision is playing out in the IT buying trenches.
Competitive Leverage Critical to a Broadcom Renewal
NPI’s recent Broadcom deal experience suggests enterprise clients seem to be given few, if any, options at renewal time. New purchases appear to have more of a ‘take it or leave it’ overtone. And customer service has been stated to be abysmal. For many clients, it may now be time to proactively seek out options and/or ensure their current licensing model has a stable and predictable future run rate.
Another reason to seek competitive leverage? Broadcom’s post-acquisition strategy. Recent acquisitions include Brocade Communication Systems in November 2016, CA Technologies in November 2018, and most recently Symantec (Enterprise Security) in November 2019.
NPI has seen dramatic changes in customer relationships between clients and each of those recently acquired companies. Understanding where new winds may be taking the relationships, some clients have begun to evaluate alternative solutions and begin internal discussions of how these changes may impact long-term spend and IT strategy.
The importance of those discussions is amplified by the nature of Broadcom’s growing portfolio of offerings. The company is acquiring ‘core’ technology critical to client operations. Brocade brings data center fabric hardware to the infrastructure, CA offers up critical infrastructure software, and Symantec tackles enterprise security. Each of these pieces play a critical role, which makes change without risk to the stability of the infrastructure difficult. Expanding its footprint within the IT “core” through acquisition is a key part of Broadcom’s revenue strategy.
Customers must approach any upcoming renewal with a firm exit plan option. Broadcom, like most enterprise IT vendors, is well-trained to see through smoke-and-mirror attempts to leverage competition. Customers should come to the table with solid alternatives (particularly smaller-sized enterprise clients) that meet their requirements, and realistic timeframe estimates for potential transition.
Upon internally understanding exit options, the negotiating team should inspect renewal pricing/discounts, pricing lock-ins and future IT requirements. Is renewal pricing in line with fair market value targets? If additional licenses are required, will Broadcom honor prior pricing and discounts or will you see a pricing increase? NPI notes one scenario where a client wasn’t able to finalize a Broadcom purchase prior to the acquisition of Symantec. The client saw a 4x increase in pricing with the Symantec team unwilling to consider anything less! A true ‘take it or leave it’ with no additional negotiation.
Keeping a pulse on vendor behavior is just as important as keeping a pulse on pricing and terms. Understanding how changes to a vendor’s business strategy will impact your business is paramount in today’s fast-changing IT landscape – and crucial to gaining buyer-side leverage.
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