SmartSpend Bulletin™

How to Mitigate and Minimize VMware Renewal Cost Increases

Since Broadcom’s acquisition of VMware, renewal costs for enterprise customers have surged by 5X to 10X. With limited leverage, customers face a choice: either absorb these steep increases or take proactive measures to mitigate the financial impact. Choosing the latter could help them save millions.

Following its acquisition of VMware in November 2023, Broadcom has set ambitious growth targets. The company plans to nearly double VMware’s EBITDA, raising it from $4.7 billion to $8.5 billion within three years. Central to this strategy is shifting customers from perpetual licenses to a subscription-only model.

Broadcom moved swiftly to implement changes aligned with its growth objectives. Shortly after completing the acquisition, the company made sweeping changes to the way customers buy VMware’s offerings, including:

• The elimination of perpetual licenses. This also includes support and subscription renewals for perpetual licenses and hybrid purchase program/subscription purchase program (HPP/SPP) credits. Customers can now only buy subscription licenses.

• A dramatic “simplification” of VMware’s product portfolio. Standalone Vsphere/VSAN products will now be sold as part of two high-level bundles only: VMware Cloud Foundation (VCF) and VMware vSphere Foundation (VVF).

• The introduction of core-based licensing. The CPU license has been replaced with a core-based license with a minimum of 16 core limit.

• Removal of resellers for many enterprise customers. Resellers are no longer involved with Top 2000 customers. These strategic accounts are now handled directly by VMware by Broadcom.

Broadcom’s Acquisition Delivers Significant Impacts on VMware Customers

Broadcom has long had a reputation for being a tough vendor to do business with – just ask CA and Symantec customers. However, its aggressive tactics and rigid negotiation stance have escalated since the acquisition of VMware. With limited alternatives and the disruptive nature of switching vendors, customers are left with few options. Broadcom is well aware of this dynamic and is acting accordingly.

The sweeping changes Broadcom has implemented have affected nearly every aspect of VMware’s purchasing and renewal process:

Forced Migration to Subscriptions and Bundles

Enterprise customers are being pushed towards VMware’s VVF and VCF subscription offerings, regardless of their current needs or IT infrastructure readiness. The forced move away from perpetual licenses introduces significant operational and financial challenges, including complex migrations, upgrades, and integration efforts.

A large portion of VMware’s enterprise clients still rely on perpetual licenses. While some companies may have plans to eventually phase out these licenses, their timelines rarely match VMware’s aggressive push – often forcing migrations just before renewal.

Sharp Renewal Price Increases

Changes to VMware’s licensing are leading to steep renewal cost hikes for enterprise customers. NPI has observed increases ranging from 5X to 10X, leaving customers with little recourse. With VMware deeply integrated into most IT environments, Broadcom knows that many organizations have no choice but to accept the terms.

With this in mind, customers need to understand their VMware costs will skyrocket at their next renewal. While a cost increase is largely unavoidable, the proper runway and strategy can minimize the extent.

Increased Software License Audit Risk

Higher costs aren’t the only concern surrounding VMware by Broadcom renewals. The vendor is using the threat of software license audits to pressure enterprise customers to renew quickly and early. In some cases, customers are being given just a few weeks’ notice to finalize their renewals. Those attempting to slow down the process face the risk of being audited.

This poses a significant cost risk to large enterprise VMware customers. Most lack full visibility into their VMware estate and usage, and have no way to accurately and independently determine their compliance position. This makes them vulnerable to penalties that can easily reach seven and eight figures.

Disruption of Reseller Relationships

Historically, many VMware customers have purchased through resellers, benefiting from long-standing, consultative relationships. Resellers often provided greater flexibility during negotiations, but Broadcom’s decision to deal with VMware’s largest customers directly has added friction to the purchasing and renewal process. This shift has removed a layer of flexibility and support that many enterprises have relied on.

Preparing for VMware Renewals with Strategic Action

VMware enterprise customers should expect significant cost increases at their next renewal. The extent of the increase will depend on the actions taken in the months leading up to it. Broadcom has made its negotiation stance clear, and it remains as rigid as ever. Relying solely on negotiation tactics will yield few, if any, concessions.

To meaningfully mitigate renewal cost hikes – and avoid potential compliance penalty fees – customers must adopt more strategic measures. One of the most effective steps is conducting a detailed usage assessment of their VMware environment 4 to 6 months before renewal. This License Position Assessment (LPA) offers several critical benefits:

• Educates: Helps virtualization teams understand how their current products map under VMware’s new solution structure and what impact these changes will have on costs.

• Rightsizes: Provides the usage analysis necessary to optimize core density and capacity, reducing VMware’s footprint and offsetting the effects of licensing changes.

• Optimizes: Assesses compliance status, offering customers a clear view of any areas of noncompliance that may need remediation. Given Broadcom’s aggressive auditing tactics, this is crucial.

Beyond ensuring a cost-optimized renewal, an LPA also provides full visibility into a customer’s VMware estate. This visibility is essential for two reasons. First, VMware by Broadcom renewals have become extraordinarily challenging. The vendor is implementing a very tough negotiation position. If Broadcom is unsatisfied with a client’s reaction to the process, it will quickly invoke a software license audit. It’s critical that customers have their compliance house in order before renewal discussions begin.

Second, this visibility is necessary to explore viable competitive alternatives that reduce reliance on VMware’s offerings – an initiative many customers are considering. While a switch may not be feasible before an upcoming renewal, taking steps to minimize VMware dependence in future cycles is possible. An LPA is a key starting point in that direction.

To learn more about how NPI can help you mitigate VMware by Broadcom renewal cost increases, contact us.

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