CXO / IT Leadership , Mergers & Acquisitions

Broadcom Overhauls VMware - Part-2

CIOs Weigh Options as Cost Rise Up to 1,200%; Competitors Offer Alternatives
Broadcom Overhauls VMware - Part-2
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Broadcom's VMware acquisition in November 2023 sent shockwaves through the tech industry. As the tech giant consolidated VMware's product offerings and revised licensing terms, many customers found themselves facing significant price increases and difficult decisions about their IT infrastructure.

See Also: Red Hat Enterprise Linux: An Ideal Operating System for the Cloud

In Part 1, we discussed the changes Broadcom made to product licensing and the channel partner program post its acquisition of VMware. In Part 2, we examine how increases in total cost of ownership, TCO, will affect customers.

Cost Increases

According to a Reddit post, managed service providers that use the VMware Cloud Service Provider to serve smaller businesses are now required to buy a minimum of 3,500 cores, whether or not they need them.

The shift from the previous vRAM-based model to a core-based model is changing how customers view their environment. The number of deployed servers has now led to an increase in the number of cores, which has consequently increased the license cost.

Customers who only used vSphere are currently facing price increases, Data Center Knowledge reported. Those that used the VMware Cloud Foundation, VCF, bundled solutions will likely see 50% decreases and those that used vSphere and vSAN together will have similar pricing under the new subscription licensing structure.

Some VMware customers are experiencing cost increases up to 1,200% due to discontinued products, forced reclassifications as strategic customers, or minimum purchase requirements.

Broadcom stated that Europe-based CSPs or commercial and government end-user organizations seeking to achieve data sovereignty can use VCF to build private clouds or choose to select from several clouds.

CII research reported that the contracts of 69% VMware customers are expiring within the next 12 months. Considering this, 87% plan to make their go-forward decision within the next year; almost 60% say they will make a decision in six months or less.

When asked to select likely go-forward scenarios, most customers (40%) opted to continue using Broadcom/VMware either fully, or partially (43%), as compared to moving more workloads to the public cloud (38%), migrating to an alternative hypervisor (34%), or migrating entirely to the public cloud (33%).

CIO Viewpoints

Many CIOs expressed dissatisfaction with the changes and are evaluating their options, including alternate solutions or moving to public cloud.

There has been a "significant change" in VMware licensing policy, said Rajeev Batra, CIO, Bennett, Coleman & Co. Ltd. "This is causing a lot of angst owing to disruption in the operational model that most of the CIOs/CTOs/IT heads will have to change, coupled with higher prices."

The shift to subscription-only models increased costs and reduced product offerings, said Umesh Mehta, president of CIO Association. IT budgets and strategies "are being heavily challenged." "To manage the shift to subscription-only licenses, we are exploring alternative virtualization solutions and negotiating for better terms. The reduction in VMware products will require us to reassess and potentially restructure our IT infrastructure. Maintaining relationship with Broadcom will be tough and will involve careful negotiation and we are exploring all available options. Long term, we are considering diversifying our technology partners and investing in more flexible, scalable solutions to mitigate future risks," he said.

Customers are moving away as the vSAN license cost and price transparency are gone, said Pankaj Mittal, consulting CISO. "They [VMware] are also losing deals in the data center world as there is no clarity [in pricing]."

Go-Forward Strategy

Broadcom's acquisitions in the past have resulted in customer concerns, disruptions, price hikes and predatory practices. But, analysts perceive this as a more strategic acquisition, and many customers are expected to renew their licenses as VMware's software is heavily embedded in many mission-critical applications. Broadcom aims to use the VMware acquisition as a way to remodel its channel partner program - through a tiered approach.

IT leaders will likely have to cut expenses elsewhere to continue to pay for VMware products till their licenses run out. Migration may not be a priority for most customers as it is time-consuming, risky and costly. But, that does not stop CIOs from scouting the market for alternate solutions.

Hock Tan, CEO, Broadcom, told CRN that his approach to VMware was different than Broadcom's previous acquisitions and that the "blockbuster deal" has given him "a new appreciation" for channel partners given the large VMware installed base.

Adversity Breeds Opportunity

Competitors in the industry were quick to capitalize on the situation, and offer migration solutions that are "cost-effective" and "quick to implement."

Major cloud platforms, such as Azure and Amazon, have immediately offered options to VMware customers in India [previously a global option in other geographies], Batra said.

These options will enable customers to move to their cloud platform with VMware bundled in peer-to-peer configurations. Some are also incentivizing VMware customers for this shift.

Nutanix also launched a "VMware to Nutanix migration promotion."

"The fact that we could continue to use VMware alongside the Nutanix AHV hypervisor was a real bonus," said Dan Bloor, head of IT operations, SOCOTEC Group. "Not only did it enable us to migrate existing workloads and get them working straightaway, but check out AHV and use that where appropriate."

Smaller vendors such as Device42 and Scale Computing also have migration offerings that aim to minimize the impact of revised licensing costs. Device42 claims to offer a discovery and reporting solution that can reduce the cost of VMware licenses.

Scale Computing is positioning itself as a "VMware alternative" and announced a "rip and replace" program that it is offering to VMware customers at a "discounted" rate.

CIOs will need to do an overall TCO analysis if they plan to migrate to these alternate platforms, Batra said.

Analysts' Take

"Broadcom has dramatically increased its relevance to enterprises after acquiring VMware in late 2023. The vendor has positive viability and solid products, but IT leaders report the vendor is very challenging to do business with due to its commercial practices," according to a Gartner vendor rating statement shared with Information Security Media Group. Gartner's vendor rating for Broadcom is based on multiple parameters for Broadcom's enterprises businesses, not including its semiconductor business.

"Many of their clients who depend on VMware's virtualization software are complaining about the vendor's overall price hikes," Naveen Chhabra, principal analyst, Forrester, said in a blog post. "Some clients have told us their costs have increased by 400%. The price increases have many tech leaders exploring how to migrate away from the VMware stack, with competitors amping up their marketing and services to help them. But, it is not as straightforward as it may sound and not always viable for businesses because they have little time to renew; they also depend heavily on the VMware stack; thirdly, they realize that migration would be incredibly painful."

Broadcom is more of a private equity company rather than a company that "truly invests" in a product, and this is causing a lot of anxiety among customers and partners, said Sanchit Vir Gogia, chief analyst, founder and CEO, Greyhound Research. "Even when they acquired Symantec, they truly stripped down sales and operations and made the company a lot more profitable by focusing more on top link clients."

Broadcom's attitude to the VMware acquisition has been "starkly different" to its previous acquisitions, with this acquisition being "more strategic," and defines the "forward-looking nature" of Broadcom as an organization, Gogia said.

About the Author

Brian Pereira

Brian Pereira

Sr. Director - Editorial, ISMG

Pereira has nearly three decades of journalism experience. He is the former editor of CHIP, InformationWeek and CISO MAG. He has also written for The Times of India and The Indian Express.

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