In May 2022, Broadcom announced that it will buy VMware for outstanding $69 billion USD. 18 months later, in November 2023, China finally approved the merger. Chinese regulators were the latest in a long line of authorities to approve the takeover. VMware was gone. It was no “by Broadcom”. And not only the name changed.
There were already countless rumors in the 18 months before the takeover. Broadcoms CEO, Hock Tan, was known for trimming companies for profit. After all, $69 billion USD have to be recouped. So only a couple of days after the final approvement
- thousands of employees were laid off due to redundant positions within VMware by Broadcom.
- employees living within a 50-mile radius around a VMware office were ordered back to the office.
- Carbonblack was spun off.
- the EUC division will be separated.
- the end of perpetual licenses; only subscriptions will be available.
- a simplified license model (core-based, bundled).
- all partner contracts were terminated, and the new partner model will be invite-only.
As I’ve already mentioned: $69 billion USD needs to be recouped…
VMware by Broadcom dramatically simplified the license lineup. That’s a good move! VMware Cloud Foundation will be the new core product. Reasonable move. But let’s have a look at other Broadcom takeovers, like CA or Symantec. Hock Tan has repeatedly emphasized that the takeover of VMware was different. In previous takeovers, Broadcom swiftly eliminated less valuable elements and concentrated on serving major clients with the most profitable products. In the case of CA, this focused on the Mainframe business, where clients were accustomed to higher prices and faced challenges in transitioning platforms. With this in mind, let’s take a look at the announced changes.
VMware Cloud Foundation will be the new core product in the center of VMware’s multicloud strategy. Instead of losing customers to Microsoft Azure or AWS, VMware offers a smart ways to run their VMware workloads on public cloud, or like public cloud in their own datacenter. This is an elegant way for customers to use public cloud offerings without becoming truly cloud-native. Broadcom itself is point this out:
The largest enterprises want the benefits of the public cloud without the shortcomings, leading to the development of the private cloud
The simplified license lineup with bundles is a great way to increase customer loyalty. In order for expensive bundles to be worth buying, the customer must use as many products from the bundle as possible. We know this from Microsoft 365 or Office 365. M365 or O365 are to expensive if you just want to use Office. But if you then use Microsoft Teams, Exchange Online, Sharepoint etc., then the math looks completely different. But then you are also much more integrated into the vendors ecosystem.
Rumors say, that only partners with more than $500k USD yearly revenue will be invited into the new partner program. This means: Thousands of partners will not be able to sell VMware products after Feburary 2024. Customers have to buy subscriptions from fewer, but bigger VMware partners. This streamlines the channel, and together with fixed discounts, profit is distrbuted over fewer partners and Broadcom itself. Needless to say, the new subscriptions will be significantly more expensive for most customers. Smaller customers will tend to seek for alternatives. The loss of smaller customers is taken into account.
So wrap this up:
- Broadcom will take the most profitable products (vSphere, VCF)
- Broadcom will streamline the company ([layoffs(https://techwireasia.com/12/2023/what-happens-next-with-vmware-after-layoffs-and-redundancy/)], sell divisions etc.)
- Broadcom will focus on the biggest clients (Scale with Leading Multi-National Customers Utilizing Private & Multi-Cloud Environments)
- Broadcom will streamline the channel (terminate all partner contracts)
Looks like Broadcom treating VMware… like CA and Symantec.
Unfortunately, this was foreseeable. Or at least I’ve seen this coming. Big VMware shops, with deep integration of VMware products in their infrastructure, will fear the migration into new platforms. It’s a balancing act between costs for migration, operations, and licensing. There is a pretty interesting presentation from Broadcom, published right after the merger announcement (just let me know, if Broadcom is taking this down…). Broadcom plans to push VMware to $8.5 Billion USD EBITDA, coming from $4.7 Billion USD EBITDA in 2022… This is huge!
My employer will also no longer be a VMware partner after February 2024. That hurts a little after all these years with VMware. But that was also the case with Novell NetWare or HPE Data Protector. Time to move on. VMware vSphere was, and is still, a great product. But to be honest: 90% of all vSphere customers have a need for a pretty small set of features, like HA or live migration. Something that nearly every available hypervisor can accomplish.