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Who’s afraid of the big bad Broadcom?

How does the new VMware owner affect your ability to budget?

Six months ago, Broadcom acquired VMware. While VMware initiated some change before the acquisition, they are now making a wider set of changes comparable with those seen in other acquisitions such as Citrix into the Cloud Software Group with TIBCO.

This change has not favoured the majority of its customers, it includes:

  • Go to Market strategy with a focus on the highest revenue generating customers with the rest being serviced by the IT channel of resellers and service providers
  • Change to licence metrics such as processor based to core based
  • Consolidation of stock keeping units (SKUs) to bundle a large amount of products into a very limited number of SKUs
  • Changes to licence procurement routes such as curtailing perpetual licensing offers in favour of subscription.
  • Reducing the OEM route and other external offerings

(NB: the basis of this blog focuses on the “traditional” VMware products and not the EUC and security elements that it has acquired historically as there is a view that this part of the business may be sold off by Broadcom).

Ultimately these changes are all being felt across the industry, most notably with some eye watering price increases..  Whilst additional software elements are now available to customerss, however if these are not required or the specific technology is already embedded through another provider this can make return on investment or cost justification extremely difficult.  This also consolidates Broadcom/VMware in a customer’s estate, which many customers may feel as choice limiting, as it may require previously deployed and architected solutions to be replaced by VMware due to the nature of the way the changes will be implemented.

Take time to consider your options

The first stage is to not be pressured into making a decision until a commercial lever is pulled – i.e. contract renegotiation – and also not to be ‘upsold’ on products you don’t need. Synyega can help on contractual and licensing optimisation and advice especially establishing your current VMware licensing position.

We’re going to look in more detail at a few of these changes and how they may affect your business…

Change of Metric

One of the most spoken changes from VMware perspective is the change of metric, where, similarly to most infrastructure based products, the licensing metric has moved to cores running the technology whereas previously this was based on Processor counts and Server quantities.

Like many software publishers before, moving from a processor count to core count allows the publisher to multiply the number of licences required although conversion may be available longer term this normally delivers a real term cost increase.  This is of particular focus with the general increase in number of cores of the chipsets since the early 2010s.

Consolidation of SKUs

Broadcom are by no means the first to do this kind of exercise – Microsoft bundled up all of the ‘System Center’ family of products you could buy individually into one SKU a few years ago – but the ‘simplification’ of the SKU structure means that a number of products cannot be separated from a purchase and you now have the bundle to buy instead of point products.

If you are a customer that uses a number of these bundled products already, this could be advantageous as the individual licences to manage and purchase with each new deployment or implementation will be simplified from a management perspective. If however, you are a customer that doesn’t have this scenario then you are effectively procuring some “shelfware” (software that is procured but not deployed) as part of the offer.  Inevitably, this also provides a cost increase in real terms as well as the bundled costs being significantly higher if you are used to only using one or two of the bundled products.

Change in Licensing Models

Another change that we have seen a lot of complaints about, is the moving away from Perpetual licences to favour the Subscription model. While Broadcom is under fire for taking advantage of this change, VMware had started the transition towards 100% subscription ahead of the acquisition.

One of the advantages from a business perspective to have perpetual licences is the ability to terminate support while still benefiting from a technology that will become legacy within 4-6 years. From a publisher perspective, the major disadvantage is the impossibility to guarantee revenues year after year for the use of the technology. Further to moving to subscription Broadcom are heavily insisting on engaging customers on 3-year subscription contracts rather than the 'traditional' one year renewal.

Limiting OEM / Partner Routes

Another significant change is the termination by Broadcom of the OEM solutions for VMware. This means that for many customers that had the vSphere/vCenter solution implemented and embedded on the Hardware purchase and support agreement, these environments are now falling under the new requirement for a bundled subscription at extra (over-) costs.  Recently it was announced that the AWS based offering VMC (VMware on the AWS Cloud) whilst still being a live platform, but the way this was run and “resold” by AWS was to change and customers would need to “BYOL” (bring your own licences) to the platform.

Subsequently AWS announced an incentive to move services off AWS VMC to AWS EC2 platform which may further increase the friction between these two players.  Currently the service is still as is on Azure (Azure VMware Service or AVS), but it is also interesting to note from a recent announcement that Broadcom has tightened its post-VMware acquisition relationship with Google Cloud that will see more VMware products running in Google Cloud environments and more promotion of those efforts.

What does the future hold and what to be cautious of?

So what is the future of customer engagements with VMware technology? Well, if the enterprise level organisations are the example to follow, and if the rumours are to be believed, the key word is find-a-way-out-ASAP. Large virtual deployments are being reviewed and with the 2-odd years remaining on the subscription, alternative technologies are being assessed to offload the VMware infrastructure to another publisher.

Watch out for Audits

If customers decide to move away from Broadcom based on what has been discussed above, be aware that audits may become more familiar with Broadcom. As we have seen with Quest, OpenText, MicroFocus (and the array of acquisitions) the publisher may seek this route as a revenue provider.  The challenges and constraints on how licence keys are deployed, limitations on geography, core counts and other elements in the agreements that may have been overlooked could cause audit penalties if this route is used.

How does Public Cloud affect VMware?

Many of the major Public or Hybrid Cloud providers (VMware refers to Alibaba Cloud VMware Service, Azure VMware Solution, Google Cloud VMware Engine, IBM Cloud for VMware Solution, Oracle Cloud VMware Solutions and VMware Cloud on AWS) as well as the majority of the Hosting Service providers rely on VMware technology to offer a platform running a virtual environment outside of the Cloud infrastructure.

As the Broadcom changes will impact all these providers the most, many deals would have been struck to embrace the 3-year subscription early on and offer a safe stable alternative for now Broadcom customers to escape on-premises environments and large increased costs. For the Public Cloud, the VMware solutions are usually presented as a stepping stone to either exit a data centre running on VMware before completing the move to the Cloud - moving to the VMware solution will usually be quick and keep most of the existing versions without testing the support or compatibility challenges that Cloud native environments might have - or consolidate multiple small environments into a single managed environment.

As stepping stones, Cloud providers would expect their customers using the VMware solutions to assess the applications and technologies during this period of time to modernise, rewrite or redesign these to be Cloud-native triggering an exit effect from the VMware solution.

A world-wide trend is a massive move-to-Cloud and Broadcom might have just accelerated this by rather strongly forcing their customers to make heavy financial commitments towards VMware technology or very compelling cases for strategic changes.

What are your options?

  • Consider Retention: If you use much of the VMware portfolio and the new SKUs align to your usage today – if the commercial offer is good then consider retention although being aware that price increases are likely in the future, put in a plan to mitigate it.
  • Consider Third Party Support: If you have a strategy to use current VMware solutions but not looking at upgrades or vendor support, third party support options could maintain a supported version with reduced costs.
  • Consider Swap Out: If your usage, licensing and commercial offers, it may be likely the increase in cost for the technology is not compensated by the returns, and a move away is probably a good idea.
  • Consider Cloud: Dependent on the products used, but some of the “bare metal” or standard offerings from the cloud providers may deliver the levels of technology already that VMware do so this could be something to explore. Synyega’s Cloud Optimisation Assessment could help plan for this and in some cases this is funded by the cloud providers.
  • Exit Plans: What do you need to replace VMware with – consider another virtualisation technology? Synyega can provide insights and guidance as to the next steps and ensure long term planning is considered.

Where should you start?

First….ensure you understand your compliance position before doing anything to map across to one of the scenarios above and consider Synyega services to allow us to help you optimise the licensing and commercial aspects of your current contract!

Now is the time to plan your next move and investigate all options then you’re ready to move forward, with or without VMWare.


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