vmware

Broadcom CEO and President Hock Tan has acknowledged the discomfort VMware customers and partners have experienced after the sweeping changes that Broadcom has instituted since it acquired the virtualization company 114 days ago.

In a blog post Thursday, Tan noted that Broadcom spent 18 months evaluating and buying VMware. He said that while there’s still a lot of work to do, the company has made “substantial progress.”

That so-called progress, though, has worried some of Broadcom’s customers and partners.

Tan wrote:

Of course, we recognize that this level of change has understandably created some unease among our customers and partners. But all of these moves have been with the goals of innovating faster, meeting our customers’ needs more effectively, and making it easier to do business with us.

Tan believes that the changes will ultimately “provide greater profitability and improved market opportunities” for channel partners. However, many IT solution provider businesses that were working with VMware have already been disrupted.

For example, after buying VMware, Broadcom took over the top 2,000 VMware accounts from VMware channel partners. In a March earnings call, Tan said that Broadcom has been focused on upselling those customers. He also said Broadcom expects VMware revenue to grow double-digits quarter over quarter for the rest of the fiscal year.

Beyond that, Broadcom ended the VMware channel partner program, making the primary path to reselling VMware an invite-only Broadcom program.

Additionally, Broadcom killing VMware perpetual licensing has reportedly upended financials for numerous businesses. In a March “User Group Town Hall,” attendees complained about “price rises of 500 and 600 percent,” The Register reported. In February, ServetheHome reported that “smaller” managed service providers focusing on cloud services were reporting seeing the price of working with VMware increase tenfold. “They do not have the revenue nor ability to charge for that kind of price increase, especially this rapidly,” ServeTheHome reported.

By contrast, Tan recently saw a financial windfall, making the equivalent of more than double his 2022 salary in 2023. A US Securities and Exchange Commission filing showed that Broadcom paid Tan $161.8 million, including $160.5 million in stock that will vest over the next five years (Tan isn’t eligible for more bonus payouts until 2028). Broadcom announced its VMware acquisition in May 2022 and closed in late November for $69 billion.

In his blog post, Tan defended the subscription-only licensing model, calling it “the industry standard.” He said VMware started accelerating its transition to this strategy in 2019, (which is before Broadcom bought VMware). He also linked to a February blog post from VMware’s Prashanth Shenoy, VP of product and technical marketing for the Cloud, Infrastructure, Platforms, and Solutions group at VMware, that also noted acquisition-related “concerns” but claimed the evolution would be fiscally prudent.

Other Broadcom-led changes to VMware over the past 114 days include at least 2,800 VMware jobs cut, shuttering the free version of ESXi, and plans to sell VMware’s End User Computing business to KKR, as well as spend $1 billion on VMware R&D.

Broadcom has made a lot of changes to VMware since closing its acquisition of the company in November. On Wednesday, VMware admitted that these changes are worrying customers. With customers mulling alternatives and partners complaining, VMware is trying to do damage control and convince people that change is good.

Not surprisingly, the plea comes from a VMware marketing executive: Prashanth Shenoy, VP of product and technical marketing for the Cloud, Infrastructure, Platforms, and Solutions group at VMware. In Wednesday’s announcement, Shenoy admitted that VMware “has been all about change” since being swooped up for $61 billion. This has resulted in “many questions and concerns” as customers “evaluate how to maximize value from” VMware products.

Among these changes is VMware ending perpetual license sales in favor of a subscription-based business model. VMware had a history of relying on perpetual licensing; VMware called the model its “most renowned” a year ago.

Shenoy’s blog sought to provide reasoning for the change, with the executive writing that “all major enterprise software providers are on [subscription models] today.”

However, the idea that ‘”everyone’s doing it” has done little to ameliorate impacted customers who prefer paying for something once and owning it indefinitely (while paying for associated support costs). Customers are also dealing with budget concerns with already paid-for licenses set to lose support and the only alternative being a monthly fee.

Shenoy’s blog, though, focused on license portability. “This means you will be able to deploy on-premises and then take your subscription at any time to a supported Hyperscaler or VMware Cloud Services Provider environment as desired. You retain your license subscription as you move,” Shenoy wrote, noting new Google Cloud VMware Engine license portability support for VMware Cloud Foundation.

Further, Shenoy claimed the discontinuation of VMware products so that Broadcom could focus on VMware Cloud Foundation and vSphere Foundation would be beneficial, because “offering a few offerings that are lower in price on the high end and are packed with more value for the same or less cost on the lower end makes business sense for customers, partners, and VMware.”

This week, Broadcom axed the free version of vSphere Hypervisor, ESXi. As reported by my colleague Andrew Cunningham, the offering was useful for enthusiasts “who wanted to run multipurpose home servers or to split a system’s time between Windows and one or more Linux distributions without the headaches of dual booting” or who wanted to familiarize themselves with vSphere Hypervisor without having to pay for licensing. The removal of ESXi could contribute to an eventual VMware skills gap, ServeTheHome suggested.

Broadcom addresses VMware partner changes

Broadcom has also announced that it’s ending the VMware partner program. Broadcom initially said it would invite a select number of VMware channel partners to the Broadcom partner program but didn’t say how many, causing concerns about how smaller businesses would get access to VMware products.

Broadcom said it ultimately invited 18,000 VMware resellers to its partner program and said this included “all active” partners, as defined by partners who had active contracts within the last two years. However, 18,000 is fewer than the 28,000 partners VMware told ChannelE2E it had in March 2023. Broadcom didn’t respond to CRN’s questions asking about the discrepancy in numbers and hasn’t responded to questions that Ars Technica previously sent about how it was deciding which VMware partners it would invite to its program.

There are still concerns that channel partners won’t be able to meet Broadcom’s new requirements for being a VMware reseller, meaning that smaller companies may have to consider notable infrastructure changes and moving off VMware. Broadcom’s layoffs of thousands of VMware employees has reportedly hurt communication and contributed to confusion, too.

VMware’s Wednesday post also addressed Broadcom taking VMware’s biggest customers direct, removing channel partners from the equation:

It makes business sense for Broadcom to have close relationships with its most strategic VMware customers to make sure VMware Cloud Foundation is being adopted, used, and providing customer value. However, we expect there will be a role change in accounts that will have to be worked through so that both Broadcom and our partners are providing the most value and greatest impact to strategic customers. And, partners will play a critical role in adding value beyond what Broadcom may be able.

But while taking over VMware’s biggest accounts (CRN estimated in January that this affects about 2,000 accounts) may make business sense for Broadcom, it’s hard to imagine how it would make business sense for the IT businesses managing those accounts previously.

While Broadcom has made headlines with its dramatic changes to VMware, Shenoy argued that “Broadcom identified things that needed to change and, as a responsible company, made the changes quickly and decisively.”

“The changes that have taken place over the past 60+ days were absolutely necessary,” he added.

The implications of these changes will continue to be debated over the coming months as the impact of Broadcom’s strategy is realized. But in the meantime, it looks like Broadcom is sticking to its guns, even with rivals looking to capitalize on related uncertainty.