Broadcom Reviews VMWare’s Future

Two months ago, we had reported about the challenges that VMware customers were facing post its merger with Broadcom. The issue at hand was the partner program revealed days after the Broadcom-VMware merger as the latter’s existing partners worried. Now, it appears that the combined entity is doing what it can to soothe ruffled feathers and set up the partner franchise to aid their long-term growth.

Readers would also recall that Broadcom had recently rolled out its partner strategy for the VMware Cloud Foundation platform, setting a clear path to better monetization of Broadcom’s $69 billion acquisition. Now, officials admit that the shift, though painful to the company and its customers, was however essential for long-term success. 

Prashanth Shenoy, the vice-president of cloud platform, infrastructure and solutions marketing at VMware was quoted by SDxCentral as saying that change led to challenges in terms of confusion, especially in the absence of adequate communication and articulation of how the merged entity would function.  

Necessary changes that suffered from poor articulation

Deeming the changes as necessary, the official said it took a long-time coming though when it did come, there was a major rush.  “In the previous world, this would have taken us three to four years to make that change,” Shenoy said, while noting that the latest round of changes happened quite quickly. 

“So, for me, I was very glad to have made this business model transformation, portfolio transformation, route market transformation, all in a matter of months,” says the official who joined VMware in mid-2022 and became a member of the board three months after Broadcom announced its decision to acquire the company. 

Shenoy also highlights the focus on enhancing the VMware Cloud Foundation (VCF) where the focus has shifted to what customers actually use and deploy and how their choices impact the decisions of VMware. The large enterprise accounts basically wanted an alternative or an extension of public cloud environments, he said.

Differentiating customer segment better

These enterprises are seeking an agile private cloud infrastructure with developer expertise around a public cloud and the security, resilience and performance of the former. The challenge was to bring all of this on to a single infrastructure stack that can be deployed with ease by the customer side as a managed service. 

Of course, this strategy does not mean that the vSphere platform gets dumped. This, as Shenoy explains, would be targeting broader mid-tier, small data centers that seek to only virtualize computing infrastructure with good dashboards to manage operations. It is also seen as a stepping stone towards the VCF in the future. 

Expect double-digit revenue growth 

Meanwhile, Shenoy is hopeful that VMware will see double-digit growth over successive quarters for the rest of the ongoing fiscal year due to these strategic shifts. Not surprisingly, Broadcom boss Hock Tan told investors at an earnings call that upselling to customers is what they expect to do in the near future. 

Given that Broadcom forked out $69 billion to acquire VMware and its debt, there is every possibility that the board would be looking to fast-track higher revenues from VMware operations. Which also explains why they shifted away from the legacy of perpetual licensing and shifted to the new subscription model, something the customers were upset with. 

The new system actually broadens the flexibility 

However, Shenoy is confident that this move actually renders the process more flexible for customers who can buy a license once and deploy it while shifting the very next day to a managed service provider that VMware supports. All of this can be done as a managed service which means they don’t need to pay for the VCF pod. 

In his view, the challenge with customers came from the clarity of the explanations. Those who were on perpetual licenses found the pricing different because the former involved only renewal and support costs. The subscription model costs structure is vastly different in an opex model compared to a core subscription price, says Shenoy. 

“So, the price change and the price increase that our customers feel is mainly because of that apples-to-oranges comparison. I was paying support on my perpetual, now I’m paying the value of the license that has built-in support and it’s a subscription based on a yearly basis. So that’s kind of the price change that they’re seeing, he concludes. 

At this point, we can only hope that this explanation mollifies existing customers as VMware’s rivals have been baring their fangs ever since the price changes were announced in an effort to lure away customers. Maybe, the next couple of quarters would tell us whether the much-hyped acquisition is actually helping Broadcom in the short term.