CIOs are rarely happy when they get wind of a major change in a technology vendor they depend on. Even in the best of circumstances, acquisitions can disrupt support, contractual terms and cost.
Broadcom’s $61 billion purchase of VMware last year has been far less than optimal for enterprise customers, according to a CloudBolt Software report published Thursday.
Nearly all — 99% — of 300 IT decision-makers surveyed by Wakefield Research expressed concern about potential impacts of the acquisition, and more than three-quarters characterized their concern level as extreme. Almost every respondent said the acquisition had been disruptive to their IT strategy.
Since the deal was finalized in November, Broadcom has made “abrupt and major changes to VMware strategy, product, pricing, licensing and sales,” Gartner Distinguished VP Analyst Andrew Lerner told CIO Dive. “It’s a big set of changes and it's a lot for customers to take on.”
Pricing has been a particular pain point under Broadcom, the report found. Nearly three-quarters of respondents expect VMware bills to more than double post-acquisition.
Gartner has seen costs as much as triple for its clients, Lerner said. “People weren't happy with VMware pricing to begin with,” he added.
Broadcom exacerbated the hikes by bundling VMware products, discontinuing perpetual licenses in favor of subscriptions, removing support on existing licenses and shrinking its partnership ecosystem, analysts said.
Tracy Woo, principal analyst at Forrester, said the firm has seen what it characterized as an “effort to divorce the customer” with extreme price increases and unwillingness to negotiate.
“They're not trying to play nice and then stab you in the back,” Woo said. “They’re holding the knife right to you and saying, ‘This is what you have to do or you're out.’”
Broadcom’s strategy would lose traction if not for broad cross-industry enterprise dependence on VMware virtualization, networking and security solutions.
“I would be surprised if less than 80% of all enterprises had some type of VMware running in their environment,” Scott Bickley, advisory practice lead at Info-Tech Research Group, told CIO Dive.
“There are alternatives, but they are not function-feature equivalent and it requires a lot of engineering and rearchitecting to move these environments,” Bickley said, adding “VMware has a huge amount of vendor lock-in — super glue-style lock-in.”
VMware isn’t the first major tech provider swallowed up by Broadcom. The infrastructure company purchased Symantec Corporation’s security business for $10.7 billion in 2019 and CA Technologies for $18.9 billion in 2018.
The fallout from prior deals should have served as a warning to VMware customers, Bickley said.
“The Broadcom playbook should be well known by any CIO worth their weight in salt,” Bickley said. “They basically go in and purchase the company at a premium, rationalize the product set to a much smaller number of SKUs, bundle things together and increase the price dramatically.”
Broadcom declined to comment on VMware pricing or bundling changes, pointing to a March blog post by President and CEO Hock Tan that addressed the software portfolio overhaul.
“We recognize that this level of change has understandably created some unease among our customers and partners,” Tan said. “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. We also expect these changes to provide greater profitability and improved market opportunities for our partners.”
In the near term, Broadcom doesn’t have to worry too much about customer attrition. While 7 in 10 respondents to the CloudBolt survey said their companies have expiring VMware licenses in the next year, at least 2 in 5 were either sticking with their current suite of VMware solutions or keeping some while moving on from others.
“Most large organizations that we talked to say 'If I were to go in and rip out all my VMware, it would have to be my number one IT project for the next year-and-a-half, and I wouldn't be able to do anything else,'” Lerner said.
Correction: This story has been updated to reflect that at least 2 in 5 respondents are either remaining with a current VMware solutions or only keeping some VMware.
