Broadcom-VMware Affair Disrupts 2024 MSP 501 Companies

Like much of the IT world, the 2024 Channel Futures MSP 501 winners are spending a lot of time this year figuring out how to react to Broadcom’s stewardship of VMware.

Leading managed service providers characterize their customers as confused, concerned and angry over Broadcom’s actions since acquiring the virtualization giant. Since Broadcom’s $69 billion acquisition of VMware closed last November, several decisions have made customers and channel partners uneasy. These include condensing product SKUs, ending perpetual licenses, taking the top 2,000 VMware customers direct and enacting layoffs.

“This is very disruptive,” Expedient SVP Allen Skipper said. “With disruption comes opportunity, and this acquisition has been the most disruptive IT event that we've seen in many, many years.”

VMware remained a big part of managed service providers’ business in 2023. On average, the 2024 MSP 501 managed 3,167 virtual machines last year, up from 2,427 in 2022. VMware was the third most used cloud service by MSP 501 clients, behind Microsoft Azure and AWS.

But VMware revenue fell during its first full quarter under Broadcom, dropping to $2.7 billion from $3.28 billion in the same quarter of 2023. That indicates many customers, as well as MSP 501 winners, are exploring options while looking for clarity from Broadcom on its plans.

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Skipper said companies are pausing projects to reconsider options, which range from “doing nothing and just staying the course and taking the price increases from Broadcom, to a complete break-up with VMware.” Expedient (No. 3 on 2024 MSP 501 list) is a VMware Cloud Service Provider (VCSP) Pinnacle tier partner, which is the highest level of Broadcom partnership.

“Since the acquisition of VMware by Broadcom, there's just been a great deal of confusion and concern in the market,” Skipper said. “Companies are asking all sorts of questions like, 'How much are costs increasing from VMware? ‘What's this 27 SKUs down to three options that people are talking about? Do we have options to move to other providers or to other hypervisors? How could using a service provider like Expedient benefit us?’ The list goes on and on and on, along with a lot of questions they probably should be asking, but they're not."

Broadcom ‘Holding Customers Over a Barrel’

Tony Ferrigno, SVP of service portfolio management at No. 229 MSP ATSG, said customers are angry about Broadcom’s practices, and it's driving some to VMware competitors.

“It’s ridiculous,” he said. “They're holding customers over a barrel and customers are ticked off. We actually have a very big Nutanix take out of VMware, and so does Citrix and everybody else. When you're forced to do something, you may capitulate, but as soon as you have an alternative, you run. Some technologies like VMware [virtual desktop infrastructure] Horizon used to be free for some customers or integrated into product lines; now they’re not. It's just crazy. It’s a big market that we're attacking, actually.”

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Expedient’s Skipper said the MSP’s close partnership with VMware puts it in position to turn the disruption into opportunity.

“We've really invested a ton of time and energy educating our team and our partners to help eliminate that confusion and o help companies understand what options are out there,” Skipper said. “This may include staying the course with VMware, it could be moving to a cloud service like Expedient, it could mean shifting to a hyperscaler or selecting another hypervisor such as AHV from Nutanix.

“This acquisition was a long time in the making," he added. "And as soon as it closed, there's been so much change. So I think end users, service providers, resellers, all of the above, would just like clarity and some finality to what the programs are going to look like.”

No. 497 MSP OneNeck IT Solutions (now part of US Signal) director of strategy and technology Sam Larson said his team has done dozens of migrations from VMware to Nutanix, which has a hypervisor and competes with VMware as a hyperconverged infrastructure (HCI) vendor. Those began before the Broadcom acquisition.

OneNeck's Sam Larson

“I think one of the keys to success is definitely doing the analysis ahead of time to just see what applications are running, what virtual apps they've deployed,” Larson said. “Some of those don't take to being migrated. Not all of them support Nutanix, although a growing number of them do. That covered 90% of our VMware customer base.”