CEO Hock Tan Addresses Broadcom-VMware Questions ‘Head On’
In a new blog, Tan tackles controversies around innovation, cloud, subscription licensing and the channel. And then we have some breaking insight into cloud service provider pricing.
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First, Tan said, Broadcom remains “steadfast” in its decision to fund research and development. Throughout the VMware acquisition process, Tan had vowed that Broadcom would “step up” investment in VMware R&D. In the first quarter of 2024, the company appears to have done just that, funneling $1.4 billion into that effort, though it remains unclear how much went to VMware projects.
Still, those initiatives reflect a keen focus on developing “a true, seamless private cloud experience” through VMware Cloud Foundation, Tan said on April 15. Broadcom aims to make VCF so robust it can compete against public cloud environments. Therefore, the company is backing up its assertions “with billions of dollars in new investment to ensure [VCF’s] success,” Tan wrote. “And, we have dramatically reduced the price of VCF to promote customer adoption.”
There’s contention on that latter point. Many VMware partners and end users say they’re being forced to adopt components they don’t want through Broadcom’s mandatory subscription bundling. That, per these buyers, translates into higher expenses (and it has morphed into more revenue for Broadcom). But Broadcom says it’s not charging for support, as VMware did, which reduces costs. Still, as we hinted in the introduction to this slideshow, stick around for the last slide. There’s direct contradiction around lower prices in play.
Ultimately, Broadcom will debut an “integrated” VCF platform that will run in customers’ data centers and in the cloud, with portability options, Tan said. Indeed, VMware by Broadcom recently cemented a deal with Google Cloud around that very capability. And Tan seems to be positioning the move as one intended to spur cloud vendors to innovate.
“This freedom for customers to move workloads will intensify competition between cloud providers, leading them to deliver greater value to end customers,” he said. “The license portability feature we have added to VCF is key to this strategy. Google Cloud is the first hyperscaler to support VCF license portability and we expect other partner and hyperscaler clouds to follow with similar support.”
Speaking of cloud, though, Tan also acknowledged the controversies Broadcom has incurred within the channel through the various ways it has upended VMware’s partner program structures.
“One of the hot topics across customer and partner communities has been the changes to how we engage with cloud service providers,” he wrote. “Broadcom will continue to create value within the VMware partner ecosystem, because partners are critical to our customers' success and our own success. That said, Broadcom is updating and incorporating the VMware partner ecosystem into the Broadcom partner programs, which requires some adjustments.”
Much of that took place on the reseller side in the first quarter. Now, when it comes to cloud providers, portability remains top of mind, per Tan. To achieve that, Broadcom is standardizing pricing and technology.
In terms of pricing, Broadcom is enforcing per-core licensing, which Tan said reflects “the same metric used in our end-customer licensing.”
At the same time, VCF features license portability.
“This ensures customers will not face any licensing mismatch as they move between providers, and will avoid switching and additional licensing costs,” Tan wrote.
And because the metric now acts in accordance with the rest of Broadcom’s portfolio, Tan said, customers may compare proposals from partners “and increase choice and competition.”
Meanwhile, expect a standardized technology stack for cloud providers on VCF, Tan said.
“This ensures customers will enjoy the same technology and support experience across any VMware-supported cloud provider, and will remove technical barriers to customers moving from on-prem to cloud, switching their workloads from one cloud provider to another, or back to on-premise data centers, if their needs change.”
From there, though, Tan did address the brouhaha Broadcom whipped up with its new requirements around the VMware cloud service provider program. He reiterated that small cloud providers will not be excluded, though many will work through higher-level Broadcom Advantage partners. Here’s his full explanation:
“Given the need to set up the onboarding process to accommodate our smallest cloud provider partners, and to help with the transition and ensure there is continuity of service for this partner group, we will expand the Broadcom Advantage Partner Premier Tier to accommodate any qualified, existing service provider and offer programmatic initial-year discounts for their existing installed base. In addition, smaller service provider partners who do not yet meet the Premier Tier criteria can take advantage of the ‘white-label’ offers from Pinnacle and Premier Tier Service Providers. To ensure there is continuity of service for this smaller partner group, we will continue existing operations with this group under modified monthly billing arrangements until the white-label offers are available.”
Finally, Broadcom will enforce VMware’s transition to a full subscription model, Tan said. VMware started that shift in earnest a few years ago, “one of the last software companies to adopt this model,” Tan noted.
Since wrapping the VMware purchase, Broadcom has made clear that it will continue pushing the move to subscription licensing.
“The subscription model ends ‘upsell’ practices that were common in the software industry before the subscription transition, such as branding incremental features as new higher editions of the same product or new add-on products,” Tan said. “These practices do not represent true innovation in core products, and cause customer confusion and frustration about missing out on new features. Subscription licensing eliminates these incentives.”
(When it comes to cloud, specifically, though, Broadcom is working to upsell — in Tan’s own words — vSphere users, in particular, to VCF.)
Notably, Tan did deliver some welcome news for customers with perpetual licenses.
“It is important to emphasize that nothing about the transition to subscription pricing affects our customers’ ability to use their existing perpetual licenses,” he said. “Customers have the right to continue to use older vSphere versions they have previously licensed, and they can continue to receive maintenance and support by signing up for one of our subscription offerings.”
For customers with expired maintenance and support contracts, and who opt out of a VMware subscription, Broadcom will extend some help. That will come in the form of free access to zero-day security patches for supported versions of vSphere, “and we’ll add other VMware products over time,” Tan said.
Tan further offered some succor to VMware users concerned about having to accommodate that opex-to-capex requirement associated with subscription versus perpetual licensing. That “does involve a change in the timing of customers' expenditures,” he acknowledged.
“We heard that fast-moving change may require more time, so we have given support extensions to many customers who came up for renewal while these changes were rolling out,” Tan said. “We have always been and remain ready to work with our customers on their specific concerns.”
Some breaking news to share: It seems that Broadcom is raising licensing prices such that cloud service providers are seeing a 20% increase in their costs.
Hosting provider Ionos, which teams with VMware for virtualization software for cloud servers, seems to be the first to report the change. On April 15, strategic advisor Giacomo Balli posted a screenshot of a message from Ionos, which noted that prices will go up as of May 15.
“Please understand that we can only offset these costs to a limited extent,” Ionos wrote. “We are therefore forced to pass on part of this license price increase to our customers.”
Broadcom acquired VMware less than 6mo ago and now it's jacking up prices 20% for Ionos cloud servers. pic.twitter.com/6o81wZim73
— 🐗 Giacomo Balli (@BigBalli) April 15, 2024
Broadcom, responding to Channel Futures’ request for clarification and explanation, only had this to say: “At this time, the blog is the extent of what we can share on the topic.”
Some breaking news to share: It seems that Broadcom is raising licensing prices such that cloud service providers are seeing a 20% increase in their costs.
Hosting provider Ionos, which teams with VMware for virtualization software for cloud servers, seems to be the first to report the change. On April 15, strategic advisor Giacomo Balli posted a screenshot of a message from Ionos, which noted that prices will go up as of May 15.
“Please understand that we can only offset these costs to a limited extent,” Ionos wrote. “We are therefore forced to pass on part of this license price increase to our customers.”
Broadcom acquired VMware less than 6mo ago and now it's jacking up prices 20% for Ionos cloud servers. pic.twitter.com/6o81wZim73
— 🐗 Giacomo Balli (@BigBalli) April 15, 2024
Broadcom, responding to Channel Futures’ request for clarification and explanation, only had this to say: “At this time, the blog is the extent of what we can share on the topic.”
Hock Tan is out to “address … questions head on” around Broadcom-VMware — specifically, Broadcom’s treatment of VMware, from innovation and pricing to subscriptions and channel partners.
On Monday, the CEO of chipmaker Broadcom, which closed its behemoth VMware purchase late last year, issued a new blog. It follows last month’s missive assessing VMware’s first 100 days as a Broadcom company. This time, Tan seems to have put aside some of the rose-colored glasses and tackled some thorny questions about Broadcom-VMware in a more straightforward manner.
He started by explaining the context for the seachanges Broadcom has brought about within VMware. Even before Broadcom closed the VMware purchase, Tan and his team were in talks with VMware customers, he said. And what he uncovered led to the decisions Broadcom has made.
“Early in this process, I concluded that the previous go-to-market model was too complex and costly for VMware and its customers,” said Tan, who Channel Futures recognized as its Channel Influencer of the Year earlier in 2024. “It demonstrated that all too often, as innovative companies expand, decisions are made incrementally, not holistically as part of a larger, comprehensive strategy.”
That observation sets the stage for the ways in which Broadcom has acted since closing the VMware acquisition.
All in all, Tan said, Broadcom-VMware buyers want “a simpler product and constant innovation with an eye toward security and resilience. There have been many questions about how we're putting this feedback into action. Today, I want to clarify what we’re offering VMware customers and address those questions head on.”
Click the image above to learn more (and stick around for the last slide, where we reveal some breaking insight around VMware cloud service provider pricing).
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