Broadcom-VMware Fallout: Concerned Partners, Customers Brace for Change
"When a big fish swallows another big fish, you get a whale," an MSP told Channel Futures.
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Richard King is chief strategy officer at Tennessee-based MSP Keystone Solutions.
“Acquisitions are becoming routine, literally weekly, in tech right now. When it’s smaller entities, nobody notices. However, when a company the size of VMware is consumed, it is noticed; by the industry, by investors, and by the channel,” King told Channel Futures. “Broadcom is at about $27 billion in annual revenue, swallowing VMware at roughly $12.5 billion. When a big fish swallows another big fish, you get a whale.”
How will the deal impact partners like Keystone?
“As a midsize MSP that has a good bit of VMware product in production, we still don’t move the needle for VMware, and as such, don’t really have much input,” King said. “No different than most the VMware employees. I have no doubt that the messaging to them, like us, and others like us is, ‘Nothing is going to change.’ I suspect that’s true, for the moment. But as with all consolidation, things change.”
And those changes, King predicted, will revolve around removing overlapping assets to streamline operations and “concentrate on synergies.”
And the transaction process could change as well.
“It’s likely that how end-customers and resellers contract and obtain and pay for products and services will change as well. But that’s not new. Keystone went through it with VeloCloud when it was purchased by VMware. We had to adapt slightly, but our customers didn’t feel a thing. Often that’s the beauty and value of having a good partner in the middle,” King said.
Matt Kanaskie is a vice president of solutions for the multi-disciplinary partner Marco Technologies. The MSP 501er‘s many practices include managed IT services, resale, managed print and carrier services.
He pointed to the double-edged sword that results from a vendor growing in size.
“This acquisition is very powerful and monumental in scale; however, this could present some challenges to resellers,” Kanaskie told Channel Futures.
“The concern is that the organization becomes so large that transacting as a partner is more numerical and process-driven and therefore less relationship-driven, which is hard to develop with so many resources and departments available. The potential for innovation and product development is astounding with this acquisition. The potential for an industry-leading partner program is pretty low, and to some extent, not needed due to the inherent nature of the products within client environments.”
Will Huber is chief technology officer at CDI, which is a New York City-based MSP and consultancy.
Huber said the news surprised his team.
“Fresh off the spinout from Dell, we didn’t see this coming and, even if we did, we wouldn’t have put Broadcom at the top of the list of potential acquirers. VMware is a highly strategic business partner for CDI – still today we are the only partner in the world with all of their master competencies and their cloud-verified designation. We are hopeful that the Broadcom acquisition provides further opportunity to partner closer and that it can accelerate VMware’s storied history of innovation.”
Val King is the CEO of Whitehat Virtual Technologies, an Austin, Texas-based company that provides managed IT services as well as vendor management. It is a VMware partner.
“Broadcom does not have a ton of credibility in our space and tends to buy B-tier products companies except in this instance,” King told Channel Futures. “This is a surprise and immediately makes me wonder if this is a step up for Broadcom or what will be a step down for VMware.”
Whitehat has also partnered with Brocade, Symantec and CA Technologies, which Broadcom has acquired.
“Brocade has been good. I see no improvement or significant change with the other two,” he said.
King said he does not anticipate much of a benefit coming to Whitehat through the acquisition.
“Maybe some of these other products will start to work better in VDI environments than they do today, but that is about it. Nothing in this portfolio is very exciting as an add-on to VMware,” he said.
The cloud and data center team at Omdia offered an in-depth analysis of a question that many pundits have been weighing: Does Broadcom intend to build a full-stack company or make a financial play with VMware?
“The indication that Hock Tan, Broadcom’s CEO, has given in earnings calls is that his strength is optimizing software companies for maximum profitability. This makes us think that the cash cow scenario is more likely. It looks like Broadcom’s goal is (1) to acquire companies with established technology and client bases, which are less exciting to investors and are cheaper; (2) optimize cost; (3) milk them dry over the next 10-15 years. Software can have incredible longevity because of application interdependencies and the uplift to rearchitect an entire environment. The world might be going cloud-native, but most applications still run on (legacy) VMs,” the authors wrote.
The Omdia authors surmised that Dell’s divestiture of VMware reflects Dell giving up on a full-stack approach.
However, they wrote that a full-stack model makes sense in edge computing, where enterprises lack resources to build custom solutions.
“Being able to purchase an appliance and just drop the application on it with the confidence that it will work and be compatible with the rest of the enterprise’s environment is appealing. VMware has a large customer base and is a platform in all public clouds as well as on-premises, so in theory it is very well placed,” they said.
“However, the VMware technology as a stack is expensive, when compared to the newer Kubernetes approach. Therefore, the big question is, if Broadcom does have full-stack ambitions, how is it going to package and price the stack?”
The fine folks on the r/SysAdmin subreddit expressed concern that Broadcom’s focus on the enterprise will leave some partners and customers out in the cold.
“I wonder if they’ll forget the small guys and make it impossible to renew like they did with Symantec? Seems all that Broadcom cares about is Fortune 500 companies,” infamousbugg wrote on the subreddit’s post about the acquisition.
“Same experience,” chandleya wrote in response. “Wouldn’t even talk to the VARs.”
Many people pointed to the history of layoffs that have occurred at Broadcom-purchased companies.
“Broadcom has a history of ruthlessly gutting companies. During the Symantec merger they laid off and transitioned tons of staff, and for nearly a year many of their customers couldn’t even renew the product,” commentor DarkAlman wrote on the r/SysAdmin subreddit.
“Broadcom dumped many of their resellers, focusing only on the enterprise, resulting in most of the industry dumping Symantec products entirely. Given Broadcom’s history as a company, expect that the real winner here will be Microsoft (Hyper-V).”
Many redditors brought up the acquisition of Symantec, which according to them resulted in a diminished emphasis on non-enterprise customers and their partners.
“If you had the SMB product, which was flat-out dropped, you could not get a license for the enterprise replacement for the longest time,” wrote redbluetwo, who said their company ultimately moved to Bitwarden.
“I know small MSPs that don’t really operate outside their local area that were getting calls from all over the country asking if someone there could get them a license. Communication was horrible; they dropped an entire market segment. I’m not sure why people were calling looking for a license so hard. We took it as a sign that it would be negligent to not move to a different product given the experience. Main issue was just the total lack of communication for what felt like a full year.”
Another redditor on the r/cybersecurity subreddit reported a pricing increase.
“We use a Symantec product. Broadcom acquired Symantec in 2019. From our 2019 renewal to right now, Symantec has increased the cost of the product by [approximately] 110% without any change in licenses or changes to the contract. The Broadcom tax is insane. Don’t even get me started on their mainframe products,” FriedCarbonyte commented.
Many redditors brought up the acquisition of Symantec, which according to them resulted in a diminished emphasis on non-enterprise customers and their partners.
“If you had the SMB product, which was flat-out dropped, you could not get a license for the enterprise replacement for the longest time,” wrote redbluetwo, who said their company ultimately moved to Bitwarden.
“I know small MSPs that don’t really operate outside their local area that were getting calls from all over the country asking if someone there could get them a license. Communication was horrible; they dropped an entire market segment. I’m not sure why people were calling looking for a license so hard. We took it as a sign that it would be negligent to not move to a different product given the experience. Main issue was just the total lack of communication for what felt like a full year.”
Another redditor on the r/cybersecurity subreddit reported a pricing increase.
“We use a Symantec product. Broadcom acquired Symantec in 2019. From our 2019 renewal to right now, Symantec has increased the cost of the product by [approximately] 110% without any change in licenses or changes to the contract. The Broadcom tax is insane. Don’t even get me started on their mainframe products,” FriedCarbonyte commented.
Changes are coming for VMware partners and customers, and not everyone is looking forward to it.
The IT industry has been buzzing about a reported acquisition of VMware by Broadcom all week. Broadcom on Thursday made the rumors official, confirming a $61 billion agreement to buy VMware. The deal, which analysts have widely hailed as a big win for VMware shareholder Michael Dell, comes a year after Dell spun off VMware.
Broadcom executives state that they expect to expand their software mix up to 49% of the company’s revenue. However, some analysts question if the buyer intends to build a holistic, full-stack technology platform or if it merely wants to benefit from a “cash cow.”
Most channel partners say the move surprised them. Moreover, many are anticipating changes in the way VMware engages with them. They remained optimistic in their comments to Channel Futures, however.
IT administrators commenting under the relative anonymity of Reddit offered more blunt reactions to the deal. Redditors aired their grievances about past Broadcom acquisitions and expressed concern that VMware service to smaller customers will suffer.
Scroll through the images above to see comments from MSPs, VARs and customers.
Allison Francis contributed to this report.
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