Acquisition of VMware by Broadcom

One of the most important manufacturers in the cloud sector is being taken over by a company that has made rather negative headlines in the past due to exploding costs for customers in the course of taking over competitors. The news of the (initially potential, then actual) takeover of the cloud and virtualization company VMware by the semiconductor company Broadcom caused concern among customers and partners at the end of 2023. And despite claims to the contrary by the new owners, many of the concerns subsequently turned out to be well-founded.

The product and license portfolio was slimmed down in record time and contracts with former VMware partners were terminated. From a customer perspective, three developments are particularly serious:

• Conversion of the license model to subscriptions: purchase licenses for VMware products no longer exist - anyone wishing to use VMware products must take out a subscription. This can also be fixed for several years and is then (probably) accompanied by discounts. But: a permanent right of use for customers no longer exists.
• Product bundles: there are now only two VMware products: VMware Cloud Foundation (VCF) and VMware vSphere Foundation (VVF). Others can be booked as add-ons. Customers of previous sub-products are therefore under pressure to extend their license.
• Previously available individual products will no longer be developed further, including popular products such as Aria SaaS Multi-Cloud Management.

As serious as this is for VMware customers, the development comes as little surprise given past Broadcom acquisitions. After the failed takeover of Qualcomm in 2018, major customers first felt the effects of the acquisition of CA Technologies in the same year. While this is a success for Broadcom, many (former) CA customers are likely to have a different view of this. After all, the Californian semiconductor manufacturer significantly increased its prices following the takeover - so much so that some customers were even able to successfully challenge these increases in court: The EU antitrust authority is currently investigating the incidents.

At the same time, there are increasing reports that the quality of support and product development has deteriorated significantly since the takeover. Similar reports were heard after the takeover of the corporate division of security software provider Symantec the following year. Critics accuse Broadcom of "cannibalizing" both companies for the sake of short-term profits.

The fears were correspondingly great when the Broadcom record takeover of VMware was announced. The Californians were quick to claim that they had learned from past mistakes. However, the current developments and the clear parallels to previous takeovers by Broadcom mean that uncomfortable negotiations can be expected, even if the manufacturer emphasizes that there is even potential for savings through reduced list prices and bundling options. The company is also trying to make it easier for customers to port their workloads to the cloud through partnerships with Google and (now) Microsoft. However, the theory still has to prove itself in practice - according to reports, there are currently increasing complaints about difficulties with licenses in VMware's support portal.

VMware's reported market share of 45% in the virtualization sector and the sometimes deep roots of VMware products in the IT architecture of many companies will rarely allow a quick and uncomplicated product migration. Even if there are alternative products in many areas, significant project costs are to be expected for a migration.

Based on many projects involving negotiations with software monopolists as well as support for migration and transformation projects, we recommend a multi-tracked strategy to our clients to meet these challenges:

1. Evaluation of the current situation (product portfolio used, contract terms, cost risks, etc.)
2. Examination of technical options (consolidation of requirements, product change)
3. Evaluation of commercial options (negotiations, interest groups or alliances)

Are you also affected by a high-cost risk? We would be happy to show you options and proven methods in a non-binding initial consultation.