Broadcom has moved forward with its transition plans VMware, a virtualization and cloud computing company, into a subscription-based business. As of December 11, it no longer sells perpetual licenses for VMware products. VMware, whose $61 billion acquisition of Broadcom closed in November, also announced Monday that it will no longer sell Support and Subscription (SnS) for VMware products with perpetual licenses. From now on, VMware will only offer fixed-term licenses or subscriptions, according to its VMware Blog post.
VMware customers with perpetual licenses and active support contracts can continue to use it. VMware “will continue to provide support as specified in contractual commitments,” wrote Krish Prasad, senior vice president and general manager of VMware’s Cloud Enterprise division. But when customers’ SnS terms expire, they won’t get any support.
Broadcom hopes this will coerce customers into subscriptions, and is offering “upgrade pricing incentives” not detailed in the blog for customers who switch from a perpetual license to a subscription.
These are the affected products, according to Prasad’s blog:
- VMware Aria Automation
- VMware Aria Suite
- VMware Aria Operations
- VMware Aria operations for logs
- VMware Aria Network Operations
- VMware Area Universal
- VMware Cloud Foundation
- VMware HCX
- VMware NSX
- VMware Site Recovery Manager
- VMware vCloud Suite
- VMware vSAN
- VMware in Sphere
The subscription-based future
Broadcom is looking to grow VMware’s EBITDA (earnings before interest, taxes, depreciation and amortization) from about $4.7 billion to about $8.5 billion in three years, largely by shifting the company’s business model to subscriptions, it said. said Tom Krause, President of Broadcom Software Group. , he said during an earnings call on Dec. 7, per Forbes.
“This transformation is the next natural step in our multi-year strategy to make it easier for customers to consume our existing offerings and new innovations. VMware believes the subscription model supports our customers with the innovation and agility they need as they transform their businesses,” the VMware blog said.
With the changes taking effect as soon as they are announced, the news may seem surprising. However, in May, shortly after announcing its plans to acquire VMware, Broadcom CEO Hock Tan signaled a “rapid transition” into subscriptions.
At the time, Tan noted the importance of keeping existing VMware customers happy, as well as leveraging the VMware sales force already in place. However, less than a month after the deal was completed, reports indicate concern among VMWare customers and partners.
Customer and partner concerns
“The industry has already embraced subscription as the standard for cloud consumption,” the VMware blog said. For years, software vendors and even hardware vendors and investors have been pushing IT solution provider partners and customers toward recurring revenue models. However, VMware has built much of its business on a perpetual licensing model. As he pointed out ChimneyVMware noted in February that perpetual licensing was the company’s “most popular model.”
A VMware blog this week listed “continuous innovation” and “faster time to evaluation” as customer benefits of subscription models, but did not detail how it reached those conclusions.
“Predictable investments” are also listed, but it’s hard to imagine a more predictable expense than paying for something once and subsidizing access to it indefinitely (assuming you keep paying any support costs). Now, VMware and its partners will be able to convince customers that their finances can afford a new monthly expense for something they thought was paid for. However, for Broadcom, it’s easier to see the benefits of turning VMware into a reliable, recurring revenue stream.
Additionally, Broadcom’s layoffs of at least 2,837 VMware employees have brought uncertainty to the VMware brand. a CRN A report released in late November noted VMware partners were hearing customer concerns about potential price increases and lack of support. C.R. Howdyshell, CEO of Advizex, which reportedly generated $30 million in VMware revenue in 2022, told the publication that partners and customers were experiencing “significant anxiety and chaos” around VMware sales. Another CRN channel partner indicated the layoff of an employee close to the VMware sales contact.
But Broadcom has made it clear that it wants to “complete the transition of all VMware by Broadcom solutions to SLs,” according to Prasad’s blog.
The company hopes to convince skeptical channel partners that they will see the way, too. VMware, like many technology companies pushing subscription models, noted that “several partners” have already had success with subscription models and “an opportunity for partners to engage more strategically with customers and deliver higher-value services that drive customer success.”
However, since there is no immediate benefit to customers at the end of perpetual licenses, those affected by VMware’s change in business strategy will have to evaluate how much they are willing to pay to access VMware products going forward.
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