"To be clear, we intend to continue serving customers of all sizes," CEO Hock Tan wrote in a blog post.
No VMware Price Increases, SMB Neglect, Broadcom CEO Vows
"To be clear, we intend to continue serving customers of all sizes," CEO Hock Tan wrote in a blog post.
James Anderson
December 1, 2022
Broadcom CEO Hock Tan is reiterating to VMware customers and partners that Broadcom won’t raise VMware product prices or neglect SMB customers.
Broadcom in May announced its monumental $61 billion acquisition of virtualization giant VMware. The deal, recently approved by shareholders to close in its just-started fiscal year 2023, has sparked the interest – and concern – of the channel. Those concerns stem mainly from Broadcom’s track record of acquiring companies such as Symantec and CA Technologies. That track record, partners have said both on- and off-the-record, involves heavy cost-cutting and layoffs, price increases and a narrow focus on enterprise customers.
VMware Pricing
Tan on Wednesday published a blog explicitly addressing “press reports” that say Broadcom will raise prices for VMware products. For example, Forrester senior analyst Tracy Woo wrote earlier this year that Broadcom enacted “massive price hikes” for CA and Symantec customers.
Hock Tan
President and Chief Executive Officer
November 30, 2022
CEO Insights
Broadcom and VMware — investing for customer value
An update from Hock Tan, Broadcom President and CEO
Innovation
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In October, I shared my thoughts about what a combined Broadcom and VMware will mean for customers. I wrote about the conversations I’ve had to date, the future of multi-cloud, and our philosophy on pricing, and I reiterated Broadcom’s commitment to keeping customers at the center of our business.
Nonetheless, I’ve continued to see questions in press reports about whether we intend to raise prices on VMware products. The answer is simple: No.
Given the continued interest, I wanted to expand on my thoughts about the pending transaction and share more on how Broadcom will support VMware customers and innovate VMware products once the transaction closes.
Building on our commitment
It’s important to remember that Broadcom is an engineering-first company. Our commitment to innovating leading-edge technology, ensuring successful deployments of our solutions, and delivering value for our customers is what drives our growth.
The addition of VMware will further Broadcom’s commitment in each of these three areas.
Our business model is predicated on adding long-term value to our products and improving them over time.
Following the transaction’s close, we’re going to focus on making VMware’s products better for all of our customers, including enterprise customers who want products that are even easier to use. And, to be clear, we intend to continue serving customers of all sizes. VMware has a robust partner ecosystem that we will build upon to help us serve even the smallest companies. In short, we plan to take a “no customer left behind” approach.
Innovating for success
How will we spur higher growth and drive customers of all sizes to buy more VMware products than ever before? We’ll do it the way we’ve always done it: through our laser-focus on execution and innovation.
Broadcom has the scale and capacity to invest major resources in R&D innovation and build on VMware’s talented team by recruiting the best engineers — an advantage that has historically allowed us to develop better technology and product solutions than the competition, whether it’s in broadband, ethernet switching, or endpoint protection.
By investing and innovating in infrastructure software and VMware’s broad portfolio — including multi-cloud and cloud-native capabilities — we will bring our customers greater flexibility and deliver new solutions to help them connect, scale and protect their IT infrastructure.
Post-close, we intend to apply this formula for success by investing in and operating VMware with a concerted focus on growth and innovation, while furthering our track record of delivering consistent, justifiable value with our fairly priced solutions.
Greater customer choice
As we look to our shared future, we know what goes into successful customer relationships. We also know that if customers don’t find consistent value in the solutions we deploy, they’ll go elsewhere.
Don’t just take my word for it. IDC highlighted in a recent report that any vendor looking to cultivate successful customer partnerships has to first offer products, support and services that translate into real value.
In the report, IDC shared a comment from a CIO of a large, global financial services company who noted that, “This acquisition is unique, and it makes sense for [Broadcom and VMware] to form one organization that can increase productivity and deliver a more complete customer experience. Together, Broadcom and VMware will give us [customers] more power to modernize and transform our IT infrastructure to meet the needs of an ever-evolving world, ensuring secure, reliable, and flexible, choices.”
This CIO is exactly right. As workloads continue to grow rapidly across environments and multi-cloud options expand, a combined Broadcom and VMware will be focused on giving customers greater choice and flexibility over where and how they run their critical operations. We will invest in and innovate VMware’s products to create the next generation of technology that solves customers’ most complex IT challenges.
Industry analysts from May of 2022:
VMware Customers: Get Ready For Broadcom Disruption
Tracy Woo, Principal Analyst
Naveen Chhabra, Principal Analyst
Andrew Hewitt, Principal Analyst
Lee Sustar, Principal Analyst
Brent Ellis, Senior Analyst
Carlos Casanova, Principal Analyst
Charles Betz, Research Director
William McKeon-White, Senior Analyst
Allie Mellen, Principal Analyst
Paddy Harrington, Senior Analyst
Sam Higgins, Principal Analyst
Lauren Nelson, VP, Research Director
Glenn O'Donnell, Vice President, Research Director
Bill Martorelli, Principal Analyst
MAY 26 2022
Late Sunday evening, Bloomberg reported rumors of advanced Broadcom talks to acquire VMware, which has since been confirmed this morning. In light of Broadcom’s investment activities in the past few years, this news is unsurprising. It made a string of massively expensive enterprise software company acquisitions: Brocade Communications Systems in 2016 ($5.9 billion), CA Technologies in 2018 ($19 billion), and Symantec in 2019 ($10.7 billion). VMware, with a current market cap of $50.3 billion, stands to be its most expensive acquisition yet. Despite stock share increases, this isn’t welcome news for VMware customers.
For acquired companies, a Broadcom acquisition sparks fear of price hikes, diminished support, and stunted innovation. At a time when VMware customers need to reestablish confidence in the company’s strategy and innovation plans after beloved ex-CEO Pat Gelsinger’s departure, this would be a notable departure from that course.
After all, VMware customers should be concerned especially if Broadcom follows the same playbook it used for its CA and Symantec acquisitions. Following these purchases, CA and Symantec customers saw massive price hikes, worsening support, and stalled development. Symantec redirected its focus to its biggest resellers and customers. The company largely abandoned its customer base of 100,000 to prioritize its top 2,000. With VMware, the big question is whether Broadcom can leverage a massive enterprise software portfolio and customer base to build a competent modern solution that extends from mainframe to edge. Or does it continue with the same trend of squeezing clients for licensing dollars at a time of rising global inflation?
Why VMware?
Broadcom has recently been expanding into areas outside of its traditional semiconductor business to include infrastructure and enterprise software. The semiconductor market has been hard hit by the pandemic, with materials shortages and supply issues combined with flattening growth in performance and incremental improvements in innovation due to constraints in device physics. With an eye to the horizon, Broadcom is looking to remain relevant in the tech world by further diversifying its portfolio. VMware is a main player in enterprise IT software, serving as the market standard for server virtualization software. The company especially wins with its management products (vRealize management suite and CloudHealth). These products have seen tremendous growth year over year and continue to far exceed their competition. Its end user computing offerings are another notable strength with its Horizon and Workspace ONE solutions.
What Are VMware’s Prospects?
Although VMware is still the de facto enterprise virtualization software, it’s been slowly losing relevance to containers, open source software, and public cloud technologies. Still, erosion of ESX/ESXi’s stronghold on the enterprise will likely have a long tail. Its on-premises infrastructure software is firmly entrenched in most enterprise data centers.
VMware has been proactively working on a multiyear plan across many new areas to recover this revenue in newer technology markets. Its success in each endeavor has varied, however. The company’s vCloud Air product was short-lived. It was quickly replaced with a partner play through its VMware Cloud on Amazon Web Services (AWS) and other similar partnered offerings with the major hyperscalers. vSAN has done well, only facing significant competition from Nutanix. NSX saw market adoption but has yet to establish itself as the de facto standard or gain recognition as a definitive leader in its market. Red Hat’s Ansible Automation Platform could evolve to challenge VMware’s stronghold in enterprise IT infrastructure automation on-premises — each has its own strengths today. For VMware, its distinct differentiation and leadership remain in only a few avenues: its cloud management products, vRealize solutions and CloudHealth, and its end user computing offerings, Horizon and Workspace ONE.
As it stands, VMware’s differentiation of providing an ecosystem of technologies in one place is becoming less marketable with stronger competitors and the entrance of open source solutions. If VMware stays the course alone, it needs to better articulate how its existing vSphere/vCenter customers can transition to cloud-native technologies using the Tanzu portfolio as part of a broader IT modernization strategy. For example, the Tanzu Application Platform (TAP) product aims at improving developer experience and productivity in a Kubernetes environment — an important offering but one that misses on supporting the entire modernization narrative. For its end user computing roadmap, VMware needs to expand beyond its virtual desktop infrastructure (VDI) and endpoint management space to either: a) transform itself into a full-blown experience management company or b) double down on security investments and position itself as a security-first vendor for anywhere work, as it is starting to do with its Anywhere Workspace solution.
What Are The Competitive Implications?
If VMware customers are spooked by the Broadcom acquisition, Red Hat and hyperscalers stand to benefit. VMware customers looking to fully move off VMware could migrate to Red Hat’s open source kernel-based Virtual Machine as an alternative hypervisor. And although Pivotal (now VMware TAP) took an early lead as a multicloud container platform standard for enterprises, Red Hat’s OpenShift cloud platform has surpassed TAP in total market share and capabilities as VMware faltered in satisfying its customers.
Specifically, VMware clients struggle with navigating the company’s multiple solutions — some products support legacy VMware standards, while others focus on cloud-native standards. Existing VMware clients have been in a multiyear wait as the company gets more organized with its approach. An acquisition by Broadcom will only further diminish customer confidence and push interest toward other big multicloud container brands such as Red Hat’s OpenShift, Google’s Anthos, or SUSE Rancher.Cloud providers like AWS, Microsoft Azure, and Google Cloud Platform may benefit from fleeing customers who seek to accelerate cloud migration plans or opt for a cloud-native approach rather than using a VMware-based solution on their platform (i.e., choosing EC2/S3 instead of VMware on AWS).
Another big question is the impact on strategic partnerships. VMware hosting partners such as IBM, Lumen Technologies, Rackspace, and OVHcloud could be heavily impacted if any changes are made to existing pricing models, product development roadmaps, or collaboration agreements with both managed service providers (MSPs) and customers. Also unknown is whether these partner roles will evolve to be MSPs of cheaper hosted environments or as consultants that may help accelerate migration.
Undoubtedly, the acquisition would dilute VMware’s value proposition as a leading end-user computing vendor, making additional room for major competitors like Microsoft to gain market share from VMware’s VDI and endpoint management product lines (i.e., Horizon and Workspace ONE). The strength of VMware’s end-user computing portfolio has long taken a back seat to the company’s infrastructure offerings, and integration into the plethora of Broadcom software offerings would only obscure the value even more so. This presents an opening for Microsoft to position its competing offerings such as Azure Virtual Desktop and Microsoft Endpoint Manager as easier to consume, deploy, and manage.
What Does The Future Look Like In A Broadcom/VMware World?
With any acquisition, the new arrangement has the potential for a “better together” story. In this case, the meaningful synthesis would be in monitoring and modernization. Both Broadcom and VMware have existing monitoring products that, when combined, could prove beneficial for customers. Broadcom’s AIOps and Observability is a broad software portfolio that focuses on network, application, infrastructure, and digital experience monitoring (DEM). These offerings could complement VMware’s digital employee experience management capabilities, which primarily serve endpoint and mobile health. The combination could catapult Broadcom into an AIOps and Observability leadership position. At a minimum, it would send strong ripple effects throughout the DEM market. A Broadcom/VMware offering would mean full visibility from the cloud to any endpoint, including mobile and virtual endpoints. The pairing could hurt VMware further, however, if Broadcom continues to invest in end-user experience capabilities on the endpoint, rendering VMware’s contribution less relevant.
A VMware acquisition means that Broadcom can market itself as the modernization platform — where companies can transition workloads from any legacy system by using new cloud-native technologies. A combined Broadcom and VMware could create a behemoth that holistically tackles any workload modernization challenge, thereby delivering the greater goal for many enterprise customers: to embrace cloud-native without overdependency on any cloud provider. Will it? Given its track record, it does not seem likely. Ultimately, if you’re a VMware shop, you’ve got to make the call in the near future.