By Isabelle Bousquette
Moves by Broadcom to shore up its $69 billion VMware acquisition, completed in November, include a streamlining of product bundles and new billing models — efforts in line with the chip giant’s past acquisitions, but not necessarily welcomed by all of VMware’s customers.
Broadcom made its name by acquiring makers of a host of unsexy-but-essential microchips components, then cutting costs and leveraging the company’s growing pricing power. With the VMware acquisition, its largest, the San Jose, Calif.-based company is turning some of those tactics to enterprise software.
In recent months, Broadcom’s VMware Cloud Foundation division, responsible for the company’s flagship infrastructure software, shaved its offerings from nearly 1,000 to just two bundles, and ended perpetual license sales, one-time payments for indefinite use of software, in favor of a full subscription payment model, the company confirmed. Broadcom has also recently laid off at least hundreds of VMware workers, disclosures from the Worker Adjustment and Retraining Notification show. Broadcom declined to comment on layoffs.
The division in a blog post said the bundling changes were a result of customer and partner feedback that their offerings were too complex and that streamlining the portfolio will result in better value for customers. It said the full shift to a subscription model will allow it to deliver continuous innovation, faster time to value and predictable investments.
Founded in 1998, Palo Alto, Calif.-based VMware is the pioneer of virtualization, a critical building block for what would become cloud computing, in which hardware, such as a physical server, can be swapped out for software. The company said it is focused on helping customers address the challenges of a corporate IT environment that often includes multiple cloud providers as well as their own data center. VMware has approximately 330,000 customers, according to the company.
Chief information officers say they are closely monitoring what comes next.
“Any CIO that’s not taking stock of what they have and mentally considering alternatives and monitoring what else is out there is probably not doing their job,” said Jay Ferro, executive vice president and chief information, technology and product officer at clinical research data-management company Clario.
All these changes, plus past remarks by Broadcom that its go-to-market strategy is to focus completely on the needs and priorities of its top 600 customers, has left some CIOs rethinking the relationship. Price increases and degrading levels of support are among their biggest concerns.
“I’m not one of their top, probably 600 customers, so they’ve been very clear to me where I fit in that pecking order,” said Todd Florence, CIO of trucking company Estes Express Lines. Florence said he’s started looking into alternatives. “It certainly doesn’t make you feel good, like you’re going to get lots of support going forward.”
In the past, Broadcom has had trouble finding software assets compatible with its business philosophy, which, at a 2021 investor day, it described as focusing on cross-selling and upselling to a base of about 600 core business customers. This is how the company runs its chip business, but the strategy is atypical in software where companies tend to expend huge sums to pursue growth and land clients.
Goya Foods CIO Suvajit Basu said he is thinking about how to reduce the food company’s reliance on VMware as the sole and longtime dominant provider of virtualization for the data center. “They’re going to increase their prices or change their licensing so the customer pays more,” he said. “And I think this is starting to hit us right now.”
Tracy Woo, a principal analyst at market research firm Forrester Research, said moving away from VMware can be incredibly costly and require years of time as well as specialized, in-demand talent.
Forrester estimates that in 2024, 20% of VMware customers will begin the process of exiting VMware in favor of alternatives.
There are reasons for customers to be optimistic about the changes, says Stephen Elliot, group vice president, infrastructure & operations, cloud operations, and devops at market researcher International Data Corp.
The product portfolio simplification is an opportunity for customers to get more out of their VMware purchases and think about how they can use the new products that are now included in bundles, he said. It also means VMware and Broadcom will be responsible for more actively engaging with their customers to sell them on this increased value.
“Focus and clear concise direction can be a very powerful leadership tool,” he said. “And I think that’s what we’re seeing here: a lot more focus.”
–Belle Lin contributed to this article.
Write to Isabelle Bousquette at isabelle.bousquette@wsj.com