What’s happening with VMware and Broadcom?

After a months-long process, Broadcom announced that it had closed their acquisition of VMware for $61B USD in November 2023.

Broadcom plans to invest in VMware products that enable enterprises to build and modernise their private and hybrid cloud environments, Broadcom CEO Hock Tan has said.

What changes have Broadcom initiated?

Broadcom have made wholesale changes to the VMware product suite, along with reseller and partner programs, almost from the day the deal was completed.

All VMware customers and partners and service providers worldwide have been impacted to some degree.

What’s the most significant change?

One of the first things Broadcom did was cease selling all perpetual licenses, as well as any new support for existing perpetual licenses.

Support is now only available through an annual software subscription, which has the effect of migrating all businesses into a subscription-based model. Whilst this aligns with where the software industry is going, it was announced in a fairly abrupt manner with no grace period which caught many off-guard.

The other significant change was the consolidation of the VMware product suite.

Arguably, VMware had too many products with too many add-ons and variables. Broadcom has simplified the product offering into three to four product tiers with limited add-ons.

If you have bespoke or a la carte VMware products, you will likely find that you can’t renew those same offerings in the same form. You may find you’re paying for products and services you don’t need under the new bundled SKUs.

Broadcom have challenged their customer base to either ‘go big or go home’. Businesses may see some benefits in fully aligning with the new VMware product suite – for others this has never been part of a long-term strategy.

Are there any businesses who are particularly disadvantaged by these changes?

Yes. Businesses running traditional vSphere hypervisor environments on legacy hardware should be particularly aware of nuances under the new licencing model.

Broadcom have transitioned to a per-core licencing model which has a 16-core floor. This means that any physical CPUs will be billed a minimum of 16 cores, regardless of what exists on the CPU. Older CPUs or CPUs with a high clock offset by a low core count will see an exponential increase in licencing costs under this model.

The way to mitigate this is running vSphere in a dense, efficient configuration on relatively new hardware. This is something AC3 can do by leveraging our strategic partnership with HPE Greenlake. The Greenlake model allows for the acquisition of best-of-breed hardware under a consumption model, doing away with the need for CAPEX.

What about VMware’s relationship with HP, Dell and other equipment manufacturers (OEM)s?

VMware terminated most OEM relationships very soon after the Broadcom acquisition. This had an immediate impact via the withdrawal of OEM Licencing. Businesses that have previously purchased OEM hardware with VMware software add-ons will be particularly impacted, as OEM licensing is no longer available.

At this point, it is unclear whether Broadcom will revive such deals and relationships in the future.

Are Broadcom’s changes impacting service providers?

Yes – but the impact depends on the size of the MSP and the scale and utilisation of the VMware product suite.

One significant change is that Broadcom has replaced the existing VMware partner program.

Previously, billing on this program occurred based on a utilisation model. This will now be changing to pricing based on the total size of a VMware environment, regardless of how much of that environment is being used. Service Providers will have to be efficient with their VMware deployments, especially with older hardware or smaller environments. Billing based purely on utilisation was an easy way to navigate the VMware product suite – it is now something that needs a good amount of lifecycle planning first.

VMware will expect MSPs to consume the entire VMware stack and all available VMware services under the VCF product (with addons). Doing so may be cost effective under the model - however this may not always be aligned with the existing strategy for many Australian and New Zealand MSPs.

What now? What options do I have?

Reach out to your Account Manager, or contact us today, to discuss your options.

AC3 has over 20 years of experience deploying VMware environments, rightsizing, cost optimising, and assisting government departments and other highly regulated enterprises across Australia and New Zealand.

We were one of the first companies to join the VMware partner program and our team have experience in a wide range of VMware products and solutions.

We have the expertise required to help you navigate these changes.