The Aftermath of Broadcom’s VMware Acquisition: Licensing Struggles and Alternatives for IT Service Providers

Broadcom, VMware, Broadcom’s VMware Acquisition

The acquisition of VMware by Broadcom in late 2023 has brought a wave of changes that are creating challenges for IT service providers and partners. With a focus on shifting VMware’s licensing model from a perpetual to a subscription-based approach, these changes have impacted operational budgets, support structures, and partnerships across the industry.
In this blog, we’ll explore the key challenges faced by IT service providers in obtaining VMware licenses post-acquisition and why many are considering alternatives like Microsoft and AWS.

The Shift from Perpetual Licensing to Subscriptions

One of the most significant changes following the Broadcom acquisition is the phasing out of VMware’s perpetual licenses. The move to a subscription-based model aims to create a predictable revenue stream for Broadcom, but it also forces customers to rethink their financial planning. The result is higher costs, particularly for small and medium-sized enterprises (SMEs), who are finding it more difficult to adjust to the new subscription pricing. This licensing shift affects budgeting and planning, as organizations that previously preferred the one-time capital expenditure (Capex) of perpetual licenses must now adjust to recurring operational expenditure (Opex) (Park Place Technologies).
 
The consequences are clear: costs can rise dramatically. Some organizations have seen quotes soar by as much as 450% for support, with cases like the London Grid for Learning experiencing a 268% increase over their previous contract (https://blog.clearscale.com).

Simplified Product Portfolio – But at What Cost?

Broadcom’s reorganization of VMware has dramatically simplified its product portfolio, narrowing it to four main offerings: VMware Cloud Foundation (VCF), VMware vSphere Foundation (VVF), vSphere Standard (VVS), and vSphere Essentials Plus (VVEP). This reduction has led to many VMware products either being discontinued or rebranded as add-ons to these primary packages. Previously available products, such as VMware NSX, vSAN, and VMware Aria, have either been merged into new offerings or eliminated, which has created confusion and necessitated adjustments for businesses relying on these tools (Park Place Technologies) (SCHNEIDER IT MANAGEMENT).

Licensing Challenges and Cost Implications

Another key change involves VMware’s shift to a “license per core” pricing model. With a minimum requirement of 16 cores per CPU, this adjustment can significantly drive up licensing costs for organizations utilizing mid-range to high-core servers. The change can lead to higher costs for IT service providers as they attempt to navigate Broadcom’s revised licensing rules.
 
In addition, existing Enterprise License Agreements (ELAs) will not see immediate impacts until their terms expire. Once these agreements end, customers will be required to migrate to the new subscription-based model to receive continued support. While there are trade-up paths available for customers holding perpetual licenses, many are finding that they are not cost-neutral, leading to potentially higher renewal expenses over time (Licensing Data Solutions).

Restructured Partner and Reseller Networks

Broadcom has also significantly altered its partner and reseller networks, opting to directly manage large strategic accounts (estimated to be around 2,000), sidelining smaller resellers who previously played a crucial role in supporting these accounts. This change has forced many IT service providers to interact directly with Broadcom or seek larger resellers to manage their licenses and support needs. This direct interaction could potentially result in the loss of personalized support and discounts that resellers previously offered, along with an increased risk of audits due to the absence of intermediaries (Licensing Data Solutions).

IT Service Providers Seeking Alternatives

The licensing and support changes brought by Broadcom have prompted many IT service providers to consider alternatives to VMware. For example, the pay-as-you-go pricing model of AWS offers flexibility that VMware’s new licensing model does not. AWS’s flexible pricing structure allows organizations to start and stop virtual machines as needed, making it a compelling alternative for those seeking to mitigate the rigidities and increased costs imposed by Broadcom’s subscription model (https://blog.clearscale.com).

Adapting to the New Landscape

With the shift in VMware’s licensing approach, IT service providers must adapt quickly. Here are some key strategies to navigate the changes:
 

Comprehensive License Audit: Assess current VMware usage to ensure compliance and identify optimization opportunities under the new licensing model (Data Center Catalog).

Transition Roadmap: Develop a tailored plan to transition to the subscription model while considering both immediate adjustments and long-term strategic alignment.

Leverage Financial Incentives: Utilize any financial incentives provided by Broadcom to ease the transition to subscription-based licensing.

Consider Alternatives: Evaluate cloud alternatives like AWS and Microsoft, particularly for their flexible pricing and support structures.

Conclusion: Navigating the Challenges Ahead

The Broadcom acquisition of VMware has fundamentally changed the licensing and support landscape for IT service providers and partners. The shift from perpetual to subscription-based licensing, combined with changes to partner networks and support, has driven up costs and created operational challenges. To maintain business continuity and minimize financial impact, IT service providers are exploring alternatives like AWS and Microsoft to regain flexibility and control over their virtualization needs.
 
In this new environment, a strategic approach is crucial for adapting to Broadcom’s licensing changes and making the most out of cloud solutions. 

The future will likely see more VMware migrations as organizations strive to find cost-effective and scalable solutions that align with their needs.

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