Back in May of 2022, Broadcom announced its intention to acquire VMware for a hefty $61B. The process then took a long time to complete. From navigating the acquisition process to overcoming last-minute hurdles in China, Broadcom successfully finalized the acquisition in November 2023.
Table of Contents
- Simplified portfolio
- VMware Cloud Foundation (VCF)
- VMware vSphere Foundation (VVF)
- vSphere Essentials and vSphere Essentials Plus
- Subscription model only
- What’s the Significance of This Shift?
- What Does This Mean for Existing VMware Customers?
- Products that are out of scope for Broadcom
- Conclusion
Among other things, the recent acquisition of VMware by Broadcom has brought about significant changes to the company’s licensing model. Following the completion of the acquisition, VMware has announced a transition away from traditional perpetual licenses and towards a subscription-based model for most of its products.
While the news came very quickly after the acquisition was confirmed, it was a surprise for no one as this transition had been expected for a long time now, especially since the introduction of the “Plus” offerings with vSphere+ and vSAN+. However, subscription based licenses isn’t the only new thing here.
Simplified portfolio
This new line up rocks the boat when it comes to vSphere licensing. Forget about individual product licensing and purchasing only what you need in your environment. Broadcom collapsed every VMware product under 2 offerings along with Add-ons option.
VMware Cloud Foundation (VCF)
This is the flagship and complete hybrid cloud solution for customers to run their business critical and modern applications – in a secure, resilient and cost-efficient manner. The communication mentions VMware have reduced the previous subscription list price by half and added higher support service levels to open it to more customers. VMware Cloud Foundation includes:
- Aria Suite Enterprise with Aria Automation, Aria Operation, Aria Operations for Logs and Aria Operations for Network
- vSphere Enterprise Plus
- VSAN Enterprise with 1TB/core
- NSX Enterprise Plus
- HCX Enterprise
- SDDC Manager
A number of Add-Ons can then be purchased with VMware Cloud Foundation including SRM, NSX ALB, Tanzu Application Platform/Intelligence and the Disaster Recovery (VCDR) and Ransomware Recovery (RWR) offerings.
VMware vSphere Foundation (VVF)
vSphere Foundation is the simplified workload platform for mid-sized to smaller customers. This solution integrates vSphere with Aria tools. Note that VSAN will likely be offered as an Add-on! VVF will include:
- vSphere Enterprise Plus
- Aria Suite Standard with Aria Operations and Aria Operations for Logs
And as mentioned above, the current communication from VMware on the new licensing specifies that vSAN is available as an Add-On to VVF. Other Add-Ons should also include SRM, DR/RR, NSX ALB and Tanzu solutions.
vSphere Essentials and vSphere Essentials Plus
It is also specified that they will offer VMware vSphere Standard and VMware vSphere Essentials Plus Kit (with 96 cores) for deployments with more limited requirements without any more information.
No Add-Ons can be purchased with the Essentials and Essentials Plus kits.
Subscription model only
Broadcom, as the new owner of VMware, has cited several reasons for transitioning to a subscription model. Firstly, they believe that this model aligns better with the evolving cloud-based IT landscape, where software is constantly updated and upgraded.
Subscriptions provide a more flexible and predictable way to access and consume VMware products as they evolve. In other words, it is down to the age-old CAPEX vs OPEX discussion and where to place the cursor when planning the budget. Organizations now no longer have this choice and will have to work the costs of their VMware environment into their OPEX budget.
Secondly, Broadcom aims to increase revenue from VMware by moving away from one-time license sales and towards recurring subscription fees. This subscription-based revenue stream is expected to generate a more consistent and predictable source of income for Broadcom, most likely at the expense of existing customers leveraging persistent licenses.
What’s the Significance of This Shift?
This shift in licensing strategy has far-reaching implications for VMware customers. Perpetual licenses, often referred to as “license-to-use” agreements, provided customers with the right to use the software indefinitely after purchasing it. It is a well known fact that the majority of VMware customers favored perpetual licenses as opposed to subscriptions for their on-premise hardware. This meant that once the upfront license fee was paid, there were no further recurring costs except maintenance to get access to VMware support and new major version upgrades.
With the move to subscriptions, VMware customers will now need to pay recurring subscription fees to maintain access to their software. While this should greatly benefit Broadcom by increasing revenue from $4.7B to some $8.5B, this means that the total cost of ownership (TCO) for VMware products is likely to increase over time as customers will be the ones financing this.
What Does This Mean for Existing VMware Customers?
VMware has stated that existing customers with perpetual licenses will not be forced to migrate to subscriptions immediately. However, they will eventually need to transition to the subscription model as their existing licenses expire. Broadcom will work with customers to help them “trade in” their perpetual products in exchange for the new subscription products.
For existing customers, the shift to subscriptions presents both challenges and opportunities. On the one hand, it means that they will need to adjust their budgeting and financial planning to accommodate recurring subscription costs. On the other hand, it provides them with access to the latest VMware products and features as they are released.
However, what was already feared when this acquisition was first announced in 2023 may become a reality too, since small and mid-size customers will suffer from these changes as their VMware SDDC will likely become much more expensive overnight.
The communications make light of incentives for customers to start an inventory of their product usage to establish the requirements when switching to the subscription model. It is also repeated quite a lot that Customers should also contact their VMware or partner representative for more information.
Products that are out of scope for Broadcom
Along with the licensing changes, Broadcom is getting rid of the products that aren’t essential to the Hybrid Cloud platform from the VMware portfolio. This means the following products are moved to separate business units and will be sold off:
- Carbon Black
- VMware Workstation
- VMware Fusion
- VMware Workspace ONE
- VMware Horizon
The timeline on these is unclear and splitting these from VMware might be trickier than expected by Hock Tan as some of these are tightly coupled with the underlying vSphere hypervisor and vCenter. Also it is somewhat sad to find VMware Workstation in this list as it is one of the products that made VMware a success in its early days.
Conclusion
While the acquisition of VMware by Broadcom has dragged on for a long time until it was finally closed, the changes initiated by the new owners were quick and drastic.
Many VMware employees did lose their jobs, it brought significant doubt within existing customers and it started a lot of chatter online about alternatives to VMware. These changes will undoubtedly quickly increase the revenue of the tech giant, but it may drive quite a few organizations away to the competition as Nutanix is currently riding this wave to poach unhappy customers. It appears that Broadcom won’t pay too much attention to these shifts as their focus is now publicly aimed towards large enterprises.
It is still too early to tell if these changes will have a positive or negative effect on VMware customers. Also, while small organizations will be able to migrate fairly easily to the likes of Nutanix or OpenStack, large corporations and government entities will require a lot more work that will most likely not be worth it.
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