Life’s Only Constant is Change: Impacts of the VMware Acquisition
Broadcom completed the $69 billion acquisition of VMware on November 22, 2023. In the one year since Broadcom’s acquisition of VMware, we’ve seen drastic pricing and packaging changes, a new channel strategy, as well as the restructuring of the internal and external community.
It makes you wonder, how have these changes affected IT strategy? And are there any examples of past acquisitions that can help us make sense of the changes? The Oracle acquisition of Sun Microsystems is a great place to look for lessons.
Sun’s acquisition by Oracle and its aftermath:
Sun Microsystems, founded in 1982, shares many similarities with VMware, particularly in their vibrant user communities. Sun's community, known as Big Admin, was highly informative, even though it was a bit intimidating to baby sysadmins like me. Sun's flagship event for Java developers was JavaOne.
Sun also played a pivotal role in laying the groundwork for today's cloud computing. At the forefront of UNIX adoption, Sun's SPARC hardware featured their successful early RISC processors. The Solaris software system, tailored for Sun hardware, was renowned for its stability and security. Sun introduced the world to the Java programming language, NFS, and the first building blocks of containers, unveiling the first container system, Solaris Zones, in 2004.
However, despite their early successes in the workstation market, Sun struggled to survive the burst of the dot-com bubble in 2000. As a sysadmin during that period, I saw our users (astrophysicists) favor x86 architecture and Linux for faster processing over SPARC architecture. Sun faced tough competition from vendors running open-source Linux on x86 systems.
In 2009, Oracle acquired Sun Microsystems for $7.4 billion, gaining access to their hardware, operating system, and the Java codebase. This acquisition also marked the loss of the Big Admin community.
Doesn’t that sound familiar?
Broadcom's Revenue Goals and Strategic Shifts:
Prior to the acquisition, Broadcom announced their goal for 70% of Annual Recurring Revenue to come from 600 key customers in highly regulated industries. To achieve this, Broadcom implemented several strategic pricing and packaging changes.
Initially, they shifted from offering perpetual licenses to software subscriptions. They forced adoption by removing support for existing licensing. Next, they streamlined VMware's 8,000 SKUs down to four core offerings:
- VMware Cloud Foundation
- VMware vSphere Foundation
- VMware Standard
- VMware Essentials
Broadcom also revamped VMware's partner go-to-market strategy, requiring existing VMware partners to receive invitations to become Broadcom partners. Additionally, VMware transitioned approximately 2,000 top accounts from the channel to direct management, aligning with Broadcom’s broader strategy.
By focusing on a smaller customer base, Broadcom can significantly reduce sales and marketing expenses. This has led to substantial workforce reductions at VMware, including an estimated 30% cut in recent weeks. The 2024 VMworld conference was notably smaller, prompting speculation about its future.
Broadcom's VMware Acquisition and Its Impact on IT Infrastructure:
The Broadcom acquisition marks a significant transition in IT infrastructure management. Previously, VMware was the go-to hypervisor for IT infrastructure, offering predictability despite not being the most affordable choice. Companies could predict their expenses, and VMware's expansive ecosystem of supported products—ranging from hardware and security to backups and encryption—was a foundational element for countless organizations. Many built their IT ecosystems on VMware vSphere, never expecting that relying on top-tier virtualization technology would lead to vendor lock-in.
However, Broadcom's changes to licensing have introduced unexpected and considerable price hikes, with IT organizations now bracing for at least a 100% increase in costs. As one analyst put it, these changes seem like an "effort to divorce the customer."
This places companies in a challenging position, as replacing VMware as a hypervisor is no simple task. Even larger enterprises are feeling the strain. For instance, AT&T sued Broadcom for altering support contracts, aware of the difficulties involved in migrating to an alternative hypervisor.
However, this scenario also opens opportunities for competition.
Emerging Opportunities for Competitors in the Hypervisor Market:
For decades, VMware has led the server virtualization market. In 2020, the total addressable market for server virtualization was valued at $7.1 billion, with projections to reach $10.8 billion by 2027, underscoring virtualization's critical role in the architecture of cloud computing.
However, Broadcom's assertive strategy and increasing costs have created opportunities for competitors. Microsoft and Nutanix offer rival hypervisors, and they are building extensive partner ecosystems. Scale Computing's hyperconverged infrastructure (HCI) system directly challenges VMware Cloud Foundation. Google Cloud has been actively pursuing VMware's customer base.
Conclusion:
The completion of Broadcom's acquisition of VMware has brought significant changes over the past year. The shift from perpetual licenses to software subscriptions, the reduction of VMware's SKUs to four core offerings, and the restructuring of the partner go-to-market strategy have all been pivotal moves.
These changes have led to substantial VMware workforce reductions and a notable increase in costs for IT organizations. However, they have also opened up opportunities for competitors in the hypervisor market, such as Microsoft, Nutanix, and Scale Computing.
Looking ahead, VMware's journey under Broadcom will likely be characterized by a concentrated effort to capitalize on its core offerings and deepen relationships with its top-tier customer base. While this strategy offers potential for streamlined operations and focused innovation, it also presents challenges in maintaining broad community support and flexibility for customers.
In fifteen years, people may forget how critical VMware was to IT infrastructure operations, much as people have forgotten the contributions of Sun Microsystems. vSphere and vCenter may be a distant memory to most people as the IT landscape continues to evolve. Perhaps that is the lesson in the Broadcom acquisition of VMware: the only constant in life is change.
Broadcom completed the $69 billion acquisition of VMware on November 22, 2023. In the one year since Broadcom’s acquisition of VMware, we’ve seen drastic pricing and packaging changes, a new channel strategy, as well as the restructuring of the internal and external community.
It makes you wonder, how have these changes affected IT strategy? And are there any examples of past acquisitions that can help us make sense of the changes? The Oracle acquisition of Sun Microsystems is a great place to look for lessons.
Sun’s acquisition by Oracle and its aftermath:
Sun Microsystems, founded in 1982, shares many similarities with VMware, particularly in their vibrant user communities. Sun's community, known as Big Admin, was highly informative, even though it was a bit intimidating to baby sysadmins like me. Sun's flagship event for Java developers was JavaOne.
Sun also played a pivotal role in laying the groundwork for today's cloud computing. At the forefront of UNIX adoption, Sun's SPARC hardware featured their successful early RISC processors. The Solaris software system, tailored for Sun hardware, was renowned for its stability and security. Sun introduced the world to the Java programming language, NFS, and the first building blocks of containers, unveiling the first container system, Solaris Zones, in 2004.
However, despite their early successes in the workstation market, Sun struggled to survive the burst of the dot-com bubble in 2000. As a sysadmin during that period, I saw our users (astrophysicists) favor x86 architecture and Linux for faster processing over SPARC architecture. Sun faced tough competition from vendors running open-source Linux on x86 systems.
In 2009, Oracle acquired Sun Microsystems for $7.4 billion, gaining access to their hardware, operating system, and the Java codebase. This acquisition also marked the loss of the Big Admin community.
Doesn’t that sound familiar?
Broadcom's Revenue Goals and Strategic Shifts:
Prior to the acquisition, Broadcom announced their goal for 70% of Annual Recurring Revenue to come from 600 key customers in highly regulated industries. To achieve this, Broadcom implemented several strategic pricing and packaging changes.
Initially, they shifted from offering perpetual licenses to software subscriptions. They forced adoption by removing support for existing licensing. Next, they streamlined VMware's 8,000 SKUs down to four core offerings:
- VMware Cloud Foundation
- VMware vSphere Foundation
- VMware Standard
- VMware Essentials
Broadcom also revamped VMware's partner go-to-market strategy, requiring existing VMware partners to receive invitations to become Broadcom partners. Additionally, VMware transitioned approximately 2,000 top accounts from the channel to direct management, aligning with Broadcom’s broader strategy.
By focusing on a smaller customer base, Broadcom can significantly reduce sales and marketing expenses. This has led to substantial workforce reductions at VMware, including an estimated 30% cut in recent weeks. The 2024 VMworld conference was notably smaller, prompting speculation about its future.
Broadcom's VMware Acquisition and Its Impact on IT Infrastructure:
The Broadcom acquisition marks a significant transition in IT infrastructure management. Previously, VMware was the go-to hypervisor for IT infrastructure, offering predictability despite not being the most affordable choice. Companies could predict their expenses, and VMware's expansive ecosystem of supported products—ranging from hardware and security to backups and encryption—was a foundational element for countless organizations. Many built their IT ecosystems on VMware vSphere, never expecting that relying on top-tier virtualization technology would lead to vendor lock-in.
However, Broadcom's changes to licensing have introduced unexpected and considerable price hikes, with IT organizations now bracing for at least a 100% increase in costs. As one analyst put it, these changes seem like an "effort to divorce the customer."
This places companies in a challenging position, as replacing VMware as a hypervisor is no simple task. Even larger enterprises are feeling the strain. For instance, AT&T sued Broadcom for altering support contracts, aware of the difficulties involved in migrating to an alternative hypervisor.
However, this scenario also opens opportunities for competition.
Emerging Opportunities for Competitors in the Hypervisor Market:
For decades, VMware has led the server virtualization market. In 2020, the total addressable market for server virtualization was valued at $7.1 billion, with projections to reach $10.8 billion by 2027, underscoring virtualization's critical role in the architecture of cloud computing.
However, Broadcom's assertive strategy and increasing costs have created opportunities for competitors. Microsoft and Nutanix offer rival hypervisors, and they are building extensive partner ecosystems. Scale Computing's hyperconverged infrastructure (HCI) system directly challenges VMware Cloud Foundation. Google Cloud has been actively pursuing VMware's customer base.
Conclusion:
The completion of Broadcom's acquisition of VMware has brought significant changes over the past year. The shift from perpetual licenses to software subscriptions, the reduction of VMware's SKUs to four core offerings, and the restructuring of the partner go-to-market strategy have all been pivotal moves.
These changes have led to substantial VMware workforce reductions and a notable increase in costs for IT organizations. However, they have also opened up opportunities for competitors in the hypervisor market, such as Microsoft, Nutanix, and Scale Computing.
Looking ahead, VMware's journey under Broadcom will likely be characterized by a concentrated effort to capitalize on its core offerings and deepen relationships with its top-tier customer base. While this strategy offers potential for streamlined operations and focused innovation, it also presents challenges in maintaining broad community support and flexibility for customers.
In fifteen years, people may forget how critical VMware was to IT infrastructure operations, much as people have forgotten the contributions of Sun Microsystems. vSphere and vCenter may be a distant memory to most people as the IT landscape continues to evolve. Perhaps that is the lesson in the Broadcom acquisition of VMware: the only constant in life is change.
