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VMware Partners at a Crossroads – the Broadcom Case

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Dark clouds are looming over VMware partners. It is possible that some of them will be forced to end their cooperation with the vendor and look for alternative solutions.

Background

In November 2023, Broadcom finally finalized the acquisition of VMware for $69 billion. This marked the third time that the company founded in 1998 has changed hands. In 2004, it was acquired by EMC, then Dell acquired EMC for $67 billion in 2016, and in 2021 Dell spun off VMware, which became an independent company again. This operation paved the way for the acquisition by Broadcom.

VMware’s Market Position

VMware is a global leader in the server virtualization and hyperconverged systems markets. Both segments are expected to grow in the coming years. In the former case, GlobalData predicts that the average annual growth rate will reach 7-8% between 2023 and 2030. In 2030, the global market will reach a value of $15 billion. Interesting prospects are also emerging for suppliers of hyperconverged systems. According to Mordor Intelligence forecasts, revenues will reach $13.4 billion by the end of this year and $41 billion by 2029.

Broadcom’s Business Model

With such a wealthy owner, VMware should at least maintain its advantage over the competition. However, Broadcom has a history of maximizing acquired assets within two to three years. In practice, this means reducing costs and increasing revenues.

Broadcom’s first decisions caused a stir in the market. Several serious questions have arisen in the public sphere. Will VMware under Broadcom’s wing continue to develop dynamically? Will it maintain its lead in the server virtualization and hyperconverged systems segment? How many partners will part ways with the company? Will VMware’s competitors benefit from the change?

Cutting Partners

Broadcom is consistently following its chosen path and does not intend to back down. The effects of these actions have already been felt by the employees of the acquired company – at the beginning of December 2023, 2000 people lost their jobs. Partners will also be affected. Broadcom announced shortly after the transaction was finalized that strategic customer segments no longer qualify for registration. If a VMware partner’s agreement with a strategic customer has a status of “pending,” it will be rejected, as will approved agreements without a quote. American CRN estimates that this decision will allow Broadcom to take over about two thousand key customers.

In addition, the company announced that it wants to quickly switch from perpetual licenses to permanent subscriptions. Switching to such a model can be inconvenient for many partners due to the completely new form of settlement, which negatively affects cash flow in the initial phase.

More Bad News for Partners

This is not the end of the unpleasant surprises for resellers and integrators. At the end of December, Broadcom issued a notice of changes to the partner program effective February 4th. According to leaks to the media, companies that generate at least $50,000 USD per month or at least $500,000 USD per year from the sale of VMware products will be invited to participate in the partner program. In practice, this means a death sentence for many partners who focus on serving small and medium-sized businesses.

Broadcom’s Strategy

Broadcom, in order to achieve its goal, is taking over 2,000 of the best customers, while at the same time crossing out partners who do not generate high revenues. In a word, it intends to focus on what is most valuable.

Such a policy may prove to be effective and bring results, or it may lead to chaos in the market, which VMware’s competitors will try to take advantage of. According to some experts, Broadcom’s actions are more reminiscent of aggressive private equity funds than a publicly traded company, and such a policy will backfire in the long run.

McKinsey & Company Analysis

McKinsey & Company points out another interesting phenomenon. Their analysis shows that the average VMware customer is served by seven trusted partners. However, only one of them acts as a classic seller who brings money to the vendor. The other six are involved in project consulting, architecture, implementation, and managed services integration.

If the manufacturer does not have a well-developed sales channel strategy, friction begins to arise between the aforementioned seven. This is not a good prospect for the future of products based on these ecosystems. Nevertheless, Broadcom representatives are putting on a good face for a bad game.

Alternatives to VMware

Partners dissatisfied with the terms offered by Broadcom can always look for alternative solutions. Gartner has published a list of products that can replace Server Virtualization vSphere on its website. The list is based on user reviews, which assess systems in terms of contracting, integration and implementation, service, support, and specific software features.

The most highly rated alternatives include:

Recent Activity by Nutanix and Virtuozzo

Nutanix has been very active lately and currently has a special offer for VMware customers. Virtuozzo has also launched a promotional campaign for Sphere users. The company guarantees smooth and easy migration, and offers a variety of licensing models tailored to the needs of target market segments, in order to match the organization’s requirements for server resource consumption and budgeting.

The Importance of Changes in the IT Market

Changes in the IT market are also important. In the era of Kubernetes, hybrid cloud, and serverless solutions, software is increasingly less likely to be tied to a specific infrastructure. In any case, there is always a plan B, although if VMware meets the user’s needs and they are satisfied with it, it is worth staying with it.

Backup and DR Providers

Interestingly, backup and DR providers are starting to make some moves. Some of them have consistently focused on protecting VMware virtual machines. However, Veeam is planning to support Oracle Linux KVM and Proxmox environments. If the leaders in the backup market start promoting their products as making it easier to move away from VMware, more customers will start looking for alternative server virtualization tools.

Storware’s Position

It is worth noting here that Storware has been a proponent of software working with as many hypervisors as possible from the very beginning. We understand that each server virtualization software has its own advantages and disadvantages. The choice is a matter of different business needs, and sometimes individual preferences. Storware is designed to be a centralized data protection system in heterogeneous virtual environments. This becomes an even greater asset for our product in the current situation.

Conclusion

The future of VMware and its partners is uncertain. The company’s new owner, Broadcom, has a history of maximizing acquired assets within two to three years. This could lead to significant changes in VMware’s business model, including its partner program.

Partners who are dissatisfied with the terms offered by Broadcom can always look for alternative solutions. There are a number of products on the market that can replace VMware’s Server Virtualization vSphere.

The changes in the IT market are also important. In the era of Kubernetes, hybrid cloud, and serverless solutions, software is increasingly less likely to be tied to a specific infrastructure. This gives partners more flexibility in choosing the right solution for their customers.

Storware is a centralized data protection system that works with a wide range of hypervisors. This makes it a good choice for partners who want to offer their customers a variety of options. The future of VMware and its partners is uncertain, but there are a number of opportunities for those who are willing to adapt to the changing market.

Paweł Mączka Photo

text written by:

Pawel Maczka, CTO at Storware