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Does Broadcom's VMware Fit into Today's Enterprise?

To analyze VMware's place is in the IT space, it's important to take a look back of where the company has been.

• By Joey D'Antoni
• 02/16/2024

To say that VMware revolutionized computing is a massive understatement. While virtualization originates in mainframes and UNIX, VMware made the practice of consolidating and virtualizing something that any IT admin could quickly deploy. It also provided high availability against hardware failures and began defining infrastructure as code. VMware, while not directly part of the early days of the public cloud, provided many important ideas that vendors like Microsoft and Amazon used early in the life of their cloud platforms.

So why didn't VMware become the cloud juggernaut that Microsoft, Google and AWS have become? There are many reasons, but the first is that EMC (now Dell EMC) took a controlling interest in VMware in its early days. While that earlier version of VMware made some nascent efforts into cloud computing, it was always my observation that they hesitated to become a significant player in the public cloud for fear that the cloud business would cannibalize the on-premises storage market.

In a 2013 meeting with VMware executives, when asked, "what is your cloud strategy?" by Denny Cherry and me, they responded, "We want to be everyone's cloud." This was a noble idea, but not a great cloud business strategy. VMware did make efforts in the space, launching vCloud Air that same year, but not with the significant capital investments that the other public cloud vendors made.

Dell would later acquire EMC and, in turn, VMware, and from then on, several rounds of financial gymnastics culminated with VMware selling the company to Broadcom in December 2022 (more on that later). Despite VMware's lack of strategic success in the cloud space, VMware vSphere and its tooling are some of the best and most successful software I've seen used during my 20-plus years working in technology. Large enterprises and small businesses alike almost universally adopt VMware's core product ESX, and they take advantage of its vast feature set, which delivers high availability, server consolidation and automation to IT pros with a wide variety of skills. And VMware has finally made a legitimate, albeit expensive, offering on the major cloud platforms.

Broadcom has a strong reputation around its playbook in buyouts. In the last decade, it acquired LSI Corp, Emulex and Brocade, and attempted to buy Qualcomm, Computer Associates (CA), Symantec and VMware. The focus of Broadcom's early acquisitions was on strengthening the network stack. However, the recent purchases of Symantec, CA and VMware are all substantial software firms that were well beyond their initial growth phase. Enterprise software companies (traditionally, this is changing as more or more software moves to subscription) made revenue in two ways. One was the initial sale of the "perpetual" license and the second was a recurring support cost that included software upgrades and technical support. The recurring cash flows of this recurring support model have made software companies a popular private equity takeover target.

Much like those private equity firms, in recent years, Broadcom's approach to business has been to aggressively pull revenue out of the customers of its recent acquisitions. It does this by increasing the total cost of ownership, either through price increases or bundling unneeded services together at higher price points than the eliminated standalone components. It has also moved towards removing the concept of perpetual licensing and moving all licensing to a subscription-based model. Broadcom has executed this plan with CA and Symantec, and all early signs are that they are doing the same with VMware. That strategy is to focus on the top 600 customers who will need help moving to other platforms, reduce sales and marketing costs by focusing on that small pool of customers, and reduce R&D costs by ignoring the needs of the rest of their customer base. This strategy was highlighted in Broadcom's 2021 investor day.

This strategy has played out for VMware customers as expected. Customers have seen 2-300 percent price increases on license renewals, have had to buy software bundles that were far more expensive than their previous offering and have seen the previously robust VMware partner network gutted. One of the changes that will be implemented by Broadcom in April is that many of the MSP partners that hosted customers on VMware can no longer sell their own hosted VMware-based cloud services. Reportedly, VMware has eliminated favorable pricing for educational institutions. Additionally, while I was writing this column, VMware eliminated the free tier of ESX.

I spoke with Corey Quinn, Cloud Economist at The Duckbill Group, who described Broadcom's actions: "It's like they're frantically trying to get as much milk as possible out of a cow before their incredibly aggressive milking machine kills her." He described the VMware customer experience as "Customers are caught flatfooted and are accelerating migration timetables, third-party partners are left holding the bag, and the entire takeaway here is that a once trustworthy company can absolutely not be trusted anymore."

If you have one or two VMware hosts, migrating to another virtualization platform is simple. However, most organizations that use VMware have more complex infrastructure than that and face many challenges migrating to another platform. Tools like the broadly used backup solution Veeam, and deployment automation APIs must be adapted to any new platforms. Those additional tools may have feature gaps on other platforms. The main options for moving off of VMware are as follows:

• Public Cloud (AWS/Azure/GCP)
• Nutanix (Hyperconverged Infrastructure)
• Microsoft Hyper-V
• Proxmox (Open-source)

Each of these solutions has some issues -- mainly in the migration challenges. Nutanix uses hyper-converged infrastructure (HCI), which means you need to buy more compute nodes from Nutanix to scale storage, CPU or memory. The HCI model works well for some workloads (remote desktops) and worse for others (busy databases). Hyper-V is a robust solution, but it has challenges around tooling and its perception in the marketplace. Proxmox is an attractive open-source solution (Veeam is rumored to be building a backup solution), but support options are limited and are not a broadly adopted solution.  

In recent years, many smaller VMware customers have argued that managing their hardware was cheaper than moving to the public cloud. This discussion has nearly always revolved directly around cost -- a recent conversation with some VMware customers who have seen the new pricing has indicated that moving directly to the cloud may suddenly be financially more viable for those firms.

While many experts suggest reengineering applications so they aren’t dependent on VMs (for example, containers or other cloud native services), a lot of the customers in question don't have development staff, and buy line-of-business software that has been subject to the same private equity playbook and doesn’t see big development efforts. There are no easy decisions for customers, and the challenges around VMware will continue for several years.