I always advise my clients to pay close attention to the state of affairs at their technology vendors. For example, if a company gets acquired by a private equity firm, that should be red flag (Quest is an important case in point). In fact, one of my clients had a special bucket for vendors that were acquired by PE firms – decommission and eliminate usage.
Which brings us to Broadcom and its $64B acquisition of VMware, which formally completed in late 2023. We may need a special bucket for this one.
Broadcom’s stock price has doubled in the last year and its CEO, Hock Tan, is the world’s highest paid CEO with a $162M compensation package. Broadcom’s revenue target for 2024 is $51B and expected to rise to $60B in 2025. Clearly that level of growth – at that scale – is not coming from its traditional chip business. Leveraging price hikes in its newly acquired software business – VMware – could well yield that kind of growth (which, one may presume, is necessary to support the stock rally and Mr. Tan’s compensation package).
We are now seeing the direct results of this strategy, starting with sweeping VMware licensing changes. The older perpetual licenses have been discontinued (and customers saw their access to program downloads terminated in April 2024!), all new products are on subscription models only, and many products, including VMware vSphere Hypervisor (free edition), are being discontinued entirely. Correspondingly, we are seeing companies reporting staggering increases in their VMware renewal quotes for similar or comparable product coverage up 500% – 1,000% price increases.
In the next few blog posts, we will dive deeper into Broadcom’s VMware acquisition and how VMware customers can navigate these sudden VMware licensing changes. With careful planning and methodical execution, companies can manage this transition while minimizing their VMware spend and align their IT vendor selection with their long-term strategy.
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