Broadcom stops selling perpetual VMware licenses and testing customers and partners

The logo of American cloud computing and virtualization technology company VMware is seen at the Mobile World Congress (MWC), the telecommunications industry's largest annual meeting, in Barcelona on March 2, 2023.

Broadcom has moved forward with plans to transform VMware, a virtualization and cloud computing company, into a subscription-based company. As of December 11th, perpetual licenses for VMware products will no longer be sold. VMware, whose $61 billion acquisition by Broadcom closed in November, also announced Monday that it will no longer sell support and subscriptions (SnS) for VMware products with perpetual licenses. According to the VMware blog post, VMware will only offer temporary licenses or subscriptions in the future.

VMware customers with perpetual licenses and active support contracts can continue to use them. VMware “will continue to provide support in accordance with contractual obligations,” wrote Krish Prasad, senior vice president and general manager of VMware’s Cloud Foundation Division. But when customers’ SnS terms expire, they no longer have support.

Broadcom hopes this will force customers into subscriptions and is offering “upgrade pricing incentives” to customers who switch from a perpetual license to a subscription, which was not detailed in the blog.

According to Prasad’s blog, these are the affected products:

  • VMware Aria Automation
  • VMware Aria Suite
  • VMware Aria operation
  • VMware Aria Operations for logs
  • VMware Aria Operations for Networks
  • VMware Aria Universal
  • VMware Cloud Foundation
  • VMware HCX
  • VMware NSX
  • VMware Site Recovery Manager
  • VMware vCloud Suite
  • VMware vSAN
  • VMware vSphere

Subscription-based future

Broadcom aims to grow VMware’s EBITDA (earnings before interest, taxes, depreciation and amortization) from about $4.7 billion to about $8.5 billion in three years, primarily by shifting the company’s business model to subscriptions, Tom Krause, president of Broadcom Software Group, told Forbes during a conference call on December 7th.

“This change is the natural next step in our multi-year strategy to make it easier for customers to use both our existing offerings and new innovations. VMware believes a subscription model supports our customers with the innovation and flexibility they need to deliver their digital transformation projects,” says VMware’s blog.

Since the changes will take effect immediately upon announcement, the news may sound abrupt. But in May, shortly after Broadcom CEO Hock Tan announced his plans to acquire VMware, he announced a “rapid transition” to subscriptions.

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At the time, Tan noted the importance of maintaining the satisfaction of current VMware customers and leveraging the existing VMware sales team. However, less than a month after the deal closed, reports indicate concern among VMWare customers and partners.

Concerns from customers and partners

VMware’s blog states: “The industry has already adopted subscriptions as the standard for cloud usage.” For years, software and even hardware vendors and investors have been pushing IT solution provider partners and customers toward recurring revenue models. However, VMware built much of its business on the perpetual license model. As The Stack noted, VMware noted in February that perpetual licensing was the company’s “best-known model.”

VMware’s blog this week listed “continuous innovation” and “faster time to value” as customer benefits for subscription models, but did not elaborate on how the company came to these conclusions.

“Foreseeable investments” are also listed, but it’s hard to imagine a more predictable expense than paying for something once and supporting access to it indefinitely (assuming you continue to pay any support costs). Now VMware and its partners must convince their customers that they can financially afford a new monthly expense for something they thought was paid for. But it’s easier for Broadcom to see the benefits of turning VMware into a more reliable and recurring revenue stream.

Additionally, Broadcom’s layoff of at least 2,837 VMware employees has created uncertainty for the VMware brand. A CRN report from late November indicated that VMware partners were hearing customer concerns about possible price increases and a lack of support. CR Howdyshell, CEO of Advizex, which reportedly generated $30 million in VMware sales in 2022, told the publication that partners and customers experienced “significant anxiety and chaos” surrounding VMware sales. Another sales partner told CRN that a closing VMware sales contact has been hired.

However, according to Prasad’s blog, Broadcom has made it clear that it wants to “complete the transition of all VMware by Broadcom solutions to subscription licenses.”

The company hopes to convince skeptical sales partners that they, too, see the way forward. VMware, like many technology companies pushing subscription models, noted that “many partners” have already had success with subscription models and “provides the opportunity for partners to engage with customers more strategically and provide higher-value services that drive customer success.” “

However, because the end of perpetual licenses will not provide any immediate customer benefit, those affected by VMware’s change in business strategy will need to assess how much they are willing to pay for access to VMware products in the future.


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