Broadcom’s VMware acquisition explained: The impact on your IT strategy

What is happening to VMware’s end-user computing portfolio?

During the company’s fourth-quarter earnings call in December 2023, Broadcom CEO Hock Tan confirmed that Broadcom officially intends to divest itself of end-user computing, which means it will no longer offer virtual desktop infrastructure products such as VMware Horizon.

On February 26, global investment firm KKR announced that it has entered into a definitive agreement to acquire the EUC Division from Broadcom. The deal makes the EUC (end user computing) division a standalone company. Shankar Iyer general manage, End-User Computing Division, Broadcom,  wrote in a blog post that KKR shares the EUC division's commitment to deliver “best-in-class solutions and customer experiences for today’s modern, digital workspace.”

As part of its transition away from perpetual licensing, Broadcom said the VMware vSphere Hypervisor (Free Edition) has been marked as EOGA (End of General Availability). There is currently no an equivalent replacement product available.

Previously, in a blog discussing the company’s plan for VMware Workstation, Michael Roy, product line manager for desktop hypervisor products, said Broadcom was committed to desktop hypervisor products and platforms.

According to Roy, since the desktop hypervisor apps used for virtual desktop infrastructure share the same code as VMware ESXi, the hypervisor for virtual servers, they benefit from improvements made across both product sets.

Discussing the benefits to the VMware Workstation desktop hypervisor, he said: “Workstation makes ESXi the best it can be by supporting an immeasurable number of scenarios and use cases, and allowing us to test new capabilities, while ESXi helps make Workstation the leading desktop hypervisor app thanks to 20+ years of investment in enterprise reliability built into the platform.”

How is VMware licensing changing?

Through the acquisition of VMware, Broadcom is pushing subscription software licensing across VMware products. It has cut the price of VMware Cloud Foundation in a bid to entice customers to take up an annual software subscription. VMware Cloud Foundation is positioned as Broadcom’s flagship enterprise-class hybrid cloud offering for customers to run their business-critical and modern applications – in a secure, resilient and cost-efficient manner

There is currently a discount available.

“To allow more customers to benefit from this solution, we’ve reduced the previous subscription list price by half and added higher support service levels, including enhanced support for activating the solution and lifecycle management,” the company said.

Along with ending the sale of perpetual licences, the company has also announced it will no longer offer support and subscription (SnS) renewals for perpetual offerings. Broadcom has also introduced a “bring-your-own-subscription licence” option, providing licence portability to VMware-validated hybrid cloud endpoints running VMware Cloud Foundation.

These new subscription offerings fit alongside a simplified VMware product portfolio. Krish Prasad, senior vice-president and general manager of the VMware Cloud Foundation Division, said the simplification of its product portfolio would allow customers of all sizes to gain more value from their investments in VMware. He said the portfolio simplification across all VMware by Broadcom divisions was driven by customer and partner feedback.

“Over the past two years, VMware has been on a journey to simplify its portfolio and transition to a subscription model – the industry standard for cloud consumption – and to better serve customers with continuous innovation, faster time to value and predictable investments,” said Prasad. “We’re also helping more customers benefit from VMware Cloud Foundation by reducing the list price by half and including higher support service levels, including enhanced support for activating the solution and lifecycle management.”

“As a SAM professional, this is an opportunity to consider competing technologies ... I would expect to see the name Broadcom rising up the auditor hit-list in using audits as a means of accelerating this transition”

IT leaders running VMware-based infrastructure should prepare for the transition to subscription licensing, which also has an impact on their existing supplier relationships with VMware partners, which would have previously supplied the software licences.

Rory Canavan, founder of SAM Charter, said: “Broadcom has clearly gone down the Adobe route, seeing the provision of software as solely a cloud-based activity. Combined with shutting down existing VMware partner purchasing routes, and sunsetting their on-prem software, SAM [software asset management] is going to have to flex to news ways of purchasing (more a procurement concern) and also consider the support of re-architecting IT solutions, as most companies operate on a policy of prohibiting the use of unsupported software.

“As a SAM professional, this is also an opportunity to consider competing technologies if this new way of working feels too much like ripping off a band aid. I would expect to see the name Broadcom rising up the auditor hit-list in using audits as a means of accelerating this transition.

How is supplier management changing?

The first thing to note is that there are going to be job cuts as the company looks to get the most value from the $69bn it has spent on the VMware acquisition. The changes to software licensing also mean enterprise IT buyers may no longer be dealing with the VMware partner they have used in the past when buying new VMware software licences.

In a blog post, Freeform Dynamics principal analyst Bryan Betts wrote: “Some cuts were expected, of course – Broadcom had previously said it could find $250m of ‘synergies’ once the deal completed, and VMware employees were warned earlier in the year that lay-offs were coming.”

Betts pointed out that Broadcom is mandating a return to office working, rather than VMware’s hybrid arrangements, which may be an unpopular decision for quite a few people.

Looking at existing VMware partners, Betts said: “For partners, the problem is that this all comes on top of uncertainty over contract terms and fear over possible price rises – Broadcom had already said it wanted a rapid transition from perpetual licences to ongoing subscriptions. But subscriptions rarely cost less than purchases over time, and require buyers to account for them differently.”

Should you migrate off VMware?

According to Betts, VMware has been somewhat sheltered by its position as an incumbent. “I recently spoke with an IT manager who’d tried open alternatives, but discovered that too much of the software their company ran was only available as vSphere-based virtual appliances,” he said.

“Stay with VMware, by all means, if it suits your needs and works for you. But don’t throw away your Plan B just yet. And if you don’t have a Plan B, then perhaps you should make one”

However, this is changing. In this era of Kubernetes, hybrid cloud and serverless, Betts points out that there are fewer excuses for software being tied to a specific infrastructure. “Stay with VMware, by all means, if it suits your needs and works for you. But don’t throw away your Plan B just yet. And if you don’t have a Plan B, then perhaps you should make one – there are several independent resources online to help you do so,” he added.

For instance, in a LinkedIn article published in 2023, technology thought leader Matt Wilson looked at migrating workloads from traditional virtual machine environments to Kubernetes.

Wilson said this involves a multi-step process that starts with converting VMs into container images using a conversion process, tools and a platform that facilitate running VMs as containers within the Kubernetes ecosystem. “By encapsulating the VMs in containerised images, organisations can gain the advantages offered by Kubernetes,” he said.

Nutanix, which offers a rival hypervisor for server virtualisation, is currently running a promotional offer for VMware customers, to encourage them to switch.