Ying Tang/NurPhoto via Getty Images
- VMware customers say they've seen massive price hikes since Broadcom's acquisition.
- Broadcom's changes include bundling products and shifting to a subscription model for revenue.
- Competitors like Nutanix see increased interest as customers seek alternatives.
VMware customers report seeing massive price increases since Broadcom acquired VMware late last year, with some paying as much as 10 times as much for the same services.
One corporate VMware customer told Business Insider that they saw a 175% increase in price and feel they have no choice but to "pay up and plan ahead" because switching to another service isn't easy.
"Feels quite a bit like being held for ransom," the person, who asked not to be identified so they could speak freely, told BI.
Broadcom has made several changes to increase profitability since the takeover, including bundling VMware's products to "simplify its portfolio." This means customers could have less flexibility and must pay for more products even if they don't use them all.
"The Broadcom banquet is, 'eat what you like, pay for it all,'" said Craig Hinkley, CEO of cloud management company CloudBolt. "Customers say we don't want the banquet. We don't want it all."
Furthermore, last December, Broadcom moved from a perpetual licensing model to a subscription model that allows customers to receive support and the latest software versions. This move benefits Broadcom as it can generate more annual recurring revenue.
Broadcom is also focusing on and going direct with VMware's largest, most lucrative 2,000 customers, which means customers like nonprofits and small businesses could be overlooked and find themselves with less VMware support.
Switching from VMware to an alternative can't happen overnight for customers because it requires a "comprehensive review," said Rick Vanover, vice president of product strategy at Veeam. What's more, it takes time to train staff in a new technology if they've already long been using VMware, he added.
"For many organizations, funds are limited. This is an unplanned increase they have to deal with," said David Rowe, chief product officer of Rimini Street, which offers support for software products, including VMware.
Broadcom did not respond to a request for comment.
VMware price hikes
Dave Russell, senior vice president and head of strategy at Veeam, said his company saw a 300% price increase in the VMware products it's using. That's in line with what he's heard from customers, some of whom have reported even higher price increases.
Russell said most large enterprises have renewed their VMware products, giving them time to decide whether they still plan to use them going forward. Meanwhile, smaller customers are more sensitive to pricing changes.
"The vast majority of large enterprises put themselves in a position to push any concerns out," Russell said, who added that some customers are looking at whether an alternative is "feasible."
Hinkley said CloudBolt's customers have seen VMware price increases ranging from 140% to 600%. One executive even told him of a tenfold price increase. Customers see a large range in price increases because it depends on factors like their specific deal with Broadcom and which products they use.
CloudBolt surveyed 300 IT decision-makers in May and found that 73% of them expected a price hike of at least 100% after Broadcom acquired VMware. It also found that 95% of respondents considered this acquisition to have a disruptive impact on their IT strategy.
"It's significant enough that it's impacting the financial performance of the company itself," Hinkley said. "Some companies can't launch innovative projects. They're being starved while paying the Broadcom banquet price."
Moving to VMware alternatives
Many customers are now rethinking their entire IT strategy. CloudBolt's survey showed that 87% of respondents will decide the next steps over the next year. So far, 40% said they will remain with VMware altogether, and 43% said they'd keep some VMware solutions.
While many customers plan to stay with VMware, many, particularly smaller companies, are considering alternatives. Some customers may want to discontinue using VMware products and will require support as they transition to a new solution, like Nutanix, Microsoft, Docker, or the Kubernetes open-source cloud computing software.
Gartner estimated that by 2028, 30% of customers will transition off VMware's flagship hypervisor product to alternatives. Forrester also estimated that 20% of VMware customers would move away from its products.
Still, moving off VMware is challenging for technical, organizational, and support reasons. Rowe said the process could take a year and a half to four years because VMware's products are tightly integrated into a company's technology infrastructure, and it "requires direct, hands-on work to replace."
Furthermore, it takes time to assess and select an alternative, as well as test and integrate the new product to ensure its proper operation.
"Customers have a variety of VMware products installed, and some have their entire business running on VMware," Rowe said. "The sheer scale of the implementation drives the extended timeline."
Hinkley said longtime VMware customers have spent years developing code and automation processes in their IT infrastructure specifically for running VMware products. Reevaluating these applications is a task that many customers haven't budgeted for in terms of time and money, he added.
In addition, since so many IT teams are focused on VMware, moving to different solutions would require additional training and coordination from different departments and external vendors.
"They've never operated outside of that ecosystem, so there's a large upskilling that has to take place first to even make it actionable," Hinkley said.
Competitors swoop in
Since the acquisition of VMware, several competitors have seen an influx of customers approaching for help.
"We've definitely seen an uptick in net new sales conversations, customer conversations, and customer expansion conversations," said Steve Tuck, CEO and cofounder of Oxide Computer.
Some also launched alternate solutions. Rimini Street announced an alternate support program for VMware products earlier this year. In addition to support, the program offers security solutions, consulting, and workarounds for customers with VMware licenses since Broadcom deprioritized support for smaller customers.
Renee Wells, vice president of product strategy at Rimini Street, said customers expressed relief in response to the launch.
"Some of them were considering self-support because they could not handle the sticker shock," Wells said. "They were so frustrated and angry and felt like it might be one of their only options."
Similarly, Virtuozzo CEO Alex Fine said over 200 providers approached his company as a result of the price increases. He says while many customers have chosen to "swallow" the price increase, VMware is no longer a viable option for many small and medium-sized customers. Even larger customers are looking for alternatives, he added.
"We're rarely coming to customers saying, we come here to replace VMware," Fine said. "It's not our goal. Our goal is to provide a second solution, and they will decide."
Customers worry about not getting the support they need, said Rajiv Ramaswami, CEO of Nutanix, as Broadcom has cut costs, consolidated teams, and laid off VMware staff.
At the same time, Ramaswami said these changes are a major opportunity for Nutanix to obtain more VMware customers. Dell, which has long been strongly partnered with VMware, even announced a new partnership with Nutanix in May.
"The caveat is, it will happen slowly. People can't migrate overnight even if they want to," Ramaswami said.
Got a tip?
Contact Rosalie Chan via email at rmchan@businessinsider.com, Signal at rosal.13, or Telegram at @rosaliechan. (Please send PR pitches by email only.) Other types of secure messaging are available upon request.
Contact Ashley Stewart via email (astewart@businessinsider.com), or send a secure message via Signal (+1-425-344-8242).
Use a non-work device.
Correction: August 20, 2024 — An earlier version of this story misstated the number of providers approaching Virtuozzo as a result of the price increases. It should be over 200, not 20-40.