Broadcom’s Strategy Unveiled: Understanding the VMware Subscription Model Shift

Thursday, 14 December, 2023

The landscape of VMware is experiencing a transformative shift, one that marks a significant turn in its operational and strategic approach. With Broadcom’s acquisition casting a new light on VMware, the company is transitioning from its traditional perpetual licensing model to a more dynamic subscription-based approach. This change is not just a ripple in the water; it’s a tidal wave of new possibilities and challenges.

The Broadcom Effect: A New Chapter for VMware

The aftermath of Broadcom’s acquisition of VMware is already visible, with substantial changes being implemented. A notable move was the layoff of 2,800 VMware employees in early December, signaling a major strategic redirection under Broadcom’s leadership.

The End of an Era: Perpetual Licenses, We Hardly Knew Ye

Broadcom is bidding farewell to perpetual licenses for VMware products. This decision reshapes the way customers will engage with VMware’s solutions, marking a fundamental shift in the business model. As part of its plan, VMware described to customers, “We are ending the sale of Support and Subscription (SnS) renewals for perpetual offerings beginning today” as stated by SVP Krish Prasad. 

Affected VMware Products

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

The Big Picture: Why Subscription Models are the New Black

The software industry is increasingly leaning towards subscription models, driven by the desire for continuous updates and staying ahead with the latest technology. Major players like Adobe and Microsoft have already embraced this model, and Gartner had predicted that by 2020, “all new entrants and 80% of historical vendors will offer subscription-based business models.”

Weighing the Scales: Subscription Pros and Cons

Subscription models offer advantages and challenges for both software companies and their customers. They provide steady revenue streams and customer retention for companies, while offering regular updates and scalability for customers. However, these options also present potential challenges, such as higher long-term costs and the risk of overpaying for infrequent users. Furthermore, unlike perpetual licenses, with subscription models, ceasing support payments means losing the rights to continue using the software.

For Software Companies

  1. Predictable income through steady cash flow.
  2. Enhanced customer retention.

For Customers

  1. Access to regular updates.
  2. Scalability to match growth.
  3. Lower upfront costs.
  4. Comprehensive service offerings.

Potential Downsides

  1. Higher costs over time.
  2. Risks associated with missed payments.
  3. Overpayment concerns for infrequent users.
  4. Possible mismatch with user needs.
  5. Data security and privacy concerns.
  6. Loss of access with discontinued support.

The VMware Switcheroo: What’s Changing?

VMware’s transition to a subscription model is a comprehensive change, affecting everything from billing to business conduct. This shift requires existing customers to adapt to new software licensing models and prepare for the end of updates and support for perpetual licenses. “VMware customers may continue using perpetual licenses with active support contracts. We will continue to provide support as defined in contractual commitments,” Broadcom reassured, emphasizing the importance of reviewing inventory of perpetual licenses.

Immediate Effects for VMware Customers

  • Transitioning to a subscription model.
  • End of updates and support for perpetual licenses.

Challenges and Considerations

The move to a subscription model brings various challenges, including financial impacts, operational adjustments, concerns about vendor lock-in, the need for ongoing training and adaptation and possible increase in audits — something we speculated prior to the acquisition“Broadcom will work with customers to help them ‘trade in’ their perpetual products in exchange for the new subscription products, with upgrade pricing incentives,” as highlighted in the FAQ, indicating a strategic approach to this transition.

In Conclusion: The New VMware Saga

VMware’s transition to a subscription-based model reflects the broader evolution in the software industry. It offers benefits like continuous innovation and scalability, but also presents challenges in cost and license management. As VMware navigates this new era, users and businesses must strategize to leverage the advantages and mitigate the risks associated with this new model of software licensing.

Interested in discussing your VMware journey? Book a consultation to navigate these uncharted waters together.