VMware customers report seeing massive price increases since Broadcom bought VMware late last year, with some paying up to 10 times more for the same services.
A VMware corporate customer told Business Insider that they saw a 175% increase in price and feel they have no choice but to “pay and plan ahead” because switching to another service isn’t easy.
“It feels a little like being held for ransom,” the person, who asked not to be identified in order to speak freely, told BI.
Broadcom has made several changes to boost profitability since the takeover, including bundling VMware products to “simplify its portfolio.” This means customers may have less flexibility and have to 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.”
Additionally, last December, Broadcom switched 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 directly with VMware’s 2,000 largest and most profitable customers, meaning customers like nonprofits and small businesses could be bypassed and find themselves with less support for VMware.
The transition from VMware to an alternative can’t happen overnight for customers because it requires a “comprehensive overhaul,” said Rick Vanover, vice president of product strategy at Veeam. Additionally, it takes time to train staff on a new technology if they’ve already been using VMware for a while, he added.
“For many organizations, funds are limited. This is unplanned growth that they have to deal with,” said David Rowe, chief product officer of Rimini Street, which provides 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 consistent with what he’s heard from customers, some of whom have reported even higher price increases.
Russell said most large enterprises have upgraded their VMware products, giving them time to decide whether they still plan to use them going forward. Meanwhile, smaller customers are more sensitive to price changes.
“The vast majority of large enterprises put themselves in a position to remove any concerns,” said Russell, who added that some clients are looking at whether an alternative is “feasible.”
Hinkley said CloudBolt customers have seen VMware price increases ranging from 140% to 600%. One executive even told him a tenfold price increase. Customers see a wide range of price increases because it depends on factors such as their specific agreement with Broadcom and which products they use.
CloudBolt surveyed 300 IT decision makers in May and found that 73% of them expected a price increase 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 affecting the financial performance of the company itself,” Hinkley said. “Some companies can’t launch innovative projects. They starve while paying the price of the Broadcom banquet.”
Switching to VMware alternatives
Many customers are now rethinking their entire IT strategy. The CloudBolt survey showed that 87% of respondents will decide on next steps within the next year. So far, 40% said they will stay completely with VMware, and 43% said they will keep some VMware solution.
While many customers plan to stay with VMware, many, especially smaller companies, are considering alternatives. Some customers may wish to discontinue using VMware products and will require support as they transition to a new solution, such as Nutanix, Microsoft, Docker, or Kubernetes open source cloud computing software.
Gartner estimated that by 2028, 30% of customers will switch from VMware’s flagship hypervisor product to alternatives. Forrester also estimated that 20% of VMware’s customers would leave its products.
However, moving away from 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 products are tightly integrated into a company’s technology infrastructure and “requires direct, hands-on work to replace.”
Additionally, it takes time to evaluate and select an alternative, as well as to test and integrate the new product to ensure it works properly.
“Customers have a number of VMware products installed, and some have their entire business running on VMware,” said Rowe. “The sheer scale of implementation drives the extended timeline.”
Hinkley said longtime VMware customers have spent years developing code and automating processes in their IT infrastructure specifically to run VMware products. Re-evaluating these applications is a task many customers haven’t budgeted for in terms of time and money, he added.
Additionally, since so many IT teams are VMware-centric, switching to different solutions would require additional training and coordination from different departments and outside vendors.
“They’ve never operated outside of that ecosystem, so there’s a huge improvement that needs to happen first to make it viable,” Hinkley said.
Competitors enter
Since VMware’s acquisition, several competitors have seen an influx of customers reaching out for help.
“We’ve definitely seen an increase in net new sales conversations, customer conversations and customer expansion conversations,” said Steve Tuck, CEO and co-founder of Oxide Computer.
Some also launched alternative solutions. Rimini Street announced an alternative support program for VMware products earlier this year. In addition to support, the program provides security solutions, consulting and solutions for customers with VMware licenses since Broadcom dropped 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 thinking about self-support because they couldn’t afford the sticker shock,” Wells said. “They were so frustrated and angry and felt 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 hike. He says that 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 bigger consumers are looking for alternatives, he added.
“Rarely are we coming to customers saying, we’re coming here to replace VMware,” Fine said. “It is not our intention. Our intention is to give 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 big opportunity for Nutanix to get more VMware customers. Dell, which has long been a strong partner with VMware, even announced a new partnership with Nutanix in May.
“The caution is that it will happen slowly. People cannot migrate overnight even if they want to,” Ramaswami said.
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Correction: 20 August 2024 — An earlier version of this story was wrong the number of providers approaching Virtuozzo as a result of the price increase. It should be over 200, not 20-40.