The Six Five team discusses the EU issuing Broadcom a Statement of Objections over their VMware deal.
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Transcript:
Pat Moorhead: EU issues to Broadcom a statement of objections over VMware. Is this new? Is this something, a retread? What’s going on here? It seems like Broadcom’s competitors got in earlier.
Daniel Newman: You and I are both tracking this very closely, and this is kind of what I would call a long tail of continued regulator interjections to this deal. This is not going to fly through. I think what we’ve realized now is that a deal of this size in this particular economic moment with so many implications is going to receive significant scrutiny. I made a comment yesterday on Twitter along the lines of, “Well-informed regulators will realize that there is not a lot of antitrust risk here.” Our friend Ben Beherron came back and put a laugh, sent a tweet back, and he said, “‘Well-informed,’ smirky face.”
This is the challenge. Regulators right now are almost like they’re looking for something to object to and they’re looking for a deal that shows that they’re taking some sort of proactive action, but this, to me, still isn’t the right deal. We’ve been on this show, Pat. This is just another very similar regulator that’s coming into what the UK did a few weeks back with comments that suggest that there could be some restriction of competition. I just don’t see it. It’s not even in the same stratosphere of risk as something like the App Store that has been completely unregulated or minimum regulation. This is enterprise and there’s choice in this space, Pat. Nobody has to use VMware. There’s not a single enterprise that is stuck in VMware and can’t use anything else. There’s so many open source options with Kubernetes, you can go to Red Hat, you can use SUSE. There’s Docker, there’s lots of different ways to go multi cloud.
And of course with some of the legacy technology, this is the Broadcom strategy. The Broadcom strategy is legacy technology gets less investment. They see it to sunset, they price it optimally as a business, and if you don’t upgrade or optimize your IT architecture to the newest thing, you might pay more. But that’s not necessarily – they have to support it. They have to support something that’s not really planned to be supported. If you’re updating and upgrading and you want to use the newest and greatest from VMware, then I think it’s going to be a perfectly good deal with minimum antitrust instances, if any, and of those instances, like I said, every enterprise has the controls to do something else. You can work with a different public cloud provider. You can work with an open source provider.
So Pat, I feel like this is just regulators looking for something to regulate. And of all the deals, the only thing that makes this one really prudent is the size. It’s a huge dollar amount. And like I said, it’s something that I think regulators can beat their chest and say, “Look, we’re doing something about this.” But in the end, Pat, I still stand by my belief that this does go through, but it’s going to take some real diligence and patience from Broadcom because the regulators are going to keep it challenging.
Pat Moorhead: Yeah, so the EU had talked about that it had concerns, but it hadn’t listed out a formal statement of objectives. I think the good news is, last December, the commission identified five issues with the deal, but now this latest one is two. Now interestingly enough, it’s using the same logic of its initial challenge on this one. It took out nicks, but it talked about this foreclosure on two kinds of products, fiber channel host bus adapters and storage adapters. So I wrote a piece on this, gosh, back in February. It all applies. So literally it would be economic business suicide for Broadcom to do this.
So Dan, a vSphere license per CPU is $10 grand, okay? Storage adapters, fiber channel HBA, talking about $500, okay? So essentially, EU is saying that Broadcom, there’s a risk of them choosing this $500 piece of hardware and putting $10,000 vSphere licenses per year, which makes absolutely zero sense. And as you said, it is not, let’s say, easy to get off of VMware, but onto either open source or another competitor. But there are literally handfuls of companies that just do that. And there are some companies that do.
Therefore, the switching cost and time are not necessarily excessive. And net net, if we know or have watched anything about how Broadcom CEO Hock Tan operates, I got the opportunity to talk to a lot of the leadership team, it’s clear to me after watching that company for 15 years that it’s all about the money. And if you follow the money and where they can make the most for their shareholders, it isn’t even in any of these risk areas. It’s in the cloud, it’s in multi-cloud. And that’s not even part of the challenge here. We’re talking about fiber channel HBAs and storage adapters. It’s nuts, right, comparing $500 versus $10,000. So I think it’s silly. I think the EU is lost on this one, and I’m hopeful, and I do think that Broadcom has the patience to wait this out.
Daniel Newman: Really quickly though, an analogy is a little bit, what they’re saying here about the lock in would be a little bit like telling a company that if you’re not happy with your Salesforce instance or your Oracle instance, that you have no choice. I mean, look, it’s expensive to change providers if you don’t like what you’re getting, but if the technology’s not meeting your needs or if you feel the companies are… I mean look at the lock in you have with your CRM. Once you commit your company to running software for something like your Salesforce and they come to you and say, “We’re going to raise prices 8%,” or whatever they do, they do this. This is how SaaS companies work. Are you going to be like… It’s not anti-trust, but I mean it’s sticky, right? And that’s good business.
So I think what I’m really wondering here is stickiness of a product and pricing power of having a good product that an organization depends on the same thing as using kind of anti-competitive behaviors? If Microsoft Dynamics or Salesforce or SAP raise our prices, is that antitrust or is that, hey, they’ve built a product, they need to keep investing it and improving it to make it usable for you and someone’s got to pay for that. And these companies have a job to be profitable. I don’t know, it’s an interesting inflection, but I think it’s a bit of a stretch.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
