The News: Broadcom ended Amazon Web Service’s (AWS’s) right to resell the VMware Cloud (VMC) on AWS service. Going forward, customers can purchase the VMC service from Broadcom and its active resellers, resulting in a streamlined commercial model. This strategic move addresses conflicts observed with AWS sellers, encouraging migration of VMC customers to native EC2 services. This provides customers with a more straightforward and cohesive customer experience. Read Hock Tan’s response to the rumors here.
Navigating a Shift in Partnerships and Competitive Pressures at VMware
Analyst Take: Hock Tan’s team has been busy lately laying out his strategy and go-to-market philosophy for VMware Cloud Foundation. The team was mobilized to respond to rumors about VCF on AWS.
In a significant shakeup in the cloud market landscape, Broadcom’s recent strategic decisions regarding VMware Cloud on AWS have sent ripples across the industry. As reported by The Register, the agreement between Broadcom and AWS that enabled AWS to resell VMware Cloud on AWS expired on 4/30/2024 and was not renewed. This move marks a pivotal change, pushing customers to have relationships only with Broadcom and its active resellers. This decision is not merely administrative; it signifies a deeper shift in Broadcom’s strategy to strengthen its grip over VMware’s customer interactions and cloud infrastructure services.
This change comes when the market dynamics in the cloud and virtualization space are increasingly competitive. Companies such as Nutanix and Red Hat have been pressuring the traditional cloud models by offering tailored hybrid cloud and open-source solutions that promise greater flexibility and cost efficiency. Furthermore, new entrants such as SoftIron are disrupting the market with specialized hardware that enhances performance for data-centric computations, appealing directly to niche segments of the industry. These shifts underscore a broader industry trend where enterprises demand more customized and versatile cloud solutions, pushing major players such as Broadcom’s VMware business to reassess their strategies.
Broadcom’s Response: Strategic Refocusing and Market Adaptation
In response to the evolving market landscape and the internal strategic changes following Broadcom’s acquisition of VMware, Broadcom has proactively reshaped its go-to-market (GTM) strategy for enterprise software, specifically for cloud infrastructure. The focal point of this strategy has been VMware Cloud Foundation (VCF), which has been positioned as a comprehensive private cloud solution integrating compute, storage, networking, and management capabilities. By halving the cost of VCF compared with past pricing, Broadcom aims to make this platform a more attractive and competitive offering in the crowded cloud market.
Broadcom is actively integrating VMware partners into its Broadcom Advantage Partner Program, which rolled out effective February 5, 2024. This program aims to streamline operations and increase profitability for partners through various improvements, including a new net margin model providing more transparency via upfront pricing for new, migration, and expansion opportunities. The pricing structure has been simplified into fewer products offered through SKU bundles. Broadcom has also introduced incumbency protection for resell partners, in Broadcom Corporate and Commercial customer segments, delivering upfront discounts designed to protect and encourage partner-driving customer relationships and renewals. The company has also increased its partner-dedicated resources and simplified partner systems and tools into a single online platform, easing access with a single sign-on system. These changes are part of Broadcom’s broader effort to simplify its GTM model and make it easier for partners to grow their business and for enterprises to buy from their trusted partners.
Furthermore, Broadcom has actively addressed market commentary and concerns through various communications, including clarifications from its CEO, Hock Tan. These communications aim to reassure customers and stakeholders that despite the strategic shifts, core offerings such as VMC on AWS will continue to be supported and developed. This reassurance is crucial in maintaining customer trust during the transition period.
Looking Ahead
As Broadcom continues to roll out its global strategy for VMware, it is reasonable to expect some bumps along the way. Implementing a transformation of this scale involves numerous challenges, from integrating complex systems and transitioning customer accounts to redefining product strategies and market positioning. Each of these elements requires careful handling to avoid disruptions to service delivery and customer satisfaction.
Another foreseeable challenge is the market’s reaction to this change. Customers accustomed to the flexibility of purchasing through AWS might perceive this shift as limiting their buying choices. Broadcom must ensure its value proposition with VCF and other VMware solutions is compelling enough to retain customer loyalty. This includes competitive pricing, technological superiority, and excellent customer support.
On the opportunities front, Broadcom can leverage this transition to capture greater market share by differentiating its offerings. The integration of advanced security features, better performance metrics, and enhanced interoperability with other cloud services could position VCF and other VMware solutions as preferable alternatives to existing cloud infrastructures.
Broadcom’s strategic refocus on VMware represents a bold attempt to adapt to a rapidly evolving market landscape. By addressing immediate market pressures from competitors and aligning its internal strategies with customer-centric goals, Broadcom is poised to strengthen its market position. However, the success of this transition will heavily depend on its ability to manage the complexities of change management, market adaptation, and customer engagement in the coming years. As the industry watches, the execution of this strategy will likely serve as a case study in managing large-scale strategic shifts in the tech world.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
VMware Acquisition Close: Q&A with Hock Tan, President and CEO, Broadcom – Six Five Insider
VMware Aria: Broadcom’s Strategic Move and Its Market Implications
Author Information
Steven engages with the world’s largest technology brands to explore new operating models and how they drive innovation and competitive edge.
