Broadcom has lost another important customer, as UK cloud operator Beeks Group has decided to adopt the open-source OpenNebula stack. The main reasons for Beeks Group’s choice to migrate were soaring costs, declining VMware service quality, and insufficient electronic product innovation.
Matthew Cretney, head of production management at Beeks, said there were many reasons behind the choice to migrate away from VMware, but one of the main reasons was that the software licensing fee bill was ten times higher than before. Beeks believes that the VMware suite has a serious management overhead, indicating that a large part of its server resources are used to manage virtual machines rather than running virtual machines for customers, which reflects Beeks’ concerns about VMware’s lack of innovation.
VMware Changes
Overall, 2023 was a smooth year for VMware. With its huge market share, the company is in a dominant position in the global virtual machine field, generating more than $13 billion in revenue and continuing to expand into new markets. VMware held two “VMware Explore” conferences in 2023 and received a series of industry accolades, and people also agreed with the company’s then-CEO Raghu Raghuram that VMware’s products have always been favored by customers.
However, now it’s all different. With Raghuram, who had worked at VMware for 20 years, leaving at the end of last year, VMware has been criticized by a large number of users, who were shocked by the company’s pricing adjustments, licensing changes and abandonment of partnerships, and the EU antitrust regulator has also questioned the reforms carried out by VMware executives. Of course, this cannot be directly said to be VMware’s fault. In November 2023, VMware was acquired by California technology giant Broadcom for $69 billion, which has a record of acquisitions for short-term profits.
A New Era for VMware
A few months before being acquired by Broadcom, VMware celebrated its 25th anniversary, a major milestone in the company’s development. This is not to say that VMware has thrived simply by relying on its long history. The latest technologies that the company has continuously developed and improved have proved to be very useful for enterprises around the world. Virtual machine technology enables enterprises to run multiple virtual computers on remote servers, saving more space and money. This in turn enhances scalability: digitization means that enterprise employees can easily deploy new virtual machines as needed. Coupled with a large number of other features (including everything from disaster recovery to simplified testing), it makes sense that VMware has been able to thrive for so long.
Yet, beyond VM technology, the company’s 45% market share is largely earned through strong customer service. VMware offers a perpetual licensing model, for example. Meanwhile, VMware VMs can be updated with patches and code seamlessly, unlike open-source VMs. This begs the question: If VMware is so successful, why is it being sold? Sayegh believes the answer can be understood in one word: “competition.” “The competition for VMware started in the last few years with the advent of the public cloud,” he said. Some of VMware’s customers are beginning to migrate their workloads to cloud platforms such as AWS.
If this hints at the limitations of VMware’s model (whatever its strengths, VMware is not a good fit for enterprises that aim to update legacy systems), there are other signs that VMware’s long-term prospects are not promising. VMware recently raised fees for some services by a tenth, and those fees are only expected to grow 1% year-over-year in 2022, which is hard to understand for many.
VMware Product Pricing Has Increased Significantly
In short, VMware shareholders may feel the need to sell before their market dominance slips, and Broadcom is a notoriously generous buyer for them. Just as importantly, Broadcom’s corporate reputation has long relied on radically changing new acquisitions. To that extent, while Broadcom’s reforms have caused dissatisfaction, they may have their own reasons. As Boost said, given Broadcom’s ambitious growth targets and the ceiling of VMware’s business growth, its product pricing increases may be inevitable.
Broadcom abandoned perpetual licenses after acquiring VMware, hoping that users would pay subscription fees. This is also reflected in the abandonment of more than 20 VMware products, while other products were bundled together, which may force customers to pay for services they don’t need at all. The consequences are staggering. Some VMware customers are facing price increases of 1,200%, and organizations from education to healthcare will face huge bills. Enterprise users are not the only victims either-in December 2023, Broadcom announced a series of VMware partner agreements, which inevitably affected a large number of hosting service providers.
Broadcom’s response to unhappy users sometimes feels blunt and unhelpful. The company responded to a pediatric hospital’s request to maintain its original prices with a simple and arrogant answer: “VMware is not for everyone.”
Broadcom has recently softened its stance, saying it may keep perpetual licenses and promising more support for struggling partners. However, no matter what changes are ultimately implemented, people will wonder about the long-term impact of this upheaval. If Broadcom fails on this front, it is likely to be surpassed by competitors. In addition to AWS and other public cloud providers, California virtual machine provider Nutanix is one of Broadcom’s strong competitors. Nutanix has about 20,000 users and the company is now promising to provide potential customers with “a range of migration strategies.” In addition, one in five VMware customers said they plan to adopt other providers.
It’s Difficult to Give Up VMware
Of course, migrating virtual machines is easier said than done. Boost acknowledged that having to “re-architect” is difficult, especially for large companies that have relied on VMware for years. But in addition to the general uncertainty, VMware’s competitors are also emphasizing the practical advantages of migration. For example, Nutanix believes that its customers can expect better integration with public clouds and more flexible delivery models.
More importantly, some experts believe that VMware’s collapse is a great opportunity for enterprises that want to make virtualization technology stand up to the test. Boost agrees, saying that container-based systems like Kubernetes are easier to migrate than VMware. Considering industry trends, container infrastructure software is expected to grow at a compound annual growth rate of 16.2% by 2030, we may be on the verge of a virtualization revolution.
Beeks’ migration process was not smooth sailing. Because its proprietary software was bound to VMware APIs, it needed to be rebuilt to adapt to OpenNebula. However, Beeks took advantage of the open-source nature of OpenNebula to independently develop the required tools and eventually successfully migrated. After the migration, Beeks’ virtual machine efficiency increased by 200%, reducing costs for itself and its customers.
Beeks’ case is not an isolated case. After Broadcom acquired VMware, its aggressive licensing policy has led to the loss of several major customers, including Geico, Computershare, Boyd Gaming and John Deere. AT&T also threatened to withdraw from VMware, but eventually resolved the dispute through negotiations. Beeks’ successful migration provides a reference for other VMware users and also poses a challenge to Broadcom’s future strategy.
