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April 11, 2024 |

Broadcom-VMware Shakeout: How the Channel Has Been Affected By the Big Industry Acquisition

Industry experts weigh in on the “messy breakup” that MSPs were left with after Broadcom’s acquisition of VMWare.

There’s no denying global technology giant Broadcom’s acquisition of cloud computing firm VMware last year was an astute business move, even if the bottom line doesn’t line up for thousands of MSPs who discovered they didn’t fit into the plan.

The deal closed in November 2023, and by March of this year, Broadcom reported what is now known as VMware by Broadcom had already contributed a 23% revenue bump in Q1, which closed in February.

Unsurprisingly, there was little mention of the channel program overhaul that contributed to gains, with at least 10,000 fewer channel partners along for the ride.

In addition to several pricing changes, Broadcom jettisoned VMware’s Partner Connect program along with all the partners, folding it into the Broadcom Advantage channel program that draws from Broadcom’s entire portfolio. The company said in a February blog post it would match members to a similar tier in Broadcom Advantage — if they had been invited back. More than 18,000 active partners were invited, per the post, a steep drop from the 28,000 cited in reports a year or more prior. A separate FAQ defined active resellers as those with an active contract within the last 24 months.

There was speculation that MSPs generating less than $50,000 per month or $500,000 per year in VMware revenue would automatically be excluded, but a handful of unconfirmed Reddit threads indicated that partners with much smaller numbers were invited back.

That said, the most painful collective sting seemed to come from the decision to move roughly 2,000 of VMware’s top accounts out of channel and take them direct. Even MSPs who had nothing to do with those accounts found the move distasteful.

Should I Stay Or Should I Go?

By now, most of the confusion has cleared up, but a mix of exclusion, price increases, hurt feelings, or aversion to the new requirements has many MSPs reconsidering their options.

In fact, 70% of global VMware partners were looking to make a change by late January, according to a survey of 20,000 MSPs, said Jay McBain, Canalys chief analyst of channels, partnerships & ecosystems.

One option for MSPs is to “go to where VMware wants you to go,” which means operating more like a systems integrator, McBain said. MSPs also could just take a moment to decide if they even want to stay in the category.

Jeff Ready of Scale Computing

Jeff Ready

The latter option likely would be worth it, as the hyperscale market is expected to grow 20% from 2021-2026, increasing the demand for middleware required for multicloud strategies. MSPs who want to take advantage should look to VMware competitors with a longer-term view, such as Nutanix or Microsoft.

Scale Computing is another competitor that has both courted and been sought out by VMware partners. CEO and Co-founder Jeff Ready said Scale Computing saw an increase in demand after the Broadcom deal was announced, and then inquiries surged 500% from the previous year once the transaction closed. VMware’s price increases are among the biggest driver, and price-sensitive MSPs that didn’t need big bundles are those hurting most, Ready said.

Migrating away from VMware presents technical challenges, plus questions about backup vendors, disaster recovery, encryption, and other elements of a core infrastructure were things MSPs may not have had to think about using an all-in-one solution, Ready explained.

“If you had exactly the right set of features, the math works out [to] a price reduction. But now, to get the five features you were using before, you have to buy 20 products.”

VMware’s Looming Legacy

Broadcom declined to comment to ChannelPro on this story, however, President and CEO Hock Tan said the following in a March 14 blog post:

“Of course, we recognize that this level of change has understandably created some unease among our customers and partners. But all of these moves have been with the goals of innovating faster, meeting our customers’ needs more effectively, and making it easier to do business with us. We also expect these changes to provide greater profitability and improved market opportunities for our partners.”

Meanwhile, industry experts said they expect negative fallout from the changes. These costs will be harder to quantify, but very real.

Jay McBain of Canalys

Jay McBain

Severed channel relationships might hurt the company in the long run, McBain said. “The average VMware customer has seven partners. If they start talking those customers away, over the long term, VMware will start to shrink,” McBain said. “In 10 years, it won’t be the winning legendary brand it became over a decade.”

Tech players with greatest longevity and scale, such as Apple, Nvidia and Microsoft, have all maintained strong partner ecosystem, he noted.

In addition, by “trading channel value for profit value,” a company gives up the impetus to develop and innovate for tens of thousands of smaller customers no longer in its ecosystem, added Ready. “Company’s have personalities in a way, and VMware was kind of viewed as a good guy. I’m not bashing Broadcom, because it has a business strategy and it’s going to make a lot of money.”

Then, there’s the trust issue. Ready said many more prospects than usual want to talk with him directly these days, hoping for reassurance from a more personal connection.

On the other hand, the comfort they seek simply may not match market realities. That’s why McBain reminds MSPs to be careful about vendor relationships, which are as vulnerable to messy breakups as a marriage or any other relationship.

“You should always be presenting multiple alternatives to your customers. … If you maintain your independence, that’s your value to customers.”


Image: iStock


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