It is no big secret that USD 69 billion acquisition of VMware by Hock Tan-led Broadcom last year has spurred big changes in the way VMware operates, particularly in its approach to licensing models. This shift from perpetual licenses to subscription-based models has brought to the fore a wave of concerns and challenges which are expected to persist in the near-term. But will they make way for better results in the long-haul?
Playing The Long Game
The strategic consolidation of its portfolio under the stewardship of Broadcom has meant that VMware now has two major and simplified offerings: VMware Cloud Foundation and VMware vSphere Foundation. However, the transition from perpetual to subscription licenses has presented its customers multifaceted challenges.
Biggest of these are that customers must transition to a subscription-based model upon the expiration of their perpetual license agreements. To do so effectively, they have to conduct a comprehensive assessment of their entire software portfolio, including both on-premises and cloud deployments on VMware. This assessment will help identify the appropriate VMware products and subscription levels to meet their needs. Given the complexity of VMware technologies and subscription licensing terms, in-depth expertise would be essential. This means that mid-market customers, in particular, may require external support to navigate this transition successfully - which would mean bearing additional costs.
Also, VMware now offers its subscription on a per core of CPU basis. “Customers might see this as an additional cost as they scale their infrastructure and add more servers. Besides, there could be a perception that customers are being directed to a subscription-based model that many may not prefer,” said Rajiv Ranjan, Associate Research Director, IDC India.
He added that this switch would be prove beneficial for customers on a long-term, especially for those who have a larger VMware based environments. However, Ranjan identified some risk for small to mid-size customers who might have to look for alternative options.
In an exclusive interview with BW Businessworld during his recent visit to India, Krish Prasad, Senior Vice President and General Manager of VMware Cloud Foundation Division, stressed on the value of integrated platforms like VMware Cloud Foundation (VCF). He said that VCF optimised storage, networking, and compute resources, which will translate into significant cost savings for businesses.
“Customers save around 50-55 per cent in terms of overall cost of ownership. This has been proven by many customers who have standardised on this and seen the savings on the storage front, on the networking front, and obviously compute virtualisation,” he said.
VMware executives have had to travel far-and-wide to impress upon its customers of the long-term benefits of the recent changes. According to the company, once customers recognised these advantages, they were eager to stay onboard.
“We are not changing anything in terms of our customer focus. All VMware customers will be supported, with our partner channels aiding commercial customers and direct support for our strategic customers. It’s a very balanced portfolio, and we are not abandoning any routes to market,” said Krish Prasad, Senior Vice President and General Manager of VMware Cloud Foundation Division.
However, a potential challenge for customers after the recent changes is managing different VMware perpetual license agreements for various deployments, each expiring at different times. “This situation requires careful planning to transition each license to the subscription model. Proper support from value-added resellers (VARs), channel partners and VMware are absolutely essential,” suggested IDC’s Ranjan.
Recently, EU antitrust regulators also questioned Broadcom regarding changes to the licensing conditions of its recently acquired cloud computing company, VMware. This inquiry followed complaints from several EU business users and a trade association.
India Market
In discussions about the Indian market, Pradeep Nair, MD-India at VMware, shared that he has observed a persisting trend: once customers grasp the value proposition of VMware Cloud Foundation (VCF), they exhibit greater willingness to invest in the platform, even if it means bearing a slightly higher initial cost.
“They see they can optimise their network, saving costs on traditional networking by adopting virtual networking. So, while they might spend a bit more with us, they are getting a comprehensive cloud operating model that ultimately saves them money in other areas,” said Pradeep Nair, MD-India, VMware.
However, portability of a customer’s existing license from on-premises to a public cloud environment is essential as customers would look to leverage their existing VMware investments. Currently, VMware has this portability support on Google Cloud only but has said that they will have the support of other hyperscalers (AWS, Azure etc.) very soon. As AWS and Azure have bigger market share in India, this could be a concern for customers who have a hybrid cloud deployment.
IDC’s Ranjan felt that there is an urgency for VMware to establish portability agreements with major hyperscalers. This move would facilitate smoother migration of VMware-based workloads to leading cloud platforms, which would align with evolving customer preferences. He said this shift could prove to be favorable among customers, particularly among those transitioning to or already utilising public cloud SaaS models, as it offers increased flexibility and choice in their cloud strategies.
However, Ranjan also warned of heightened competition, with vendors like Nutanix poised to target VMware’s customer base by bundling their hypervisor solutions with their systems, urging VMware to remain agile and competitive in response to market dynamics.
“We might see more competitive offerings in the market. Vendors like Nutanix might target the VMware customers as they offer their hypervisor Acropolis bundled with their systems,” he said.
Further, Ranjan suggested for a transition from upfront license costs to a subscription-based model for VMware’s hypervisor, anticipating it would drive adoption of public cloud offerings while offering customers greater flexibility.
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