VMware in Broadcom Era: Time to Leave or Opportunity?

Nicolas Albana, CEO of AppXite

The announcement of Broadcom acquiring VMware and new partner requirements has caused a whirlwind of reactions from VMware’s partner ecosystem as well as highly influencing analysts the likes of Jay McBain have voiced a sparely negative outlook, revealing that many partners are actively looking for alternatives and urgently want to discontinue their VMware (Broadcom) relationship.

This strong feeling of disagreement and discomfort is clear, but beyond turbulence, there perhaps lies a less explored narrative— one that sees this acquisition not as a disruption but as a transformative opportunity and a natural progression for the channel into a symbiotic relationship similar to those provided when Microsoft launched the CSP program, Adobe VIPMP and similar. Yes, it is undeniable that VMware has now removed the carpet for many resellers and established a barrier for smaller partners to enter the market by increasing the price and minimum commitment. However, the restructuring can be seen as VMware's strategic push for smaller direct partners to collaborate with larger partners, thereby streamlining efficiency and bolstering service delivery to the end customers.

Let’s start by outlining some of the challenges:

• VMware moving from having an army of resellers and OEMs providing licenses to drastically reducing these and switching entirely to subscriptions and commitment models.
• The new minimum commitment to VMware is relatively high at 3500 cores minimum, making it difficult, if not impossible, to commit to a smaller data center with let’s say only 2000 cores currently serviced to end customers.
• The all-inclusive packaging in the new model means you potentially pay for a lot of things you currently are using other tools for and therefore maybe have a double payment for the same.
• Just replacing VMware with the likes of Red Hat, Nutanix or even Proxmox is easy to say, but harder to do in reality. It’s not just migrating some VMs, but also building all the necessary service automation fabric required to maintain a cost-effective operation.

So let’s look at the options if wanting to stay with VMware:

• Agree with a larger datacenter to incorporate their VMware setup into your datacenter

With this model, the larger datacenter partner gains the opportunity to sign a larger agreement by incorporating several smaller partners into their setup. Compare it a bit to how Microsoft Indirect Providers service all the smaller Microsoft Indirect Resellers who don’t have neither the volume or automation capabilities to handle automated billing and invoicing, nor the necessary service arm to provide the necessary value to customers. But the new “partners” also gain other benefits from the combined scale. Often the smaller datacenters have a level of localized services and customer intimacy that the larger partner doesn’t such as customer-facing roles, focusing on personalized, on-the-ground services that larger partners cannot replicate and are not willing to invest in. From onsite technical support to personalized client engagements, these small-scale operations add invaluable texture to the technological tapestry of local businesses and are the reason they have retained the customers for years.

In addition, the larger partner can open up for the smaller to sell additional services which the smaller partner would not have had the possibility to sell before.

No doubt the larger partner will want to also get paid extra for the VMware costs, but in the end, this setup benefits both parties a lot more than previously just competing for the same customers on large versus local. The large one gets an extended sales arm for which it doesn’t have to pay any salaries, can expand its additional services to more customers, and can obtain even better agreements with VMware.

So where are the hick-up and downsides from going in this direction for both the larger partner and the smaller one? Well, it comes down to credit risk. When the larger partner has to commit to a certain volume they do that to VMware, and will have to pay if not to lose its entire business. If suddenly the smaller partner runs into financial turmoil or loses a lot of customers, they can be left hanging with the bill. The same issue has been seen in the Microsoft CSP channel where smaller indirect resellers are not permitted to sell annual commitment agreements with monthly billing, but instead, have to pay upfront for all commitments. We would expect the larger partners to require the same from the smaller partners for all commitments, or find similar forms of guarantees for their commitments to VMware.

• Agree to move all servers to the larger datacenter partner

While this is a bit controversial, and likely also comes with a lot of resistance and pride involved, let’s first explore some of the benefits.

A larger datacenter will likely have a lot more cost efficiency over a smaller datacenter at the same level of requirement for cooling, physical and digital security, networking, power, and general building facility operations. All this of course doesn’t matter if the smaller partner just made a CapEx investment of $3 Million USD a year ago in the above, and now have to depreciate this cost over the next 5-10 years no matter what. So, the scenario is best fitting for small datacenter partners that are at the end of a capitalization run, and anyways would have had to go out and invest, or who are in non secure rented building setups with old equipment that already has run its course.

So, if the shoe and timing fit, this option can be explored, and both the larger and smaller partner again benefits with expanded sales, more services, and better joint capacity utilization.

So what’s next?

The transition raises many practicalities and operational questions: How will these smaller partners integrate into the larger operational frameworks without losing their unique value proposition? How will they access and bill for services rendered through the larger partners' systems? Should the smaller partners continue to work with Excel, or could they benefit from automation and customer self-service which they could not afford to invest in before? What will be the key value differentiator for the larger hoster in order to attract the smaller partners? Should larger partners have to take pre-payment for VMware commitment resources to balance the credit risk if the partner suddenly loses a large number of customers or gets into financial turmoil?

The ball really lies with the larger partners. They can either go the route of partnering, or they can try to snatch up the smaller partners' customers. The latter is an unlikely scenario, as there for sure will be someone willing to capitalize on one or the other option described above, and these will suddenly be able to scale much more than the narrowminded. Of course that is our view at AppXite, history will show.

We suggest larger partners get ready to service a channel of smaller partners to focus on building a mutually profitable partnership model and ensuring they are able to cater to this new partner structure, provide the business operational platform and self-service capabilities for the smaller partners to service their customers in the new setup with accurate pricing, billing, reporting and provisioning of new customers, and even allow the partners to add their own managed services and offerings to these platforms. It just so happens that AppXite provides these out-of-the-box partner management, billing, invoicing, pricing, and provisioning capabilities to support VMware ecosystem partners, their partners, and even their end customers. So if you are going that route, click here to read more about AppXite VMware offering and book a meeting to discuss opportunities.

And remember, there are a lot of guys out there with VMware tattoos on their bodies. I know several of them personally, and they are not switching just because a new licensing model has been launched.