The stories abound about pricing increases following Broadcom’s acquisition of VMware in late 2023. A VMware licensing cost increase of 150%. An increase of 300%. How about an increase of 500%? For many VMware customers, the licensing model and price changes were abrupt. Other customers have time — until the end of their current contracts — to explore their options.
Facing backlash from existing customers, Broadcom has attempted to explain the new product and licensing model with a hope that current customers can manage the transition. This transition included the re-do of the previous channel partner structure, with Broadcom focusing on a smaller number of value-added resellers and direct relationships with its largest customers. This sales channel change might mean that, in addition to license model and pricing changes, VMware customers will need to forge relationships — for both sales and support — with new providers.
The new product structure simplifies the number of products and options and bundles VMware products into various categories. The product bundles simplify the VMware product structure but might require customers to pay for items they would otherwise not want, need, or use. The same is true of what were previously a la carte VMware products. Products like NSX Networking and vSAN are now available only as part of bundle.
VMware has also announced that perpetual licenses are no longer an option. In doing this, VMware joins the majority of infrastructure providers that are adopting the software-as-a-service model and replacing perpetual licensing with subscription licensing. For those IT leaders who have been around for some time, this is a significant change and potential price increase from the concept of owning (and paying, if desired, for ongoing maintenance, upgrades, and support) hardware and infrastructure software rather than subscribing to the hardware and software as a service. The subscription model is becoming the new normal for all types of products and services.
If an organization has been — or is expecting to be — affected by the VMware cost increases, what options does that organization have? Below are several options (with the caveat that the landscape could change and some of these options might become more or less appealing or even available).
Option 1: Absorb the price increases
Assuming that VMware is part of the fabric of the organization’s infrastructure and operating model — VMware is the de facto standard for workload virtualization — the best option might be to absorb the price increases. In the short term this might be the only practical option as the options might require both time and experimentation. Regarding license cost discounts, the discounts are now built into the VMware product bundle structure. Stated differently, the VMware Cloud Foundation product bundle is discounted as compared with purchasing the components separately. Otherwise, pricing is based on subscription list prices with possible discounts for longer-term agreements.
Option 2: Align workloads around the VMware product bundles
Even though it incurs a heavier management cost, it is possible to separately license several of the VMware product bundles. To do that requires a workload analysis to determine how the features and functionality of each product align with workload requirements. Suppose an organization does not require the functionality of vSphere Foundation for all of its workloads and can manage some workloads with vSphere Standard. There is a significant price difference between the two products (just over a 60% discount from Standard compared with Foundation). The organization can reduce its VMware licensing costs by creating two environments (one using Foundation and one using Standard) and purchase the two product bundles. This option requires the following:
Evaluating which workloads can operate with which product bundles
Segregating those workloads into different environments aligned with the product bundles
Licensing each environment with its separate product bundle
Operating each environment separately, each with its own VCenter
This might not be trivial. Not only does this require more complex management but it also might require changes to the environment based on the functionality lost in “downgrading” to the lower-cost products. And what happens if, in the future, Broadcom decides to further simplify its product structure and eliminate the lower-cost products?
In parallel, Broadcom has implemented a repricing strategy in which changes to existing license counts and types could affect the pricing of other products. To understand the full financial impact of changes to an organization’s current VMware pricing it might be necessary to model a number of scenarios.
Option 3: Align workloads around the hypervisor
There might be workloads that are certified or work well on different hypervisors. Perhaps a system works well on Proxmox or KVM or RedHat or Microsoft or some other platform. While VMware is the dominant hypervisor in the market and thus compatible with the widest range of workloads, plenty of workloads work with the other hypervisors. This option retains the challenges of separate environments and management but could significantly lower costs. The cost analysis of this option should include the change in administrator skills as well as the impact of the potential repricing of the retained licenses described in Option 2.
Option 4: Test and select a non-VMware hypervisor
There are other hypervisors (some of which are named in Option 3). Some are open source and some are commercial. The challenge when selecting a non-VMware hypervisor is how well the rest of the system (compute, storage, networking, etc.) operates with a non-VMware hypervisor. As the de factor virtualization standard, almost everything works well with VMware. Will almost everything work well with something other than VMware? In spite of claims that a specific service does work well with a different hypervisor, the prudent approach is to test the interoperability and identify any shortcomings and determine whether those shortcomings are tolerable or can be overcome. This testing could take both time and effort (as well as a test environment) in addition to the time and effort to train system administrators.
Option 5: Evaluate (or re-evaluate) the cloud migration cost model
One of the factors in making cloud migration decisions is cost (see Cloud Migration: What We Know, What We Have Learned, and What’s Ahead, IDC #US50942923, June 2023). Perhaps an organization included its VMware licensing costs in its cloud decision model. If the VMware licensing costs are now increasing by a factor of 2, 3 or 5, this might change the cloud migration decision. This is also true if an organization is making a cloud migration decision for the first time. If the organization adopts the cloud provider’s hypervisor in its migration to the cloud, the organization can eliminate the VMware licensing costs. The changes in the VMware licensing model and costs might now be enough to tip the decision — a decision that includes all of the decision factors — in favor of cloud migration.
Option 6: Make a platform change
Perhaps the organization operates on premises using a private cloud or in a hybrid cloud model and is facing a hardware refresh. In addition to factoring VMware costs into a cloud migration decision (Option 5), the organization should also factor VMware costs into its refresh decision. Is it time, based on the updated VMware costs and the complexity of interoperability with a non-VMware hypervisor, to change the infrastructure to hyperconverged infrastructure (HCI)? HCI includes compute, storage, and hypervisor that are optimized and tested to work together. This reduces concerns about compatibility but represents a significant strategy and infrastructure change. But this is an option. In fact, some HCI providers have already announced their VMware migration offerings.
Recommendations
No matter which option an organization pursues it is important to make a long-term decision. VMware is the market leader for a reason: It has not only delivered the most successful virtualization product but has continued to innovate the product and market. That begs the question, if Broadcom continues the innovation, are the VMware licensing cost increases enough to cause an organization to change its approach to virtualization?
No matter which option an organization selects there is work to do (except for Option 1). There is testing to be done. There are decision models to define and refine. There are combinations of the options listed above to consider. Even if the timing is such that an organization has already accepted the new VMware pricing, the longer-term decision remains: What is the best virtualization operating model and platform for the organization? For such organizations, the testing, decision models, and combinations remain important before the next VMware licensing term starts or before Broadcom announces the next product deprecation, product consolidation, or licensing model change or price increase.
Prepare the organization for looming price increases in other elements of the technology stack. Driven not only by inflation but also by the investments technology providers are making in AI (as well as acquisitions of AI companies) there are likely to be price increases in other areas. There are also likely to be licensing model changes as the perpetual license model is replaced by subscription pricing. And the above options will likely remain valid when other providers announce their price increases and licensing model changes. It is a good practice to imagine the VMware scenario repeating for other parts of the technology stack and allocating a portion of the IT portfolio to explore and test options.
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Find out about the digital infrastructure priorities of more than 200 VMware customers in this survey report from IDC.
Niel Nickolaisen is an adjunct research advisor for IDC’s IT Executive Programs (IEP). He is considered a thought leader in the use of Agile principles to improve IT delivery. And he has a passion for helping others deliver on what he considers to be the three roles of IT leadership: enabling strategy, achieving operational excellence, and creating a culture of trust and ownership.
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