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VMware’s APAC customers weigh in on licensing changes

VMware customers in the region are concerned about higher costs even as they see the benefits of subscription-based pricing and product bundling in the longer term

VMware customers in Asia-Pacific have raised concerns over the recent move by Broadcom to revamp VMware’s licensing and product strategy.

The move, which came after Broadcom completed its $61bn acquisition of VMware, includes the transition from perpetual to subscription licensing, the creation of product bundles and the shift to central processing unit (CPU) core-based licensing.

Prashant Shenoy, VMware’s vice-president for cloud platform, infrastructure and solutions marketing, told Computer Weekly that the moves were largely aimed at simplifying VMware’s portfolio and creating more value for customers over time. “We had different permutations and combinations of products which caused complexity for our customers,” he said. “They were asking us about the right product set they should buy and the value they’d get out of it.”

Shenoy noted that the complexity arose out of silos that resulted from having separate VMware divisions that looked after the compute, storage, networking and service management capabilities that make up VMware Cloud Foundation (VCF), the company’s hybrid cloud infrastructure platform. “The first thing we did was to bring these business entities into a single VCF business division that includes software-defined compute with vSphere, software-defined storage with vSAN, software-defined networking with NSX, and overall management, orchestration and automation with Aria,” he said.

But instead of letting customers buy standalone components, VMware is offering two primary bundles – VCF and VMware vSphere Foundation (VVF) – that cater to different needs. Shenoy said VCF suits enterprises that are looking to build a private cloud, while VVF would fit the needs of those looking to optimise their compute infrastructure for modern workloads, adding that 90% of VMware customers would be served by the two bundles.

To make VCF more attractive to customers, VMware has reduced the bundle price by half – from $700 per core per year to $350. Shenoy contended that even if a customer only uses vSphere and another component, they are still better off with the VCF bundle than buying standalone components.

On the move to subscription pricing, Sachin Shridhar, enterprise sales leader at VMware Asia-Pacific and Japan, said VMware had been on a four-year journey to get customers to switch to the subscription model that delivers more value over time.

We cannot immediately switch because of high dependence and that’s exactly where such decisions take advantage of a CIO’s predicament. But with time and a good team, an alternative will be explored in the near future
Pertisth Mankotia, Sheela Foam

That said, he claimed that VMware will work with customers to understand what they are using today, and what’s required and the time it takes to help them extract value out of the product bundles.

“But we’ve got to give customers a realistic model that allows them to adopt the capabilities over time, including a commercial model that works and that’s what our teams are focused on,” said Shridhar.

Customer and analyst reactions

VMware customers such as DBS Bank and PSA Singapore declined to comment on the impact of VMware’s pricing and product strategy on their businesses. Those that were willing to go on record were generally concerned about higher costs.

Manoj Gupta, associate vice-president of IT at Restaurant Brands Asia, said: “The introduction of the new licensing model has notably escalated the overall company budget. Transitioning to a subscription model will undoubtedly burden customers financially.

“These changes affect not only the private cloud but also public cloud,” he said. “Nevertheless, this transition will not immediately impact our profit-and-loss statement since customers can continue utilising any perpetual licenses they have already purchased, but some VMware products will go end-of-support, with no options to extend after the end-of-support date.”

Earlier this week, Broadcom CEO Hock Tan said in a blog post that the company would provide free access to zero-day security patches for supported versions of vSphere, with other VMware products to be added over time. This would ensure that customers whose maintenance and support contracts have expired and have chosen to not continue on one of VMware’s subscription offerings are able to use their perpetual licences in a safe and secure fashion.

Impact of CPU core licensing

As for the impact of CPU core-based licensing, Gupta said software licensed on a per-CPU basis typically requires one licence for up to 32 physical cores. For CPUs with more than 32 cores, additional CPU licences must be purchased. “From a cost perspective, this change will indeed have significant implications throughout the year,” he added.

“Considering that databases like Oracle and SAP Hana currently use per-CPU cost models, which are already expensive due to their per-core licensing structure, this transition will further elevate the overall cost of applications and software.”

Still, in spite of the potential challenges, transitioning to subscription licensing will benefit customers in the long term, said Gupta. He noted, though, that there are short-term risks for VMware customers following the change, including the potential impact on pricing, product availability and licensing.

“Managing the scale and complexity of the transition away from perpetual licensing will require specialised knowledge that may not always be available in-house,” said Gupta. “This includes expertise in advanced VMware technologies such as multi-cloud networking and security, as well as the Aria management suite and HCX.”

He claimed that even with VMware’s product bundles, his company can still purchase certain standalone products “a la carte” as needed. “This approach allows customers like us to minimise overall costs, and over five years, it can lead to benefits through the reduction or optimisation of licences,” said Gupta.

We've got to give customers a realistic model that allows them to adopt the capabilities over time, including a commercial model that works and that’s what our teams are focused on
Sachin Shridhar, VMware

“Additionally, VMware has announced a Bring Your Own Licence (BYOL) option, which provides customers with the flexibility to deploy VMware subscriptions across cloud or on-premises environments as needed,” said Gupta.

Google Cloud is the first hyperscaler to support VCF licence portability, with other partner and hyperscaler clouds expected to follow suit later.

Umesh Mehta, executive director of IT at Ekam Technologies and president of CIO Association India, said product bundles may offer benefits in terms of streamlined management and integration, but their value would depend on an enterprise’s needs and usage patterns.

“The confidence in VMware’s product strategy may vary among customers, depending on their experiences with previous transitions and the perceived alignment with their business objectives,” he said. “Some enterprises may explore alternatives to minimise risk, but migration to competing products would likely involve significant effort and evaluation of compatibility and functionality.”

Pertisth Mankotia, group CIO of Sheela Foam, said the move by Broadcom will put CIOs under a lot of pressure and is “not ethical, especially when a customer has used VMware products for many years”.

“It also sets a wrong precedent for the industry,” he said. “We cannot immediately switch because of high dependence, and that’s exactly where such decisions take advantage of a CIO’s predicament. But with time and a good team, an alternative will be explored in the near future.”

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Devroop Dhar, co-founder of Primus Partners, a technology advisory firm, noted that small and medium-sized enterprises that are not using everything in VMware product bundles may move to competing services.

“Larger enterprise clients may find the bundling useful and the cost for them may come down,” he said, adding that VMware’s focus on larger enterprises may help to improve its bottom line and client service delivery. “The bundling will also be an incentive for more customers to use a larger array of VMware products.”

Naveen Chhabra, principal analyst at Forrester, said the bundles make sense for companies that use all the products in each bundle, but it does not mean prices will not increase for them. “It certainly will, but those increases will not be as drastic for them as it is for those that are using just a product (like the hypervisor) or two,” he said.

In May 2023, Tan pledged to invest an incremental $2bn a year to unlock value for VMware customers. Half of that amount will go to research and development (R&D), while the other half will be used to accelerate deployments of VMware offerings through VMware and partner professional services.

In its latest fiscal year, Broadcom reported $36bn in revenue, of which $5.3bn was spent on R&D. “One of the big things about the culture of Broadcom is that we focus a lot on providing the right level of investment with a very ruthless focus and simplification of that investment,” said Shenoy.

Still, with the recent changes, Chhabra remained sceptical. “It would not be unreasonable if the market doubts the future and direction of VMware products,” he said. “VMware product teams will have little motivation to be innovative. VMware grew to its position because of relentless innovation, which I suspect will disappear”.

Additional reporting by Pratima Harigunani

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