Broadcom’s revamping of VMware’s pricing and distribution model might be causing chaos across the ecosystem, but it has managed to convert thousands of its largest VMware customers to that new model.

Broadcom CEO Hock Tan told investors during the vendor’s most recent earnings call that it has signed up “close to 3,000 of our largest 10,000 customers” to VMware’s new subscription licensing model. He added that “each of these customers typically sign up to a multi-year contract,” which when spread across an annualized booking value increased from $1.2 billion during the first quarter of this year to $1.9 billion in its latest Q2.

“We're making good progress,” Tan said of its move to sign legacy VMware customers to the new licensing model. “The journey is not over, by any means, but it's very much to expectation moving to subscription.”

That’s not to say that Tan wants that journey to move faster.

“Hell, in VMware we're very slow compared to a lot of other guys: Microsoft, Salesforce, Oracle, who have already been pretty much in subscription,” Tan added. “So VMware is late in that process, but we’re trying to make up for it by offering it and offering it very, very compelling in a compelling manner, because subscription is the right thing to do.”

Tan reiterated previous comments that the VMware subscription program provides a more complete service to enterprise customers, explaining it’s “a situation where you put out your product offering, and you update it, patch it, but update it feature-wise, everything and capabilities on a continual basis, almost like getting your news on an ongoing basis, [in a] subscription online, versus getting it in a printed manner once a week.”

That argument has not been accepted by all, with many analyst firms noting the potential for a huge pricing spike for many long-standing VMware customers.

Forrester Research recently released a report that found “one VMware client shared that they’re experiencing a 500% price increase based on their current use of VMware products and how it maps to the new licensing and packaging.”

Naveen Chhabra, principal analyst at Forrester Research and author of the report, told SDxCentral that these pricing changes were not unexpected and that he and his team had predicted 20% of the world’s largest enterprises “will start to exit – read these words very carefully – will start to exit the VMware stack.”

“They will not do a full replacement overnight, but in parts, they will start to move away,” Chhabra said. “I clearly see that happening right now and I don’t need to go another five months to claim that that prediction was true. It is happening.”

Despite the blowback, Tan said that the new VMware stack is “getting a lot of attention from our customers,” specifically those that want to deploy their own private cloud on-premises “as a nice complement, maybe even alternative or hybrid, to public clouds. That's the selling point, and we're getting a lot of interest from our customers in doing that.”

Broadcom’s VMware customer focus

Broadcom has been fluid in its VMware integration and changes, with management repeatedly making adjustments to that process over the past six months. It has even admitted to the process being rougher than expected.

“With change comes challenges in terms of confusion, because when the pace of change and the amount of change is drastic, there’s obviously a definite confusion or challenge when we don’t communicate and articulate things in a broad amplified and consistent manner,” Prashanth Shenoy, VP of cloud platform, infrastructure and solutions marketing at VMware, told SDxCentral in an interview earlier this year.

Tan this week also admitted that “VMware taught me a few things,” pointing specifically to its dealings with VMware’s approximately 300,000 customers. Tan noted that with Broadcom’s $18.9 billion purchase of CA Technologies, “we took a position that, let’s pick A-list, strategic guys and focus on it.”

“I can't do that in VMware. I have to approach it differently,” Tan said.

Tan cited Broadcom’s work with its distribution channels to hone how VMware’s streamlined product line would be supported by different reseller tiers. This includes Broadcom altering VMware’s various legacy distribution channels to better align with Broadcom’s long-standing models.

“I started to learn the value of a very strong bunch of partners they had, which are a network of distributors and something like 15,000 value-added resellers supported with these distributors,” Tan said. “So we have doubled down and invested in this reseller network in a big way for VMware, and it's a great move. ... Six months into the game ... we are seeing a lot more velocity out of it.”

Broadcom rivals have also pointed to the vendor becoming more flexible on different pricing models to maintain some of its larger contracts.

“We’ve seen Broadcom display a lot of flexibility with respect to their pricing, their packaging changes, especially when they are faced with the probability of losing some of their larger customers or responding to pushback from the market and the customer base,” Nutanix CEO Rajiv Ramaswami said during that company’s most recent earnings call.

Ramaswami further explained that this pushback has also involved Broadcom being very active over the past several months in adjusting to the change their decisions are having in the market.

“They’ve tried a bunch of things,” Ramaswami said. “They’re stepping back on some of the things they’ve tried, so the competitive situation is quite dynamic on that front.”

While some analysts have highlighted the financial strain Broadcom’s moves are having on many enterprise customers, others have also noted that the changes could end up being better for all involved.

“It may actually be a win-win in terms of maybe Broadcom cares more about the quality of the profits than the size of the revenue, and that’s [Broadcom CEO Hock Tan’s] style. And if that’s the case, then he wins.” Roy Chua, founder and principal at analyst firm AvidThink, told SDxCentral in a recent interview on the evolving market dynamics. “And the customers may win because the customers who don’t want to pay the premium for VMware end up paying that revenue stream to someone else. And maybe they’re happy with it, because they don’t feel like they’re locked in. So it could be an interesting evolution in the market that I wasn’t expecting.”