On November 22, 2023, Broadcom CEO Tan Hock Eng declared that the company was “excited” to welcome VMware into the fold. It was a message of confidence and optimism. But less than two years later, that excitement has curdled, replaced by tension, backlash, and a wave of customer frustration.

On the day of the deal’s conclusion, the CEO said the semiconductor firm would “continue with VMware for the benefit of the stakeholders we serve.” Yet to many, those words now ring hollow. The company’s aggressive transformation of one of enterprise IT’s most trusted brands has come at a steep cost to goodwill and trust.

Today, customers are angry, partners are uneasy, and Broadcom’s forced subscription bundling is driving churn, even as revenues remain buoyant.

A year and a half is a long time, but for VMware users, the honeymoon is long over, replaced instead with angst and contempt from those who rely on VMware the most.

How did we get here?

Cast your mind back to the summer of 2022. Dell had only just spun VMware off a few months earlier. Rumors began to surface that Broadcom was interested in snapping it up.

The decision was a surprising one to some. Here was a hardware-focused semiconductor maker looking to purchase a multicloud software vendor. It didn’t add up. Add to that Broadcom's reputation for cutting costs and streamlining processes in its prior acquisitions, like Brocade and CA Technologies.

The deal would close in November 2023, but not before being increasingly delayed thanks to Chinese authorities who sat on the deal in a likely attempt at retaliation for restrictions from the then-Biden administration on semiconductor exports.

What would follow once that $69 billion closed was almost two years of an attempt to rework the brand’s offering, which has seen it lose customers to rivals.

Upon taking over the brand, Broadcom discontinued the sale of perpetual licenses for VMware products, requiring all customers to switch to subscription-based models.

That model saw VMware’s software offerings bundled, with 168 total products being shuttered down to just four: VMware Cloud Foundation (VCF), vSphere Foundation (VVF), vSphere Standard (VVS), and vSphere Enterprise Plus (VSEP).

Broadcom argued the move was an attempt at simplification, but many customers faced the reality of purchasing subscriptions to features they don’t need.

And to top it all off, VMware’s Essentials Plus Kit offering, a popular and once affordable option for companies wanting smaller environments, was discontinued, essentially forcing even the smallest users to pay up or get out.

Leaving isn’t easy, either

For customers not happy with the changes, getting out was also made difficult. Broadcom made it so that existing perpetual licenses received only the bare minimum of support once their maintenance agreements expire. So when they lapse, customers are faced with a stark choice: subscribe to a new plan, lose support, or abandon VMware completely.

Broadcom hasn’t made the transition for departing customers easy, either, most recently being compelled by a Dutch court to continue supporting the country's water agency during its move to an alternative provider.

To further compound the tricky breakups, Broadcom began firing off cease-and-desist letters earlier this year in a bid to turn up the heat on users still clinging to perpetual licenses without active support contracts.

The letters called on users to remove any updates, patches, or enhancements installed after their VMware support contracts expired, contending that such support without an active agreement violates the company’s intellectual property rights and licensing terms.

Such a move echoes Oracle when it went after Rimini Street over accessing its support sites on behalf of customers. But Broadcom has gone one step further, conducting audits of now former VMware customers, looking into what software and services they use.

And to further compel users to sign up, Broadcom has drastically reduced its network of VMware partners and resellers, ending numerous agreements, which has resulted in far fewer support resources.

The lowest tier of its VCF reseller and partners program was canned in early June, with Broadcom’s Brian Moats suggesting that the cut would allow it to focus on “those partners who are committed to delivering the transformative customer experience around VMware solutions.”

Translation: Broadcom only wants to work with the big boys and girls, which means those smaller players who want in now have to cough up for a license they might not be able to afford. Plus, CRN obtained a memo that stated firms that fail to renew by the anniversary date of their subscription face a 20% penalty for late renewals.

With customers leaving, rivals are circling

The stark position Broadcom has put longstanding users in has seen many leave.

Kimley-Horn, an engineering, planning, and design consultant, is just one such firm. They ditched their long-standing VMware Horizon VDI contract after the cost for their license soared.

“They did offer a small extension … but it essentially boiled down to it was we either were going to eventually have to pay the new licensing prices or find a different solution,” Cayla Collins, the firm’s technical analyst, told SDxCentral back in March.

There’s also US-based mobile telecommunications operator Boost Mobile, which changed up its legacy VMware-based container-as-a-system (CaaS) platform for one from Wind River, with the company’s CTO Eben Albertyn likening the cost increases to being “price gouged.”

“The predatory pricing that showed up from VMware, price gouging from some other people is not something that we looked forward to,” Albertyn said at a conference earlier this year.

Kimley-Horn and Boost Mobile aren’t the only ones leaving VMware in the wake of the changes either, with their loss being another vendor’s gain and rivals vying to take advantage of disgruntled customers.

The likes of Red Hat, Microsoft through its Hyper-V offering, and XenServer have all sought to snap up those unhappy with the bundle changes.

One firm that claims it is best placed to bring on board those customers is Nutanix, with its Acropolis Hypervisor (AHV) and GPT-in-a-Box platform helping to entice disgruntled VMware users.

Nutanix’s CEO, Rajiv Ramaswami, who previously exec'd at both VMware and Broadcom, told SDxCentral that VMware’s business model has “completely changed” post acquisition to focus on “creating value for their shareholders at the expense of their customers.”

“It’s a logical thing for them to do given where they are in terms of their lifecycle, so business-wise it makes sense," Ramaswami said. "But it’s no longer going to be there for the company that it was. It was a trusted, go-to partner for a lot of companies, now it won’t be.”

Before the Broadcom acquisition, Nutanix was onboarding around 400 new customers a quarter, a figure that’s risen to almost 700 in its most recent fiscal quarter.

Ramaswami said that almost every conversation he has with customers sees the topic of VMware come up, and that customers on both sides of the Atlantic are being impacted.

“I see the same dynamic in Europe as well as North America,” the CEO said. “European customers are facing the same reality of who they are going to trust to be their long-term partner for running their mission-critical applications. They want to work with somebody who takes care of them, who continues to invest in innovation, and can be trusted long-term partner.”

Shedding the ‘non-core’ bits

While Broadcom has been busy forcing customers into new subscription models, it has simultaneously carved up VMware itself. In February 2024, just months after the acquisition closed, Broadcom sold VMware's End-User Computing (EUC) division to private equity firm KKR for $4 billion.

The sale included VMware Horizon, the desktop and application virtualization platform, and Workspace One, its unified endpoint management platform – products that many organizations had relied on for years as part of their broader VMware ecosystem.

For Broadcom, the move was about focus. CEO Tan had been clear about his intention to shed what he called “non-core” VMware assets, telling investors the company would “find good homes for them because there are a lot of very interested parties who are more than happy to take those assets.”

The $4 billion price tag was actually higher than expected – Broadcom had initially projected the EUC and Carbon Black security businesses combined would generate around $2 billion in proceeds. But the real story wasn't the money; it was the message.

By divesting the EUC division, Broadcom effectively signalled that it viewed VMware primarily as an enterprise data center play. As Tan put it, the company would refocus “VMware on its core business of creating private and hybrid cloud environments among large enterprises globally.”

For customers who had built their digital workplace strategies around VMware's EUC offerings, it was another disruption to navigate. Not only were they dealing with new licensing models and pricing structures, but now key components of their VMware stack were being spun off to a different company entirely.

The sale underscored Broadcom's ruthless approach to the apparent streamlining of VMware's portfolio. The EUC sale showed it wasn’t just about changing how VMware sold its products, but fundamentally reshaping what VMware was as a company.

Wall Street wins, customers lose?

One would think that such aggressive reshaping would alienate customers who have used your products for years and would cause Broadcom to change its tack, and while that was initially the case, concern has now made way for contempt.

Despite apparent animosity surrounding the changes, VMware's parent company seemed unconcerned earlier this year when CEO Tan stated that more than 87 percent of VMware's 10,000 largest customers had transitioned to the new subscription pricing model.

The firm isn’t backing down, either, with Tan suggesting that the firm was two-thirds of the way through renewals, "so we probably have at least another year-plus, maybe a year-and-a-half to go” to get legacy users on board.

Tan’s confidence was later echoed by Broadcom’s EMEA CTO Joe Baguley, who dismissed much of the cost criticism, saying it “doesn’t play out” once the company sits down with customers to walk through their actual needs.

The message from the top is clear: Broadcom believes its strategy is working, and the numbers back that up. Tan suggested earlier this year that the company expects a 16 percent year-over-year increase in infrastructure software revenue, projecting $6.7 billion for the current quarter alone. It might be a short-term financial win if it comes at the expense of long-term customer goodwill.

European regulatory heat

If Broadcom thought the customer backlash was manageable, the regulatory scrutiny building across Europe suggests otherwise. What started as grumbling from disgruntled users has evolved into formal complaints and “red” status ratings from industry watchdogs.

The European Cloud Competition Observatory (ECCO), an independent monitoring body established under the Cloud Infrastructure Services Providers in Europe (CISPE) trade group, delivered a damning assessment of Broadcom's VMware licensing practices back in May.

The organization handed Broadcom a “red” status - its most critical rating - declaring that the company's licensing model “appears to rely on practices that breach EU competition regulations.”

ECCO's concerns extend beyond pricing complaints. The watchdog argues that Broadcom's tactics create “material risk for the company and their shareholders should regulators investigate and challenge the legality of such a model.”

It's a warning that carries weight, particularly given ECCO's role in monitoring anticompetitive practices in the European cloud market.

The heat isn’t coming from one body, either. German IT customer association VOICE filed a formal complaint earlier this year with the European Commission against Broadcom, adding official weight to the mounting concerns.

Meanwhile, ECCO reports that European cloud service providers have been signing new licensing agreements “under significant pressure, influenced by a lack of alternatives, abrupt contract terminations, and financial incentives such as rebates for longer-term commitments.”

What particularly irks European regulators is Broadcom’s apparent disregard for established business practices. With the company drastically altering its partner programs to force firms to choose between being service providers or resellers, it’s a problem in Europe where many companies traditionally play both roles.

The ECCO described the situation as “a further harmful restriction on European cloud service providers' ability to compete and serve European customers,” and called on continental regulators to end what it sees as Broadcom's “highly litigious approach” toward partners and customers.

The message from Brussels is clear: even if Broadcom's heavy-handed tactics are working financially, they may not be legally sustainable in the European market.

Has the acquisition come back to bite?

Since that fateful day in November 2023, Broadcom’s transformation of VMware has been nothing short of radical. In almost two years, it has upended licensing models, cut deep into product lines, and forced customers and partners to make some seriously difficult strategic decisions.

While the strategy is delivering short-term financial returns, the long-term damage to customer loyalty, partner trust, and regulatory goodwill may prove more costly than expected.

For now, Wall Street is smiling. But with legal pressure building and customers continuing to flee, Broadcom may find that squeezing more value from VMware comes at a price no quarterly earnings can offset.