Broadcom’s focus this year on accelerating the enterprise adoption of its VMware platforms will continue to rely heavily on deployment and support partners that could be feeling an increased financial squeeze from that relationship.

Equity research firm William Blair noted in a recent “Enterprise Tracker” report that some enterprises and go-to-market partners were continuing to look for ways to de-couple themselves from Broadcom and VMware. The report stated that value added resellers (VARs) had noted “customers are actively strategizing how to get off VMware, and the broader ecosystem (VARs, OEMs, ISVs) is moving away from VMware.”

That last point was bolstered by the research firm noting “newfound disillusionment from partners about Broadcom squeezing them on margins,” with a specific “partner that historically could expect to make 10 to 15 points of margin on reselling VMware is now making only 5 to 6 points.”

Broadcom shortly after closing on the VMware acquisition moved to revamp VMware’s long-standing partner sales and distribution channel in favor of its Advantage Partner Program. That move was touted as a way to simplify interactions between VMware and its customers, however it also moved those resale partners into different tiers based on their sales pipeline.

Those changes drew consternation from some partners and industry analysts.

“These partners are mad,” Tracy Woo, principal analyst at Forrester Research, told SDxCentral. “They’re mad because they’re partners and they weren’t given more notice than like a day or maybe just an email and that was it. That is very Broadcom style, it’s very matter of fact and we don’t make any apologies for it.”

Broadcom CEO Hock Tan shortly after the program launch attempted to clarify the move and highlight benefits that included the ability to “deliver consistent customer experiences.”

“To ensure there is continuity of service for this smaller partner group, we will continue existing operations with this group under modified monthly billing arrangements until the white-label offers are available,” Tan wrote.

Tan also targeted past abuse of VMware’s sales partnerships, stating that the new program ended “upsell practices that were common in the software industry before the subscription transition, such as branding incremental features as new higher editions of the same product or new add-on products. These practices do not represent true innovation in core products, and cause customer confusion and frustration about missing out on new features. Subscription licensing eliminates these incentives.”

Broadcom has since altered its distribution arrangement with some of the top hyperscalers, cozying up more closely with the likes of Microsoft Azure, Google Cloud Platform (GCP), and Amazon Web Services (AWS).

Broadcom admits to partner, customer challenges Prashanth Shenoy, VP of cloud platform, infrastructure, and solutions marketing at Broadcom, recently explained to SDxCentral that the vendor is focused this year on “acceleration and adoption” of its VMware business. That focus is expected to ride momentum coming out of a hectic 2024, which saw Broadcom overhaul VMware’s platforms and licensing models.

“Last year was a year of cleaning up, simplifying our route to market, our offer, our product, giving them the direction, the confidence, and building the product,” Shenoy said of Broadcom’s updates to VMware’s halo Cloud Foundation (VCF) platform. “This year is all about making sure the product gets deployed, consumed, all of the advanced services work on that, and our partners and our route to market are fully operationalized to go deliver on that.”

Shenoy had previously admitted that Broadcom’s VMware changes did challenge customers and partners.

“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,” Shenoy admitted.

However, he added that those changes were necessary and a long-time coming.

“In the previous world, this would have taken us three to four years to make that change,” Shenoy said. “I joined VMware two years back and we tried this a few times, and we didn’t execute on that. So, for me, I was very glad to have made this business model transformation, portfolio transformation, route market transformation, all in a matter of months.”

Broadcom reported robust growth from its VMware-infused software infrastructure business during its most recent earnings call, with CEO Hock Tan stating the vendor booked 21 million total CPU cores during the latest quarter compared to 19 million cores posted in the previous quarter. More significantly, Tan said that 70% of those new booked cores were on its flagship VMware Cloud Foundation (VCF) platform, “virtualizing the entire data center.”

Tan also noted that Broadcom had signed up 4,500 of its largest 10,000 customers to its VCF platform, and that the platform generated $2.7 billion in annualized booking value (ABV) during the latest quarter. Those numbers are significant improvements from the 3,000 resigned customers and $1.9 billion in ABV Tan noted during the vendor’s Q2 results.

Is a VMware migration coming?

That retention and return is significant for Broadcom as it counters concerns over customers potentially fleeing VMware following license and pricing changes implemented by Broadcom post-acquisition.

Broadcom rivals have conceded that the vendor is doing a good job in stemming the near-term outflow of large VMware customers.

Nutanix CEO Rajiv Ramaswami during that vendor’s latest earnings call downplayed near-term benefits from VMware customers potentially migrating their operations to Nutanix’s platform, noting that the opportunity remains a multiyear trajectory.

“The market continues to be dynamic, but from our perspective it’s still largely unchanged in terms of our opportunity, multiyear opportunity to gain share,” Ramaswami said in response to questions from financial analysts. “We haven’t seen a significant change in that this quarter compared to the last several quarters really. And we haven’t seen any real meaningful changes in our win-loss rates either on these opportunities.”

The William Blair report did note that while “immediate migration remains an operational challenge for many customers,” those wondering eyes were glancing toward “top alternatives” like Nutanix, Red Hat, Microsoft, and Scale Computing. However, migration plans could take several years due to legacy VMware customers having either extended deals prior to the Broadcom acquisition or signing up for shorter renewals post-acquisition.

This notion was echoed by Woo Jin Ho, senior industry analyst at Bloomberg Intelligence, who told SDxCentral that a number of large VMware customers made early moves to renew their contracts prior to Broadcom closing on the VMware acquisition. “They all knew Hock’s playbook and saw what happened to Symantec and those security deals and they signed up the VMware deals for three to five years,” Ho said.

That sentiment was backed by Forrester Research Principal Analyst Naveen Chhabra who told SDxCentral up to 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.”