Broadcom CEO Hock Tan said that more than 90% of VMware’s 10,000 largest customers have signed up for the vendor’s halo Cloud Foundation (VCF) platform and accompanying subscription licensing plan, but that Broadcom was still looking at how much value it can derive from targeting the rest of VMware’s hundreds-of-thousands of other legacy customers.

Tan told investors during Broadcom’s most recent earnings call that “pretty much, virtually way over 90% have bought VCF,” in reference to VMware’s top 10,000 accounts. That is a subtle increase over the 87% Tan said were converted during Broadcom’s previous earnings call.

However, Tan did clarify that conversion rate was only in terms of license sold and not actual VCF deployments.

“I'm careful about [my] choice of words,” Tan added. “Because we have sold them on it, and they bought licenses to deploy, doesn't mean they are fully deployed.”

Tan explained that this deployment will be “the hard work over the next two years that we see happening,” but that’s the part where customers will be able to garner value from those deployments. It will also allow Broadcom to then sell more advanced services into those deployments.

“First phase is convincing people to convert from perpetual subscriptions [to] purchasing VCF,” Tan said. “Second phase is make that purchase they made on VCF create the value they look for in private cloud, on their premise, on their IT data center. That's what's happening and that will sustain for quite a while, because on top of that, we will start selling advanced services, security, disaster recovery, even AI running AI workloads. All that is very exciting.”

Broadcom looks to partners

Tan touched on that second challenge during a keynote address at the recent VMware Explore event, where he admitted VCF deployments “may not be easy.”

VMware is tackling that challenge through its revamped go-to-market partner program, which was also highlighted at the Explore event. Broadcom initiated controversial changes to that program, which Broadcom VCF SVP and GM Kris Prasad noted was focused on partners that are “all-in with us on helping customers unlock the full value of VCF.”

Brian Moats, SVP of global commercial sales and partners at Broadcom, during that Explore session reiterated the importance of the program changes, which shifted more advisory responsibility and oversight to those partners.

“That advisory kind of work that needs to happen early in the cycle is key,” Moats said of that responsibility. “And as you know, not all partners are set up equally to do that, and once the customer decides to go forward with the platform, then you've got to plan that journey.”

Moats added that this journey involves deep work between a channel partner and end-user toward taking full advantage of their VMware investment, which means it requires partners with a deep understanding of VMware’s platforms.

“We’re finding that the type of partner we need has deep, technical depth, some advisory capability, ability to help customer plan that journey, and probably, most importantly, the ability to go help deliver the implementation with the customer,” Moats said.

Equity research firm William Blair noted in an “Enterprise Tracker” report earlier this year that some enterprises and go-to-market partners were continuing to look for ways to decouple 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 five to six points.”

VMware program partners that were on stage during the Explore event did not appear to be that specific partner.

Bill Grismore, co-founder of 27 Virtual, said that the partner has invested time in training its team to “get the most juice out of that platform,” a move that has resulted in a significant return.

“It's been amazing over the last year,” Grismore said. “I’m not going to talk about numbers, but it's pretty crazy how you can 10x a business in 12 months.”

Is there value for Broadcom and VMware customers?

That implementation could soon start shifting toward a broader base of legacy VMware customers. While Broadcom has focused its initial conversion efforts on VMware’s largest customers, Tan said it has started to see cautious activity from smaller VMware customers.

“Beyond the largest 10,000, are we seeing a lot of success? We are seeing some,” Tan said, adding that Broadcom sees two reasons why it does not expect as much success with that next tranche.

“One is the value, the TCO [total cost of ownership] as they call it, that comes from [VCF] will be much less, but more importantly is the skill sets that’s needed to not just deploy – that they can get, services and ourselves that can help them – but to keep operating might not be something that they can take on,” Tan explained. “This is an area we’re still learning and be interesting to see.”

Tan added that “while VMware has 300,000 customers, we see the top 10,000 as being people where it makes a lot of sense, derive a lot of value in deploying private cloud using VCF. We now are looking at whether the next 20, 30,000 mid-sized companies see the same way. Stay tuned. I'll let you know.”

Tan’s sense aligns with rival comments about their ability to snare disenchanted VMware customers.

Nutanix CEO Rajiv Ramaswami told investors during an investor call earlier this year that the vendor attracted approximately 620 “new logos” during that quarter. The executive did note that it remains challenging to delineate how much of that was direct VMware displacement but had previously stated that a “vast majority” of past quarterly logo growth was “probably VMware customers.”

Equity research firm William Blair noted in a recent Nutanix note that “roughly one-third of VMware’s 400,000 customers could eventually churn.”

VCF not boosting hardware

Tan’s quest for value was also highlighted during the latest earnings call when the executive admitted Broadcom’s VCF expansion was not leading to increased hardware sales for the vendor’s other business units.

“As they virtualize the data centers, we consciously accept the fact that we are commoditizing the underlying hardware in the data center, commoditizing servers, commoditizing storage, commoditizing even networking, and that's fine,” Tan said. “By commoditizing we’re actually reducing cost of investments in hardware, in data centers for enterprise.”

However, Tan did add that at least 50% of Broadcom’s AI-related orders and backorders are related to its semiconductor business.