VCF go-to-market strategy: your top questions addressed

Editor's note: this article was added for posterity, in particular these statements:

1. The transition to the subscription model does not impact customers’ perpetual license rights.

2. In addition, Broadcom announced that access to all patches for Critical Severity Security Alerts, as defined by VMware Security Response Center (see website here for details), will be available to all customers including those that no longer have active maintenance and support contracts. Supported versions of VMware vSphere are versions 7.x and 8.x.

The whole article is available here

Since Broadcom acquired VMware, we’ve aimed to help customers better position themselves for success in their digital transformation. In a recent blog post, Broadcom’s President and CEO, Hock Tan, detailed our efforts to do just that by evolving our go-to-market (GTM) strategy for VMware Cloud Foundation (VCF).

We recognize there are questions about this GTM evolution. To supplement Hock Tan’s recent blog post, we’ve compiled responses to the frequently asked questions on our GTM strategy in an effort to help customers continue making informed decisions about our strategy and our products. We’re listening to our customers and will continue to innovate our products for their long-term benefit.

Why is Broadcom moving to a subscription model?

The subscription model has been the enterprise software industry standard for quite some time. “The trend for software companies to adopt the subscription business model continues to grow quickly at an 18.2% 2022-2027 CAGR and is forecast to represent 92.2% of total software revenue by 2027,” said Mark Thomason, research director for Digital Business Models and Monetization with IDC*. VMware has been transitioning to this model since 2018 and will be one of the last major software vendors to do it. A subscription model is good for customers, in part because it ends costly and complex “upsell” practices that were common under perpetual licensing models.

The perpetual model is costly and complex. In particular, this model incentivized software companies to develop new features in the form of new products that customers had to pay new licensing fees for because they were not covered by prior perpetual licenses and were instead sold as separate add-ons or part of upgrade license tiers. This created uncertainty and more operational complexity for the customer and further increased overall costs for their systems.

In conversations with our customers, there has been one common request: a simpler product combined with constant innovation. Our customers urged us to end the costly complexity that built up through the perpetual license model, and for good reason. When Broadcom acquired VMware, there were more than 8,000 different product SKUs created by separate, siloed engineering teams. And, as each team in VMware edited code, it needed to test that code against thousands of possible combinations of different products.

The subscription model brings simplicity and innovation for customers. Subscription involves a single monthly or annual operating expenditure for the similar rights and services as existed under multiple perpetual licenses, but with the added assurance that the core product will be continuously upgraded with new features and functionality necessary to make use of evolving computing infrastructure – without additional costs.

The periodic nature of subscription payments eliminates the incentive for a software company to proliferate complex add-ons to obtain additional customer payments. Rather, the software company is driven to innovate and improve the product to maintain the customer’s subscription.

Customers face less lock-in under the subscription model because they no longer have to make large upfront license payments that would be lost if they switched to competitors. Software companies are willing to face this increased threat of switching because of the lower operating complexity from having fewer SKUs, a lower testing burden, and a simpler engineering organization focused on product innovation.

We understand that for customers with significant installed bases of perpetual licenses, this model change will shift the structure and timing of payments. On an amortized basis, customers’ total expenditures are comparable under either model. We heard that fast-moving change may require more time, so we have given support extensions to many customers who came up for renewal while these changes were rolling out. We have always been and remain ready to work with our customers on their specific concerns.

The transition to the subscription model does not impact customers’ perpetual license rights. In addition, Broadcom announced that access to all patches for Critical Severity Security Alerts, as defined by VMware Security Response Center (see website here for details), will be available to all customers including those that no longer have active maintenance and support contracts. Supported versions of VMware vSphere are versions 7.x and 8.x.

What solutions are being offered and why?

Broadcom is offering two simplified solutions that bring scale and resiliency, which is critical for large commercial and governmental organizations.

• VMware Cloud Foundation (VCF) is our full stack, subscription-based private cloud platform. It includes compute, storage, networking, management and support, and automation capabilities – and it comes at half the cost compared to past list pricing.

• VMware vSphere Foundation (VVF) is an alternative for customers that are not yet ready for a full-stack solution. It integrates compute with features for automation and administration needed for medium-sized deployments.

vSphere Standard, which may be appropriate for very small deployments, will remain available too.

Broadcom also has introduced improved VCF license portability, which will allow customers to deploy the product on-prem and then take the subscription to a supported hyperscaler or VMware CSP – and, crucially, back again to their own data centers – at any time. Customers will retain their license subscriptions as they move their workloads.

Can you detail the subscription pricing for VCF?

Broadcom has dramatically cut prices for VCF. Broadcom has cut prices relative to VMware’s list prices for subscriptions with a similar combination of functionality, reflecting the benefits of a more integrated solution. Broadcom expects the VCF integrated solution to significantly lower the total costs of ownership (TCO) for customers, with savings on infrastructure, facilities, and labor productivity compared to that of native public cloud.

How will VCF impact the overall cloud market?

VCF will bring more choice and more competition to the cloud. Broadcom has met with hundreds of customers and learned that many currently don’t have the capabilities to host their own workloads on-prem, locking them to a specific cloud platform. It’s almost impossible for enterprises to decouple their products from cloud platforms without significant expense. Switching between cloud platforms entails significant costs for customers – something that has attracted the attention of regulators worldwide. Many customers also realize that monthly fees for these services have risen considerably, especially with large scale usage.

Standardizing and simplifying the VCF technology stack brings benefits to both cloud service providers (CSPs) and end-users by ensuring customers enjoy the same technology experience across any VMware-supported cloud provider. It also provides consistent support and the advantage of choice among different cloud environments, whether that’s on-prem, public cloud, or hybrid cloud. Lastly, enhancing the customer experience will drive the adoption of VMware-based cloud solutions and benefit both cloud service providers and their users. This is great news for global commercial enterprises leveraging digital capabilities or governments advancing national or regional digital sovereignty.

VCF offers a portfolio that is secure and resilient and removes technical and cost barriers that discourage customers from hosting their workloads on-prem or switching their workloads. This freedom for customers to move workloads will intensify competition between CSPs. For Europe-based CSPs or commercial and government end-user organizations seeking to achieve data sovereignty, VCF provides the capabilities to build individualized private clouds or switch among different cloud environments.

How will CSPs transition to a simplified solution?

Broadcom is creating an onboarding process that accommodates CSPs and ensures there is continuity of service for this partner group. Specifically, we will expand the Broadcom Partner Advantage Premier Tier to serve any qualified, existing service provider and offer programmatic initial-year discounts for existing installed bases.

In addition, our smallest service provider partners that do not yet meet the Premier Tier criteria can take advantage of “white label” offers from Pinnacle and Premier Tier Service Providers.

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.

What do these changes mean for the Partner Ecosystem?

Broadcom is committed to continuing to create value within the VMware partner ecosystem. We have said many times that partners are critical to our customers’ success and our own success. Through conversations with hundreds of our global partners, we heard a consistent message: solve channel conflict, incentivize long-term product adoption, and simplify the process. To that end, we are incorporating the VMware partner ecosystems into the award-winning Broadcom partner programs – starting with the thousands of VMware partners welcomed in the first quarter this year. By focusing our investment on the integrated Broadcom Advantage Partner program, we can evolve our platform and help our partners achieve even greater opportunities for profitability.

The Broadcom Advantage Partner Program provides a proven, simple, scalable framework for all partner routes to market. It also uses a modular approach to accommodate the unique needs of specific partner ecosystems. There is no universal threshold for resell partners to join the program, and there is no fee for any partner to join. All active VMware resellers with an active customer contract within the past 36 months have been invited into Broadcom Advantage at a tier that is equivalent to their VMware Partner Connect program tier. Partners will play an essential role in transitioning our customer base to the subscription model and helping them transform their business with our private cloud infrastructure.

Our focus on simplification and standardization will bring improved market opportunities and profitability for partners. Our move to an integrated solution will help us innovate faster and meet customer needs more effectively. As not all customers are ready for VCF, our thousands of reseller partners will drive adoption of VVF. Resellers will also continue to offer vSphere Standard, which may be appropriate for small deployments. This should help reduce that channel conflict that partners have identified as an ongoing challenge.

Will these changes impact industry competition?

Competition is fierce and VCF will fuel more choice for customers. VMware’s direct competitors are evolving and marketing their services aggressively, and many of VMware’s historical customers are moving workloads to public cloud offerings. It is necessary for VMware to innovate faster to offer customers more value.

Our VCF GTM strategy is all about simplifying and standardizing the technology stack to improve customer experience, choice, and value. All of these moves have been made with the goals of innovating faster, meeting our customers’ needs more effectively, and making it easier to do business with us. We also expect these changes to provide greater profitability and improved market opportunities for our partners. Beyond these commitments, we’ve dedicated ourselves to investing billions of dollars toward innovation and additional professional services.

Read more about how we are Opening More Opportunities for VMware Cloud Service Providers.

* IDC Worldwide Software Business Model (Subscription and License) Forecast, 2023–2027 By: Mark Thomason (August 2023) (Document number: # US50123823)

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