IT Analysts Discuss the Search for VMware Alternatives After Broadcom Acquisition

In this Tech Barometer podcast segment, three technology analysts discuss the Broadcom acquisition of VMware and how it’s impacting CIOs and IT decision makers. They talk about two big trends – the emergence of container technologies and the growing need for workload portability between data centers and different clouds – and how this confluence of challenges is driving IT teams to explore new options.

Simon Robinson, principal analyst at Enterprise Strategy Group, Natalya Yezhkova, vice president of research at IDC, and Steve McDowell, chief analyst at NAND Research, together explore the cultural and operational differences between Broadcom and VMware, describing Broadcom's focus on high revenue and efficiency. The analysts expect VMware software to remain significant, but its business model will evolve, creating opportunities for other vendors. 

The analysts also discuss the ongoing transition from traditional IT operations to hyperconverged infrastructure (HCI)-powered data centers and cloud services.

This discussion was recorded at a press conference at the .NEXT conference in Barcelona in May 2024.

Transcript (edited for readability):

Simon Robinson: Clearly the market is in flux. It has been in a transitional phase for the past several years.

Natalya Yezhkova: Broadcom is a mature company. It has a certain way of doing business, so VMware culturally business-wise was very different from Broadcom.

Steve McDowell: They're laser focused on high revenue, high margin business, and every move that we've seen them make plays directly toward that.

Jason Lopez: Three technology analysts walked into a room and talked candidly about the Broadcom acquisition of VMware. This is the Tech Barometer podcast. I'm Jason Lopez. The analysts are Simon Robinson of Enterprise Strategy Group who covers infrastructure. Natalya Yezhkova, a research vice president with IDC who writes about enterprise workloads and emerging workloads infrastructure, and Steve McDowell, chief analyst with NAND Research. This was a press conference at .NEXT in Barcelona, Spain in May of 2024. One of the initial questions in the press conference: Why did Broadcom make this move? Natalya Yezhkova began by explaining why companies make acquisitions in the first place. One reason is to grow the new acquisition as a business unit,

Natalya Yezhkova: Or they go the Broadcom way, which I think happens rarely with companies as large as VMware small organizations. When they are acquired, they usually absorb very quickly. Broadcom wants to continue to do business the way Broadcom always did it. They wanted to go into the software business, and that's what the acquisition of VMware was for them. But they didn't see a need to adjust to the VMware culture or keep VMware as an independent company or more independent business units. So they want to absorb it quickly into the Broadcom way of doing business.

Jason Lopez: Simon Robinson said he's heard no indication Broadcom would integrate or encourage collaboration between VMware and other business units.

Simon Robinson: The focus here is really the opportunity as Broadcom MO (modus operani) was to take a business that has established itself at the core of most data centers globally and enabled quite an incredible change in how data centers are architected over the last 15, 20 years. But I think Broadcom saw the way VMware did that was not efficient. So the capabilities were there, but the efficiency wasn't, in their view. So that is the core focus. Well, one of the focus areas is to drive more efficiency into how they are structured, how they go to market.

Jason Lopez: Natalya Yezhkova said in terms of hyperconverged infrastructure (HCI), the overall market declined in 2023. Of those that grew, only a few vendors were not associated with vSAN.

Natalya Yezhkova: Customers now approach acquisition of HCI systems because of this uncertainty between Broadcom and VMware. There will be some additional impact on the HCI market. Overall we expect it'll continue growing, but in the short term, there is some shrink attributed to customers being cautious with purchases of vSAN.

Jason Lopez: The centerpiece of the press conference wasn't necessarily the Q and A with journalists, but these exchanges between Yeshkova, Robinson, and McDowell, starting with the topic of the future lifecycle for VMware products.

Simon Robinson: The market is in flux, and that's been driven by multiple things. Primarily, I would say from on-premises IT environments to cloud-based IT environments as the major force that we've seen over the past several years, and that's had its own disruptions and impacts on the market. You've had the transition caused by the emergence of a whole new class of workloads and applications and the emergence of the technical architectural underpinnings of those things, predominantly driven by the emergence of containers and orchestration all around that. So you kind of got those two major shifts already in flight, and that was causing organizations to make some really big strategic decisions around workload, location, and optimization and building their strategies around that.

Natalya Yezhkova: And also to add to what Simon has said, we’ll see the impact across multiple years. So it's not something that we will see in one quarter and it's gone. There are customers who up for renewal with VMware. Now there are customers who up for renewal in three years from now, and they still have the old terms of licensing. For them, it's like a delayed impact and they have time to absorb. But those customers who are currently in the position where they need to make a quick decision whether they want to continue with VMware by Broadcom and adjust to new pricing, definitely in a tougher situation than those who need to make this decision in three years.

Steve McDowell: When you look at VMware technology, what's interesting about that –– but it's not true of pretty much anything else except Oracle. Equate VMware and Oracle from this perspective –– it's that they're extremely sticky and it's expensive as hell to change out. And the accountants of Broadcom [did] a really nice job of calculating what that switching cost is. The IT guys, they got to worry about this AI thing. They don't have time to re-architect how I'm doing my workloads. So they're pricing it just under the pain threshold for those customers they care about, and they never have to do another piece of innovative engineering ever because these legacy applications, it's going to be like Oracle. It's an annuity for VMware forever, mid-range of the market. Man, that's in turn. I don't think we know where they're going to land. We've seen some movement back and forth, but those guys, I'd be scared if I were a small company relying on VMware. VMware is not going anywhere.

Natalya Yezhkova: So I agree that VMware is not going anywhere. We had a range of technologies which went away, but they [are] still here. So mainframe tape... it has been said [often that the] mainframe was dead [and] tape is dead. They're not. The market shrank significantly, but both still exist. I'm not saying that VMware is going this way, but it's transforming as a business with this change. But I would agree that it wouldn't go away. It would look very different like five years from now.

Steve McDowell: That's a good analogy. If you look at IBM with mainframe, you look at IBM with Power [System Servers]. These are technologies that have not evolved in 30 years. They're milking a captive user base, and that's what Broadcom likes to do across almost all of their products.

Jason Lopez: So as one journalist asked, who could take advantage of that position.

Natalya Yezhkova: I can say that from the HCI business perspective, pretty much everyone [can take advantage of this situation]. So with all the uncertainty which exists, I think even companies who worked with vSAN, they start looking for alternative solutions for the HCI offerings. So I think it creates great opportunities for infrastructure vendors. What companies are looking for now [is] integration of resources between dedicated environments and public cloud. They look at security and resiliency. Security and resiliency [are] always on top of the list. They look at modernization of the storage and data management strategies. VMware was in this business as well of providing the tools for managing both dedicated and public cloud resources for investing in security. So they were also in this business, but there are companies outside of VMware who do just what companies are looking for. This whole situation with Broadcom made companies start looking for what else they consider. It's a great opportunity for vendors to take advantage

Simon Robinson: Just to build on that, on the previous question, again, the dominant motion of the past 10 years has been from on-prem to cloud. In fact, one of the things that VMware talks about is about the risks to going all in on a public cloud. What generally we don't have in the industry today is portability of workloads, data applications between clouds. That's still really difficult,

Natalya Yezhkova: But customers want it.

Simon Robinson: But I think, again, this whole trend is going to reinforce [caution for] going all in on anything. [That] has its risks.

Jason Lopez: Steve McDowell followed up by reiterating. He doesn't think this is fundamentally a technology question.

Steve McDowell: They all smell blood in the water. There's money to be had, and it's not a license [but] a switching cost. It's not going to be a rush to the door because apart from a handful of small businesses, everybody's on three and five year cycles. There was a rush to renew those licenses ahead of the Broadcom acquisition. So it's going to unfold quarter over quarter for the next four years.