Broadcom's stated strategy ignores most VMware customers Broadcom's stated strategy is very simple: focus on 600 customers who will struggle to change suppliers, reap vastly lower sales and marketing costs by focusing on that small pool, and trim R&D by not thinking about the needs of other customers – who can be let go if necessary without much harm to the bottom line. The Register …
You can't piss off the bulk of your customer base & expect it not to have a rather nasty effect on your bottom line. They may not spend as much individually as that top tier, but in total they are the foundation upon which the rest of your house of cards has been constructed. Anger the base, it shifts away to your competition, & that previously stable base you're using to reach for that top strata suddenly crumbles out from beneath you.
-> You can't piss off the bulk of your customer base
If the bulk of your customer base are sticklebacks with profits to match, you would be better going after the whales with profits to match.
-> they are the foundation
They are not. They are the sticklebacks, and the chances of them becoming whales one day is next to zero in nearly all cases. I would rather deal with 600 customers than 100,000 if those 600 are the ones that bring in most profit.
"If their top customers are staying with them, those who generate most revenue, it won't matter."
The potential 600 + n customers who get as big as their top 600 will be going elsewhere.
I'm sure there will be investment managers doing the same as you - nodding and saying "Good idea. Cut costs." After a few quarters they'll be saying "Why is your customer base shrinking?".
Why would the profits be rising? OK, they make a one off cut of costs. Profits rise as a corresponding one-off. Then they don't. They've defined their market and are limiting any revenue increases to what that market wants to buy.
I suppose from top management's PoV it's Phase 1 of what will be a good strategy if they can pull it off. Phase 2, of course, is to become heroes a second time around by breaking out of the corner they deliberately painted themselves into with Phase 1.
-> Why would the profits be rising?
From the article: Broadcom's targets have "a lot of heterogeneity and complexity" in their IT departments. That means IT budgets are high and increasing quickly.
I imagine that Broadcom has ideas about where that money will be spent.
The IT departments might also have ideas and those might not align in the long term.
From an investment PoV I can see the attraction of a business that simply turns in regular income without too much fuss - I'm a pensioner after all. But for a reliable income I'd want that business to be able to be reliable in the long term and in a tech environment the risk of losing place must be considerable.
They're going to cut down on R&D. What good news to competitors. Not only do they now have a chance to leap-frog the market leader they have access to market-leader's ex-staff who might have a few ideas they weren't able to follow up. Some of those ex-staff might be even have been senior staff pissed off at seeing their budgets cut.
Also those 600 customers aren't in a vacuum. There will be other customers. potentially equivalent to those 600 they're ignoring which is a loss of profits in itself. They'll be going to competitors. Then a senior management at one of the 600 leaves and his replacement comes from outside that magic 600. The products he's familiar with are different and they'll be what he gradually moves his department to. Suddenly the business whose products are those you'd never be fired for buying becomes one that's circling the drain. Does it sound familiar?
If you lose the small fry, the larger ones slowly leave too.
The whales can't hire anyone who has recent experience in the product. As staff turn over, they find that all their new starters have plenty of experience in %other_product% and none in VMware.
After a while, they switch for new projects. Then they switch everything.
It's a strategy that's highly likely to produce great returns for one or two years, and then kill the company/division over the next decade or two.
Beat me to it. What will those 600 customers do when they lose staff through retirement or other forms of attrition? They'll have trouble finding new employees with the required technology background.
I'd bet that Broadcom is only looking for short-term financial gains by concentrating on the big fish and, eventually, letting go of those who were mainly servicing the little fish. (Any announcements about that yet?) When this strategy blows up, the people responsible for it will have moved on.
It does not have to be retirement or attrition. A simple change in management can do it. I work for one of those 600, and I see it all the time. New manager means different products being favored. Meanwhile, the one leaving is likely going over to another of the 600, or if they go elsewhere, Broadcom will be ignoring them.
I imagine that Broadcom has ideas about where that money will be spent.
A company that bought the software graveyard that is Symantic is all out of good ideas; Or maybe they wanted to grind down all that dead code and put it in various system-health products, kinda like the Victorians did with mummies?.
> If their top customers are staying with them, those who generate most revenue, it won't matter.
In the short term. As others have said, those big customers came from small ones who gave VMware its original reputation. Kill that foundation layer off, and there's nothing left to grow on. You can only skim the cream for so long. That large base of small customers will migrate and there will be a huge pool of talent out there that no longer has VMware skills or experience. VMware will become that legacy dinosaur product that even the big customers will be trying to migrate off, leaving little left.
And what alternatives are there for those who don't want to host in public cloud? Hyper-V and VMM is awful and labour-intensive by comparison, Proxmox is still a bit of a newcomer and doesn't do all the fancy VDI stuff, OpenStack requires a some serious talent to set up and maintain.
Maybe. But, if "the volume" is not there, the risk is that they will become bound to serve the kinks of their "600 most favored clients", becoming more and more specialised, while "The Market" happily kicks off in some different and new direction: Someone else will provide the cheap gateway drug for Virtualisation, and those people will capture the "next thing".
Bang & Olufson tried a similar move, going only for "high-end customers", then finding that "high-end" don't invest enough in 15000 EUR TV's to keep the factory running. In the meantime the little people who bought faithfully at the cheaper end of the B&O product line discovered the Japanese HiHi equipment.
>Or maybe those customers are already wondering just how much access to Microsoft's Hyper-V virtualization tools they're allowed under their current Windows Server licenses, and when they should start putting some of those entitlements into production in case vSphere goes south.
Windows Hyper-V may be "free" but it's overpriced. It's fine to run one or two VM's but just isn't a patch on VMware.
I find it almost impossible to comprehend how MS could have taken a look at what ESXi does let alone what vCenter offers and then come out with Hyper-V and then the horrible, clunky and painful mess that is VMM.
I have yet to see a "real" hyper-V solution (well, besides Azure I guess) in the real world, setup, working well, and able to have all the features of vSphere.
Hyper-V is regulated to doing a few VMs ontop of your existing server so you can get a little more bang for the bucks out of it.
VMM is a steaming pile. There's so much "if I wanted to, I _could_ use VMM, but I just don't need it". out there. I have yet to see anybody actualy using it, and running away in horror from it.
Without VMware, all I could see is more pushing up into the public cloud, or push into other technologies, the ways VMware is put to use would shrink to almost nothing.
We implemented Hyper-V with SCVMM for a customer because they were too cheap to pay for ESXi/vCenter Licenses. I think someone worked out afterwards it would have been cheaper to have bought licenses for the customer and written off the cost than the many, many hours we burnt fixing problems that shouldn't have been problems and all due to Hyper-V and SCVMM.
I'm mostly starting to look at KVM or XenServer - we don't have a need for all the candy of the vmware system and are already on the esxi free tier as is - so definitely considering that as a long term option. But I know others have different requirements. From toying around with Hyper-V it hasn't really impressed me much at all - though I know customers that run it, but predominantly it's still VMware - though we've had a couple of customers running KVM or Xen in production without any issues.
Xen is all but a drop-in for VMware, with almost all of its capabilities, and a hell of a lot cheaper at each tier.
My biggest problem with it is that it's stewarded by Citrix now, and aside from the stupid rename to "Citrix Hypervisor," they're known for putting new features together with spit and bubblegum and leaving them fragile forever.
VMware managed to maroon its virtualization package for Macs a year or two back without Broadcom's help: it hived off development (what development?) and support to India, and has failed to catch the Apple silicon bus (you know, the increasingly-wide one). The uninformed can still buy it, but, if you want to run Windows on a Mac, Parallels is the only serious choice. Sad to see competition diminishing — although, if you can live with "community support", Microsoft (Microsoft!) has recently come up with UTM. Must run it up sometime …
I don't know what you've been doing with VMWare, but if you are using it on an Apple PC as opposed to a server then you may wish to have a look at VirtualBox. I've been using it for a number of years on a Linux PC to run a variety of operating systems for testing purposes with few problems.
I use the GUI to install and configure the VMs. I then use the VBoxManage command line utility to roll back, start up, monitor, and shut down VMs automatically controlled by bash scripts.
You can control pretty much everything about the VM via VBoxManage, As a very simple example if all you want to do is make launching the VM clickable with a mouse then you should be able to do this easily provided you can make a shell script clickable via an icon (this is easy with Linux).
So from an MSFT side what we're hearing from customers is those top 600 are facing licence increases of 17x in some cases. Moving a LORG off VMware is potentially a 2-3 year project so they're banking on, well, making bank from them for that period, whilst the angry customer offboards to a competitor. They don't care, they know it'll cause the death of VMware, they want a short term profit from those customers who are locked in. Feels almost like piracy.
Lots of customers going to AVS in Azure for easiest migration path then reconsidering their options to go either Azure IaaS or Stack HCI, neither of which are an easy or quick option. I'm sure GCP and AWS are seeing the same.
Plus for those top 600 customers on VMWare you've got to ask what the support is going to be like given all their team are going to be jumping ship at the earliest opportunity and there's obviously going to be no investment in the product going forward.
It was a solid platform, and investment capitalism has killed it and hurt thousands of companies dependent upon them.
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