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January 17, 2024
While many VMware partners used the 18 months between Broadcom’s announcement of its intent to buy VMware and the time the deal actually closed to talk with customers about the transaction’s implications, that didn’t negate contracts that had been renewed. Organizations entrenched in VMware platforms won’t have an easy time migrating off the brand. And Broadcom isn’t making future consumption easy on them, either. The behemoth chipmaker is selling the end-user computing unit and Carbon Black (both of which reportedly have interested buyers). Plus, it’s bundling VMware products in such a way that end users will have to pay for software they don’t necessarily want or need.
All of this leaves VMware partners in a quandary. Some of them will receive invitations to join the Broadcom Advantage Partner Program. But the rest — per industry reports, if they generate less than $500,000 in annual VMware revenue — will not.
“If the rumors prove to be true that only about 10% will get invites, the ramifications could be huge,” said Devan Adams, principal analyst for the channel research and consulting practice at Omdia (a Channel Futures sister company).
Omdia's Devan Adams
It’s no stretch to say the remaining VMware partners will be left out in the cold, including those who will lose their largest customers altogether as Broadcom takes the top 2,000 for itself, through its direct sales teams.
And there’s not much VMware partners can do about Broadcom’s decisions. They have no power right now, said Jay McBain, chief analyst at Canalys (also a Channel Futures sister company).
“[N]o customer is going to rip out and do open-heart surgery on how they created their virtual environments because of an acquisition, at least in the first few years,” he said. “So partners aren't really at the negotiating table here. They don't really have a strong position.”
Canalys' Jay McBain
Broadcom’s decisions are about doubling VMware’s size. It’s using those aforementioned top 2,000 customers to achieve that goal. Therefore, in axing partners who bring in less than $500,000 in annual VMware revenue, Broadcom will focus on what it views as worthwhile efforts.
“There's cost to every customer and there's probably a point where profitability per dollar goes down at a certain threshold, right?” McBain said. “And they cut it off at $500,000. So maybe they're smarter than all of us. But boy, it's throwing everything into turmoil.”
To be sure, Broadcom is acting more like an aggressive private equity firm than a publicly traded company, McBain noted. (Broadcom, by the way, did not return our request for comment on its decision to take those buyers away from partners.)
“They’re just taking those top 2,000 accounts and bringing as much profit out of those as they can — in other words, taking away the partner margins and all that. So, just absurd profit day one," added McBain.
Yet, in taking end users direct and alienating channel partners, Broadcom seems to have missed a critical piece of high-level information. According to McKinsey & Company, every VMware customer has seven trusted partners.
That, said McBain, is huge.
“One or less of those seven may ever collect money on behalf of VMware as a reseller type, but the other six are doing the consulting the design, the architecture, work, implementation, integrating managed services; they're doing everything else,” McBain said. “And if you don't have a strong channel strategy, you're basically creating friction around the seven people that every one of your customers and prospects trust. And that's very ugly for the future of a product that relies on these … ecosystems.”
Overlooking that reality, and focusing just on reselling, margins and financials, could deal Broadcom some blows in the long run.
“I don't think they understand the broader picture,” McBain said. “And this is the five- and 10-year view of doubling the size of VMware.”
The circumstances created by Broadcom perfectly position a number of VMware competitors to come to partners’ rescue. While we don’t consider the list of companies in this piece a comprehensive reflection of the landscape, given the dozens of vendors that can replace some or all of the VMware stack, we have interviewed and tracked many we know to be channel-friendly. It’s imperative to understand these vendors’ channel views and trajectories in the wake of Broadcom’s systematic dismantling of the VMware partner program (including Partner Connect, which Ricky Cooper and Tracy-Ann Palmer spent years creating as VMware moved to a multicloud and subscription business model). With that in mind, some of the programs target shunned VMware partners with formal rejiggers, while others feature more of a “come to us, we gotchu” feel.
And VMware partners not staying with Broadcom have to move quickly. Those who handle the Broadcom disruption well will further cement trust and loyalty with their customers. There is little room for missteps as Broadcom upends the channel in an historic way.
We’ve invested significant time and exploration to cut through the noise for you and to present it in an easy-to-consume format (see the slideshow above). Along the way, keep an eye out for analyst commentary. These insights point to the “bigger picture” shifts emerging from Broadcom’s treatment of VMware partners. Channel Futures will bring a deeper look into that aspect soon; here, we start prepping that discussion with the help of experts looking not just at the breaking news, but the wider implications of Broadcom’s VMware strategy.
Here we offer the meat of what VMware partners need to think about and act upon as Broadcom ruthlessly seeks returns on its biggest acquisition yet.
Contributing Editor, Channel Futures
Kelly Teal has more than 20 years’ experience as a journalist, editor and analyst, with longtime expertise in the indirect channel. She worked on the Channel Partners magazine staff for 11 years. Kelly now is principal of Kreativ Energy LLC.
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