After a tumultuous 2024 that saw VMware sold yet again the long-time stalwart of enterprise IT environments is moving into the new Year after making a series of moves that are likely to be both cause for optimism and concern.
Broadcom to help pay for its $69 billion acquisition of VMware has signaled its intention to sell both the Carbon Black and the VMware end user computing business units. At the same time, VMware is eliminating the perpetual license for what is now known as VMware by Broadcom portfolio of software that is only available via a subscription. That move is part of a larger effort to encourage IT organizations to consume additional software services that unit of Broadcom plans to roll out in 2024.
Finally, Broadcom, as expected, has been eliminating positions and is now requiring every IT service provider partner to reapply to become certified. Both moves are likely to have a significant impact on the level of support IT organizations might receive in the coming year. There’s no doubt changes need to be made to the historic VMware business model. As an independent company, VMware for fiscal 2023 ended last March reported a net income of $1.31 billion so it would take multiple decades for Broadcom to see a return on its investment on a deal that formally closed in November. Broadcom has also pledged to invest $2 billion in research and development as part of its overall strategy.
Broadcom in addition to rely more on subscriptions to pay for the merger is betting that hybrid cloud computing coupled with an ongoing transition to cloud-native computing based on Kubernetes clusters will increase demand for the various platforms VMware offers. As more workloads are deployed in the cloud, Broadcom expects more organizations will opt to standardize on an IT platform that in addition to running in an om-premises IT environment can also run on any major cloud.
At the same time, Broadcom is betting on a Tanzu platform for running cloud-native applications will gain additional track as organizations look for a simpler way to manage the full stack of software needed to build and deploy these applications. It’s not clear at what pace cloud-native applications are being build and deployed in 2024, but Broadcom is clearly counting on organizations continuing to run those applications alongside monolithic applications deployed on virtual machines for many years to come.
Of course, organizations now have more alternatives than ever. In addition to the various alternative virtual machines that cloud service providers rely on enable organizations to build and deploy applications, rivals such as Nutanix and Red Hat make it possible to deploy monolithic applications on virtual machines. In addition, those two companies alongside cloud service providers make available platforms and services based on Kubernetes. There may be some costs associated with refactoring applications but if licensing fees for VMware platforms rise too much those costs might seem comparatively small.
Of course, VMware has proven resilient since its founding in 1998 and subsequent acquisitions by EMC in 2004 and Dell in 2016 when it acquired EMC. Dell subsequently spun VMware out as an independent company in 2021 so VMware has spent more years being a part of a larger company than it has been independent. In all that time, many IT professionals that cut their teeth learning to become certified VMware administrators have remained loyal but the percentage of VMware customers that run more than the underlying hypervisor has never quite lived up to its potential. In fact, the assumption that many of those organizations will consume more of that stack via a subscription is core to the Broadcom strategy.
It’s too early to say how the continuing VMware saga will play out in 2024 but the one thing that is certain is that it’s a long way from being over any time soon.