Broadcom ends VMware perpetual license sales, testing customers and partners

Broadcom has moved forward with plans to transition VMware, a virtualization and cloud computing company, into a subscription-based business. As of December 11, it no longer sells perpetual licenses with VMware products. VMware, whose $61 billion acquisition by Broadcom closed in November, also announced on Monday that it will no longer sell support and subscription (SnS) for VMware products with perpetual licenses. Moving forward, VMware will only offer term licenses or subscriptions, according to its VMware blog post.

VMware customers with perpetual licenses and active support contracts can continue using them. VMware "will continue to provide support as defined in contractual commitments," Krish Prasad, senior vice president and general manager for VMware's Cloud Foundation Division, wrote. But when customers' SnS terms end, they won't have any support.

Broadcom hopes this will force customers into subscriptions, and it's offering "upgrade pricing incentives" that weren't detailed in the blog for customers who switch from perpetual licensing to a subscription.

These are the products affected, per Prasad's blog:

Broadcom is looking to grow VMware's EBITDA (earnings before interest, taxes, depreciation, and amortization) from about $4.7 billion to about $8.5 billion in three years, largely through shifting the company's business model to subscriptions, Tom Krause, president of the Broadcom Software Group, said during a December 7 earnings call, per Forbes.

"This shift is the natural next step in our multi-year strategy to make it easier for customers to consume both our existing offerings and new innovations. VMware believes that a subscription model supports our customers with the innovation and flexibility they need as they undertake their digital transformations," VMware's blog said.

With changes effective immediately upon announcement, the news might sound abrupt. However, in May, soon after announcing its plans to acquire VMware, Broadcom CEO Hock Tan signaled a “rapid transition” to subscriptions.

At the time, Tan pointed to the importance of maintaining current VMware customers' happiness, as well as leveraging the VMware sales team already in place. However, after less than a month of the deal's close, reports point to concern among VMWare customers and partners.

VMware's blog said "the industry has already embraced subscription as the standard for cloud consumption." For years, software and even hardware vendors and investors have been pushing IT solution provider partners and customers toward recurring revenue models. However, VMware built much of its business on the perpetual license model. As noted by The Stack, VMware in February noted that perpetual licensing was the company's "most renowned model."

VMware's blog this week listed "continuous innovation" and "faster time to value" as customer benefits for subscription models but didn't detail how it came to those conclusions.

"Predictable investments" is also listed, but it's hard to imagine a more predictable expense than paying for something once and having supported access to it indefinitely (assuming you continue paying any support costs). Now, VMware and its partners will be left convincing customers that their finances can afford a new monthly expense for something they thought was paid for. For Broadcom, though, it's easier to see the benefits of turning VMware into more of a reliable and recurring revenue stream.

Additionally, Broadcom's layoffs of at least 2,837 VMware employees have brought uncertainty to the VMware brand. A CRN report in late November pointed to VMware partners hearing customer concern about potential price raises and a lack of support. C.R. Howdyshell, CEO of Advizex, which reportedly made $30 million in VMware-tied revenue in 2022, told the publication that partners and customers were experiencing "significant concern and chaos” around VMware sales. Another channel partner noted to CRN the layoff of a close VMware sales contact.

But Broadcom has made it clear that it wants to "complete the transition of all VMware by Broadcom solutions to subscription licenses," per Prasad's blog.

The company hopes to convince skeptical channel partners that they'll see the way, too. VMware, like many tech companies urging subscription models, pointed to "many partners" having success with subscription models already and "opportunity for partners to engage more strategically with customers and deliver higher-value services that drive customer success."

However, because there's no immediate customer benefit to the end of perpetual licenses, those impacted by VMware's change in business strategy have to assess how much they're willing to pay to access VMware products moving forward.

Post-VMware Buy, Broadcom Kills Perpetual Licenses in Favor of Subscriptions

News

Broadcom is discontinuing sales of perpetual licenses for over a dozen VMware products, the company announced this week.

The move comes less than a month after the completion of Broadcom's acquisition of the virtualization giant for a reported $69 billion. The end of perpetual licensing will effectively force new VMware customers to purchase software through subscriptions, which VMware says has been its plan since before the Broadcom deal was announced.

"Over the past two years, VMware has been on a journey to simplify its portfolio and transition to a subscription model, the industry standard for cloud consumption, and to better serve customers with continuous innovation, faster time to value, and predictable investments," Broadcom said in a FAQ explaining the change.

A perpetual license refers to a software purchasing model in which the customer pays a one-time fee to use the software indefinitely. Additional services, like customer support and access to software updates, require an additional charge; VMware sells these services through its Support and Subscription (SnS) contracts.

As of this week, Broadcom is no longer selling new VMware perpetual licenses or SnS renewals. Affected products, per the announcement, include:

Customers who have purchased perpetual licenses can still use their products, but once their current SnS contracts end, they will not be eligible to access VMware support or update to newer versions. The only recourse is to move to a subscription-based version of that product. For customers who make that move, Broadcom is offering its help in choosing a migration path and, apparently, some favorable pricing.

"Broadcom will work with customers to help them 'trade in' their perpetual products in exchange for the new subscription products, with upgrade pricing incentives," the announcement said. "Customers can contact their VMware account or partner representative to learn more."

Broadcom argues that the move to subscription-only licensing will have a threefold benefit for VMware customers -- namely, "continuous innovation, faster time to value and predictable investments." For partners, also, the change is being positioned as a benefit.

"The industry has already widely embraced subscription and SaaS, and many partners in our ecosystem have already developed success practices in this area," Broadcom said. "Subscription and SaaS models provide an opportunity for partners to engage more strategically with customers and deliver higher-value services that drive customer success. It also helps accelerate their own transition to a business model focused on annual recurring revenue."

Broadcom is urging VMware customers to start bracing for the end of perpetual licensing now, and to "review their inventory of perpetual licenses, including refresh cycles and renewal dates, and become more familiar with VMware's available subscription offers."