VMware customers are seeing massive late fees since Broadcom acquired the company
NEWS | 20 November 2024
VMware customers face steep price hikes and late fees post-Broadcom acquisition. Under Broadcom, VMware now focuses on strategic clients and subscription models. Competitors see an opportunity as VMware's changes drive demand for alternative solutions. VMware customers have been experiencing sticker shock since Broadcom acquired the software company nearly a year ago. Besides massive price increases, some customers are being hit with a late fee of about 20%, two partners said. Customers have been caught off guard, they said, because these are new subscriptions. The exact late-fee charge depends on factors such as their specific deal with Broadcom and which products they use. Under Broadcom, VMware now focuses on its largest or most "strategic" customers, and its customers must also convert from a perpetual licensing model to a subscription model — moves that Wall Street analysts are optimistic about. It's unclear when these late fees started. The partners who spoke with Business Insider said that they're affecting some customers transitioning to a subscription when they miss renewals, and even customers who still have existing support and subscriptions that haven't expired but who haven't yet signed up for new subscriptions. Additionally, some customers are charged this fee if they initially dropped support but then resumed it when they upgraded to a new version. "Two customers I was talking to last week said, 'Out of nowhere, it seems, a VMware sales rep sent me a note and said, hey, if they don't renew before SnS expires, there will be a 20% late-renewal fee," Dean Colpitts, the chief technology officer of Members IT Group, said, referring to support and subscriptions. "My response was, how can there be a late-renewal fee?" Likewise, Ignacio Llorente, the CEO of OpenNebula Systems, said in an email that his company had received "numerous emails from companies expressing concerns over VMware's recent changes in contractual terms, licensing models, and pricing policies." "Many customers who transitioned from perpetual licenses to VMware's subscription-based services are finding the new model challenging, as they are unaccustomed to the ongoing renewal process," Llorente said. "This has led to some being caught off guard by unexpected additional costs, especially when renewals are missed." Colpitts said that the text about the late fee in the email was bolded, which he said made it seem like a "scare tactic." He added that customers did not get any warnings or communication about this late fee. "They're not giving customers any discount or consideration for what they currently have," Colpitts said. Rick Vanover, the vice president of product strategy at Veeam, said it's common for companies to charge a fee if customers don't renew on time. While this is not always enforced, it can be used to negotiate a deal with customers to get them to renew before the price increases, he added. Broadcom did not respond to requests for comment. Changes to VMware under Broadcom Several VMware partners and customers previously told BI that when they renewed, they were seeing price increases of up to 10 times, largely due to product bundling. "This shift has proven particularly difficult for organizations that have long relied on VMware, especially cloud service providers," Llorente said. VMware partners have also faced several changes in how they sell their software. Colpitts said there had been less tech support and that partners no longer got early access to VMware's software, as they previously did. This means they'll have to buy their own copies to test it before rolling it out to customers. "I think Broadcom went about it completely the wrong way and left a bad taste in people's mouth," Colpitts said. Related stories Switching to VMware alternatives Some VMware competitors have seen the acquisition by Broadcom as an opportunity to win over VMware customers. "This frustration with VMware business practices is causing massive demand for alternative virtualization solutions," Bruce Kornfeld, the chief product officer at StorMagic, said in an email. A recent Forrester report predicted VMware revenue would continue to drop. While customers will invest further in the private cloud or hybrid cloud for regulatory compliance, it said, they likely won't increase business with VMware, the dominant private cloud player, because of bundling and price increases. Still, "many VMware shops will renew at a limited scale," the report said. The report said alternatives such as Nutanix or open-source software like OpenStack would see increased interest, though it added that OpenStack would require improved tech-sales processes. Llorente said VMware's changes had made customers concerned about being locked into one vendor and driven increased interest in similar offerings that are available as open source. Still, other partners say there's no other viable alternative. Plus, it's a difficult, costly process for customers to switch to another provider, Colpitts said. "What other really good options are there?" Colpitts said.
Author: Rosalie Chan.
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