Two months after buying the global leader in virtualization, Broadcom is making two groups very happy: Broadcom shareholders and VMware competitors.
Shareholders have seen the stock price climb 27 percent since the deal closed in November, with Broadcom trading at an all-time high this month.
At the same time, executives from several of its virtualization competitors have told CRN their sales prospects are booming since Broadcom terminated partner agreements in favor of an invite-only program and took the top 2,000 accounts direct. Those moves have partners working aggressively to shift accounts off VMware to alternatives like Nutanix, Microsoft, Scale Computing and ComputerVault.
“It’s like when you know that there’s a tsunami offshore, but you don’t have the buoys out there to detect quite how big it is,” said David Gwyn, senior vice president, worldwide channels and customer success, at Nutanix, of the groundswell of interest the San Jose, Calif.-based company is seeing from VMware solution providers seek alternative technology partnerships. “There are a lot of disenfranchised VMware partners out there who are heading our way.”
Microsoft partners also talk openly of shifting VMware customers to Azure Stack HCI, while executives at Indianapolis-based Scale Computing and Worcester, Mass.-based ComputerVault each said prospect engagement levels are multiples higher than at the same points last month and last year.
Wall Street analysts at William Blair in a research note earlier this month said Broadcom’s actions have created a “tectonic shift” in the virtualization market, creating a “multiyear runway” for Nutanix to take share from VMware.
Moor Insights & Strategy issued an advisory note entitled “Why 2024 Will Be A Banner Year For Nutanix,” which cited among other things the “fear” around the future of VMware now that it is owned by Broadcom, noting that Nutanix has done a “stellar job of capitalizing on these concerns.”
“The new [Broadcom-VMware] organization has made some head-scratching moves regarding bundled licensing and channel management that are leading many to question what is happening,” the research note said. “This is not about a company modernizing its licensing model. This is about disruption of the customer experience and a potentially significant price increase. And this is not merely consolidating channel management; it extends to excluding an indirect sales force—“champions,” as VMware calls them. This is disrupting a channel program that has worked well for years.”
At the center of the collision between these forces are VMware partners and customers.
“It is an explosion with maximum disruption,” said a sales executive at a large VMware solution provider with three decades in the channel. “We are the trusted advisors for our customers. Customers rely on us to recommend and integrate solutions. Vendors that ignore that do so at their own peril.”
Broadcom Shares Soar After Deal Completion
Shares of Broadcom stock have skyrocketed to all-time highs since it closed the $61 billion deal on November 22 and assumed $8 billion of VMware debt. Broadcom’s, raising its market capitalization by $133 billion to $575 billion as of January 24.
Since it completed its deal for VMware in late November, Broadcom’s stock has risen from $972.00 to close at $1,229.87 on Jan. 24, an increase of 26.8 percent.
Broadcom has surpassed the market value of ubiquitous brands such as Visa, JP Morgan Chase and Walmart.
VMware partners tell CRN they aren’t just moving on from Broadcom: they are on a mission to shift their top strategic accounts off VMware.
“The battle lines have been drawn,” said the CEO of a partner who has sold hundreds of millions of dollars in VMware products over the last two decades.
“We have been having weekly calls with all of our technical and sales people to talk about moving customers to Nutanix,” said the CEO, who did not want to be identified so as not to jeopardize ongoing business with VMware By Broadcom.
“Nutanix has been on several of these sessions educating our sales and technical people to go compete against VMware. We’re going to do the best we can to keep the customers we have and move as many as we can away from VMware. Nutanix in my view is in a perfect position to take advantage of the opportunity.”
Broadcom has not made executives available or provided comment to CRN to address the changes impacting VMware’s partner community. Broadcom-VMware channel executives CRN contacted directly have not made themselves available for comment.
Tension Rising In Channel Community
Tension in VMware’s partner community has been rising since Broadcom emailed a “termination notice” to its 65,000 partners, including solution providers, distributors, vendors, and massive global systems integrators, just before Christmas announcing the end of all reseller agreements.
VMware partners were told they might receive an invitation to Broadcom’s own partner program in the beginning of the year. On Jan. 4, Broadcom then announced that while smaller deals would be allowed until Feb. 4, any deal registration partners had with VMware’s largest “strategic” customers was cancelled, “effective immediately.”
Broadcom identified about 2,000 of VMware’s top accounts as “strategic,” and it plans to manage those directly, CRN reported earlier this month. Many of those had been serviced by VMware’s largest and most sophisticated reseller and integrator partners.
Jim Kavanaugh, CEO of World Wide Technology, a $17 billion St. Louis-based IT juggernaut and one of VMware’s top global partners, has called Broadcom’s strategy thus far “disappointing.”
“At the end of the day, we would love to build a strategic partnership with VMware. Unfortunately, I’m not sure that’s what they have planned,” Kavanaugh told CRN in a recent interview. “All we can do is continue to have discussions with Broadcom and VMware and see where they’re going,” Kavanaugh said. “And if it’s not meant to be because that’s not the direction they want to go from a partner perspective, then we have to be agile enough to move on and look at other alternatives and solutions for our customers … So on the VMware side, it doesn’t look like it’s going to be a strategic partnership unless they decide to change how they’re going to go to market.”
Partners Looking Elsewhere
An executive at another VMware partner said his company is already exploring alternatives with customers.
“At the end of the day, the channel has options,” said a sales executive at a VMware partner that expects to have accounts seized by Broadcom. “The channel has been here for 50 years, and it is going to be here with or without Broadcom. If you can’t trust Broadcom, you have to move on.”
The two primary choices as alternatives for his customers are Nutanix, which provides a hybrid cloud option for customers, or move to the cloud with Microsoft Azure. Other possible choices being actively considered by his customers are Red Hat and Oracle.
“Now they are looking at sticking with VMware as scarier than replatforming to Nutanix,” he said. “Those customers are looking at potential price increases, whether the product gets the same investment going forward, and potential support issues. Some customers can’t use the partners they know and trust and who built these environments. There’s a real good chance the partner engineers know the environment as well or better than the customer.”
At Nutanix, Gwyn said engagement from “disenfranchised” VMware partners has risen quickly in the last few weeks.
He said based on indications from large distributors as well as activity on Nutanix’s partner portal, Nutanix is expecting to fund more sales positions within distribution as well as at solution provider partners.
“Some of the ways that we’re detecting the size of the tsunami is through our distributors,” he said. “Those are the ones that are in touch with partners that aren’t necessarily Nutanix partners. We’re also engaging new activity on our partner portal. People are hitting it, and we’re seeing literally [a] tripling in activity on our own partner portal.”
Scale Computing Sees Boom In Sales Prospects
The top executive at Scale Computing, which provides edge HCI platforms, said its sales prospects have also grown by multiples in the wake of VMware’s sale.
“It’s hard to stay ahead of the inbound requests from VMware partners and end users looking to move to Scale,” said co-founder and CEO Jeff Ready. “It is a four times increase sequentially month to month [in inbound inquires] and an eight- to 10-times increase from a year ago.”
ComputerVault meanwhile has been shocked by how “brazen” Broadcom-VMware has been in terminating partners and taking accounts direct, said Marc Zarrella, head of revenue and partnerships for the virtual infrastructure software provider, which competes with VMware.
“We’ve seen a significant uptick in resellers and end-user customers looking for an alternative,” he said. “There are a lot of very nervous and scared partners. They don’t know what is going to happen to their VMware franchises. Our message is that we have a superior product with a lower total cost of ownership than VMware. We can run on any hardware the customer wants. It is onsite, and we are giving them the remote support so they don’t need to spend anything upfront.”
Going ‘All-In’ With Nutanix
XenTegra, a VMware partner well-regarded for its expertise in virtual desktop infrastructure, is going “all in” on Nutanix in the wake of the Broadcom acquisition, said XenTegra CRO Les Roach. In fact, Roach expects XenTegra’s Nutanix business to double this year, sparked by a marked increase in VMware migrations to Nutanix.
“The opportunity for Nutanix is huge given the VMware market disruption,” he said. “At this point, I have been selling Nutanix for more than 10 years. They have proven themselves in the marketplace. It’s a mature technology and company. They are stable as a product, stable as a company and stable in their go-to-market model. They are going to reap all kinds of rewards from the VMware market disruption.”
XenTegra’s Nutanix sales pipeline is now at $45 million, with a number of potential big deals for data center refreshes aimed at moving customers off VMware, said Roach.
The VMware migrations are also being sparked by Nutanix technology advantages, including scalability, performance and the cost advantages of running the Nutanix Acropolis hypervisor versus the VMware ESXi hypervisor, said Roach.
Nutanix is fueling the VMware takeouts by more than doubling its investment in the co-sell, go-to-market model with XenTegra for 2024, Roach said.
“We are not seeing that kind of investment from any other partner,” said Roach. “We plan to reciprocate and absolutely double down on Nutanix.”
Roach credited Nutanix Vice President of Americas Channel Christian Goffi with leading the charge to drive dramatic sales growth with Nutanix at XenTegra.
“Christian is probably the best channel leader I have worked with,” he said. “At many of our vendor partners I don’t even know who the channel leader is … Christian is always looking at what Nutanix can do better as a partner, which is huge for me. They care and want to improve. A lot of that comes from Christian’s leadership.”
CPP Associates, another longtime VMware partner, has endorsed Microsoft Azure Stack HCI on Hewlett Packard Enterprise hardware and Microsoft Azure Arc as VMware alternatives in the wake of Broadcom’s VMware channel changes.
“[Broadcom-VMware is] picking a fight with us,” CPP Director of Professional Services Michael Maher told CRN. “Broadcom is essentially laying down the gauntlet saying, ‘You’re going to do things our way or no way at all.’ You have to remember that VMware is the largest player in virtualization. They [have] the biggest market share. All that’s going to do is drive innovation elsewhere. All that’s going to do is push customers who don’t want to go public cloud to public cloud.”
Microsoft declined to comment on whether it is seeing a surge in solution providers seeking to move customers off VMware.
‘Uncertainty And Unease About The Future Of VMware’
Broadcom’s actions have created a “sense of uncertainty and unease about the future of VMware in businesses, as well as among service providers and partners alike,” said Maher in a January 9 blog post about the benefits of Microsoft Azure Stack HCI and Azure Arc.
“These two solutions are THE game changers that enterprises small and large alike have been looking for,” Maher said in the blog post.
Maher cited VMware’s “uncertain solution roadmaps,” “unwanted shelfware bundles,” “partnership disruptions” and the “major market disruption” that has come with Broadcom’s acquisition of VMware.
Some partners are still trying to determine the best route to take to support customers that are committed to VMware.
Matt Hildebrandt, president and CEO of StrataDefense, which provides banking customers with MSSP services, said he has been unable to get any help from either VMware or his VMware distributor.
“We have clients that just went through hardware refreshes on the hardware stack, and we don’t know if we’ll be able to get renewals for them anymore,” he said.
Hildebrandt said he reached out to the Broadcom representative at his distributor, but has not gotten a return call or email. “It’s just shouting into the void,” he said.
For StrataDefense, VMware was more of a utility and a cost of doing business than a cash generator, said Hildebrandt.
“If it was about profitability, I should have dumped VMware a long time ago,” he said. “You paid a fee to be in the partner program. You were told all the time that it was to pay for a support program. So you’re paying for that, plus you’re getting a terrible margin on the product. Then you get kicked to the curb. That’s what is most concerning.”
The CEO for a longtime VMware partner and Solution Provider 500 company that is trying to work with Broadcom so it can continue serving its VMware customers said he expects the Broadcom changes to ultimately shift share to some VMware competitors.
“Broadcom is testing to see how much of the market they really own. If they see that sales are dropping and it is having a market share impact, they will adjust,” he said. “They have a responsibility to their shareholders. If their stock starts to tumble because of what they are doing, they are going to have to pivot.”