Broadcom VMware Ups Minimum Core Purchase ‘Substantially,’ Levies Late Renewal Penalties

Beginning April 10, the fewest licenses a VMware customer can buy will be 72 cores per CPU, up from 16 cores. Meanwhile, late renewals will now cost customers an extra 20 percent of the price of the first year of subscription.

Broadcom is increasing the cost of VMware for some customers by boosting the minimum purchase from 16 cores to 72 cores per CPU, according to a memo to solution providers from distributor Arrow that was obtained by CRN.

In addition, Broadcom is implementing a penalty equivalent to 20 percent of the price of the first-year subscription for customers that have not renewed their subscription licenses by their anniversary date, the memo stated.

“We would like to inform you of significant changes made by Broadcom that will impact our joint business,” said Arrow in the memo to partners. “Starting April 10, the minimum number of cores required for VMware licenses will increase substantially from 16 to 72 cores per command line.”

“If a customer has a single-processor server with 8 cores, VMware by Broadcom will license 72 cores. On the other hand, if a customer has 5 dual-processor servers with 16 cores each (i.e. 160 cores), VMware by Broadcom will license 160 cores,” the memo stated. “This new requirement may require adjustments to your current quotes.”

Besides the minimum core increase, Broadcom has “introduced penalties for end customers who have not renewed their subscription licenses (already in place) on the anniversary date,” said the memo. “These penalties represent 20 percent of the price of the first year of subscription and will be applied retroactively.”

Longtime partner Yves Sandfort, CEO of Muenster, Germany-based Comdivision, which holds seven VMware master competencies and is a VMware By Broadcom Pinnacle tier partner, said this change will hurt those who are only selling licenses but not offering value beyond that transaction.

“What I think is fair to say is that Broadcom does not really care that much about those just pushing licenses,” Sandfort told CRN via email. “This however has been clear since the end of 2023. They want partners who take ownership and provide value. If you want to make a living out of selling tons of small license bundles, you might be on the wrong path here.”

CRN reached out to Broadcom and Arrow for comment on Friday. Neither company had responded by publication time.

Additionally, while VMware had historically instituted a penalty for customers who renew their contracts after their license date, Sandfort said, the cost of that penalty is going up.

Sandfort said partners could also use this to take charge of their customers by proactively reaching out before the license expiration date.

“How about this: Instead of renewing your past license into subscription, why not just start a new subscription? There is no incentive to renew for most customers,” Sandfort wrote.

The changes to licensing could be a challenge for the customers who have smaller CPU footprints at edge locations and for retail customers, Sandfort said.

‘A Line In The Sand’

One VMware partner told CRN that the Broadcom VMware changes are going to spark customers to look for alternatives.

"This is Broadcom drawing a line in the sand saying they have a minimum entry fee that is much higher than before," said the VMware partner via email, who asked not to be named because of ongoing business with the company. "Customers that have been happy with VMWare but only spending $1,000 to $2,000 a year on perpetual renewals are now looking at $3,500 to $4,000 annually. ... This is going to cause several of our customers in the 2 to 3 VMware [servers] range to start looking at alternatives like [Microsoft] Hyper-V, Scale Computing, and Proxmox."

At Indianapolis-based VMware competitor Scale Computing, Co-Founder and CEO Jeff Ready said this will also hurt VMware’s midmarket customers that have smaller-than-average deployments, such as construction or manufacturing clients.

“I see lots of small to even mid-sized customers that are going to run three servers with 16 cores each and 50 terabytes of storage. And they're a 500-person shop,” he said. “So many of these partners have standardized on certain things like VMware, and to have that all just disrupted is such a pain. So, [Scale Computing] is already substantially less expensive. But then, like for certain builds, especially that low end, we're going to be more aggressive.”

Ready said he already had increased incentives for Scale partners who win VMware accounts with a program called VMware Rip And Replace, which provides an additional 20 points of margin to channel partners when they flip customers to Scale. Now, seizing on details in the memo, he told CRN he is planning to double that in certain cases.

“In order to really address this part of the market that, frankly, Broadcom doesn't even want, we're being super aggressive on pricing and further discounting into the bills that hit that market, specifically just to make it easier for these guys to switch,” he told CRN. “And I'm banking on the long-term value of those relationships. We may not make a lot of money on those kinds of deals up front, but what I want is those customers to be renewing 15 years later, and the partners to be like, ‘Yeah, this is the kind of vendor I want to partner with.’”

'Punishing’ SMB Customers

The CTO of a Broadcom VMware partner, who did not want to be identified, said the new 72-core minimum for licenses actively discourages cost-conscious SMB customers and even large customers with small remote office environments from using the virtualization platform.

“VMware is punishing small and medium business customers that continue to use the platform,” he said. “Clearly VMware does not value the small and medium business community that have built their business leveraging the platform.”

The 72-core minimum will also hit large businesses with remote offices with a significant price increase, said the solution provider CTO. “Why would a customer spend money for 72 cores for a small remote office?” he said.

Broadcom applying a penalty equivalent to 20 percent of the price of a first-year subscription for customers that have not renewed their license by the anniversary date is also an affront to customers, said the CTO.

“I don’t understand why they are trying to alienate customers,” he said.

The CEO for a CRN Solution Provider 500 company who did want to be identified said the 20 percent penalty a bad business practice.

“I don’t like the approach Broadcom has built [with renewals],” he said. “Unfortunately, it puts customers at risk because Broadcom does not give the renewal pricing until the last minute. They force the renewal hand and time it for a long period. It is just not a good long-term business strategy. But it definitely drives good short-term results. They are worried about what Wall Street thinks, and Wall Street loves it. I don’t like to run my business that way.”

The CEO said the Broadcom VMware strategy is to focus on the top 20 percent of the largest accounts and forego the SMB market. “This is a proven playbook for them,” he said. “They drive down the operating costs and do multiyear deals with customers with jacked-up prices, so their costs go down, their revenues go up and they create these great margins. But it is a financial mechanism game.”