By: Chris Weingartner

While the MSP industry is no stranger to seismic shifts, Broadcom’s $69 BILLION acquisition of VMware in November 2023 has left managed service providers reeling from price increases and from a transition away from the historical perpetual licensing model to a subscription model with many standalone options no longer being offered. MSPs can be confident that Broadcom will look to justify the price paid for VMware and has implemented significant changes that are shaking up the cloud ecosystem in several ways.  For owners and C-Suite executives of IT Managed Services Companies (MSPs), understanding the implications of this acquisition is critical. Additionally, navigating the challenges and opportunities presented by this transaction, particularly in terms of potential price hikes, alternative solutions, and the customer support they can expect to receive, is imperative for an owner/operator of an MSP.

The Broadcom-VMware Acquisition: An Overview

Broadcom’s acquisition of VMware, valued around $69 billion, has been a headline-grabber in the tech world and is a move by Broadcom to expand its footprint in the enterprise software market. VMware, known for its leading virtualization and cloud infrastructure solutions, complements Broadcom’s portfolio but has raised concerns for existing VMware customers, especially MSPs who rely heavily on VMware’s products and services.

Potential Price Hikes: A Major Concern

One of the most immediate concerns for MSPs is the burden caused by price increases. Broadcom has a reputation for aggressively optimizing costs and increasing prices post-acquisition. This was evident in its previous acquisitions, such as CA Technologies (2018) and Symantec’s enterprise security business (2019), where customers saw significant price increases ranging from 82% up to 450%.  Our intel suggests that groups can expect to see anywhere between a 200 – 600% increase in the cost of their VMware solution when their perpetual license comes up from renewal and only have the ability to adopt a subscription or as term license.

For MSPs, such price hikes can have a cascading effect:

1. Increased Operational Costs: Higher licensing and subscription fees for VMware products will directly increase operational costs for MSPs. Given that many MSPs operate on tight margins, this could significantly impact profitability.
2. Pricing Pressure on Clients: To maintain margins, MSPs might need to pass on these increased costs to their clients. This could strain relationships and potentially lead to loss of business if clients seek more cost-effective solutions.
3. Budget Reallocation: MSPs may need to reallocate their budgets to accommodate higher VMware costs, possibly at the expense of other critical areas such as innovation, marketing, or expansion.

Exploring Alternative Solutions

Given the likelihood of increased costs, it’s prudent for MSPs to explore alternative solutions. Diversifying the technology stack can mitigate risks associated with vendor dependency and provide leverage in negotiations. Understanding the viability of other virtualization options is essential, particularly for MSPs looking to protect their margins and/or not just pass on cost increases to their customer base. Many of VMware’s competitors are already benefiting as a result of VMware’s users seeking out alternative providers.

Customer Support: Further Changes on the Horizon?

Another critical aspect to consider is the potential changes in customer support. Broadcom’s acquisition strategy often involves restructuring and streamlining operations to improve efficiency, which can sometimes lead to changes in customer support dynamics.

• Support Model Adjustments: Broadcom is expected to continue integrating VMware’s support with its existing frameworks, altering response times and support processes. MSPs should prepare for possible adjustments in how support requests are handled. Broadcom is already starting to trim the number of Cloud Service Partners they utilize, and push more customer support/success to those teams from any corporate driven CS roles.
• Quality and Availability: Issues ranging from small concerns to outright horror stories are starting to trickle out tied to Broadcom’s support services post-acquisition. MSPs should monitor the quality and availability of support to ensure it meets their operational needs and those of their clients, and if not, consider migrating to one of the alternative solutions above.
• Transition Period: During the initial transition period, support services may experience disruptions. MSPs should establish contingency plans to mitigate any negative impacts on their service delivery. User groups and peer networks can be helpful to triage issues that others have seen in as rapid a manner as possible.

To manage these potential changes, MSPs should maintain open communication with VMware representatives to stay informed about any support changes and ensure they have a clear understanding of the new support structure.

Going Forward

The Broadcom-VMware acquisition presents both challenges and opportunities for MSPs. While the specter of price hikes looms large, proactive planning, exploring alternative solutions, and strategic adjustments can help MSPs navigate this transition effectively. Additionally, the broader M&A trends suggest a dynamic and evolving landscape where agility and foresight will be key to staying competitive. By staying informed and prepared, MSPs can not only mitigate risks but also seize new opportunities for growth and innovation in this shifting ecosystem, as within the MSP landscape nothing is certain but death, taxes and continued vendor consolidation.