Did Broadcom’s VMware Hit Nutanix Where It Hurts?
The much-anticipated product releases during Broadcom VMware’s annual Explore user’s conference offered not so many pleasant surprises, but definitely promising additions to VMware’s product portfolio. VMware has made considerable investments in streamlining DevOps in pursuit of that one single platform as a service — the “Holy Grail” if successful — for developers and platform engineers with its VMware Tanzu Platform 10 release. It introduced the VMware Cloud Foundation (VCF) platform for private clouds, which Broadcom CEO Hock Tan said would play a critical role in DevOps in the future. Other releases during Explore worth a look cover edge deployments and AI (but of course).
However, these releases come in the wake of the controversy following Broadcom’s acquisition of VMware, where a number of enterprises and organizations saw their pricing and fees skyrocket. However, this is not necessarily commensurate with the big picture, as certain customers have seen their prices decrease. (More on that below.)
@Broadcom‘s @VMware Cloud Foundation Division @VMware‘s @cswolf keynote session at #VMwareExplore: “We can take complex AI applications, dozens of microservices and be able to stand them up in minutes,” which can take weeks to months done manually. pic.twitter.com/h2gym9yhmj
— BC Gain (@bcamerongain) August 27, 2024
Organizations are also not going to limit what they adopt to hurt feelings about licensing changes, and again, and may (or may not) opt for some of the rather ambitious offerings VMware announced in its attempt to streamline CI/CD with a major Tanzu revamp, AI integration that DevOps can rely on and use or private cloud advantages.
Meanwhile, just a few days before the conference, Nutanix CEO Rajiv Ramaswami — who previously held executive roles at VMware — had this to say in a statement about the perceived negative effects the Broadcom and VMware merger had on customers:
“What we’re hearing from customers over and over is that they’re concerned about Broadcom’s impact on VMware, from pricing increases, to support changes, and lack of innovation. Customers want to know how their cloud infrastructure platform will support their business critical applications now but also in the future, from cloud native applications to AI and beyond.
“Customers are looking at Nutanix and seeing a platform that can help them achieve this, all supported by our 90+ NPS score. We have benefitted from customers leaving VMware, like Treasure Island Hotel & Casino and Computershare, and we see this as a significant multi-year tailwind.”
During a conference call with analysts this week following the issuance of its first-quarter earnings, Ramaswami continued to speak about closing some “additional deals that I would consider to be influenced by the Broadcom VMware transaction.”
“In fact, again, going back to that bank win that we talked about, the G2K bank, and that is certainly influenced by this transaction,” Ramaswami said. “As we mentioned, it was a dual vendor strategy, but going forward, it’s going to be a single vendor strategy with us.”
Having noted how many customers have signed multi-year Enterprise License Agreements (ELAs) with VMware prior to the closing of Broadcom’s purchase of VMware in order to lock in lower pricing in some instances, customers mulling whether to make the switch to Nutanix have some time to decide, Ramaswami said.
But in the immediate, “there continues to be certainly a lot of concerns around all the stuff we’ve talked about in the past; pricing, increased pricing potentially, dropping support levels, etc.,” Ramaswami said. “So, we have a significant pipeline of opportunities and it’s growing, and a good degree of engagement with prospects driven by these concerns,” Ramaswami said. “It’s just difficult to predict timing and magnitude of events, and we continue to expect some benefit from these, influenced by this transaction, and we certainly factored that in, into our guidance for this fiscal year.”
A Tale of Two Suppliers
Nutanix and VMware compete directly in the cloud infrastructure platform market but their approaches differ. On offer by both are compute networking, storage management automation and respective hypervisors for building cloud platforms. vSphere factors in hugely as well for both Nutanix and VMware customers. Gartner’s report, “Hype Cycle for Infrastructure Platforms” from 2023, characterized the aspects of what Nutanix and VMware, as well as Microsoft, are competing in the intelligent platform market.
“Market momentum around HCI software in the cloud now creates a market for multiple hardware vendors to build software management and integration services,” Gartner analyst Dennis Smith wrote in the report.
But again, the approaches that these cloud native leaders are taking differ. The move to a more simplified offering for VMware consisting primarily of the VMware Cloud Foundation and the VMware vSphere Foundation has certainly made up for its more complicated previous pricing scheme while large enterprises certainly appreciate what VMware says are more services and features for cloud native environments than what they are paying for.
The Coliseum
As mentioned above, following Broadcom’s acquisition, VMware products or licenses changed. Instead of offering perpetual license-driven subscriptions to companies, Broadcom now offers them as subscriptions or termed licenses, a change that has been in effect since December.
The VMware Cloud Foundation has since featured either an enterprise hybrid cloud solution or the VMware PSPIR Foundation, which the company says is a simpler enterprise workload platform for mid-sized to smaller customers. However, this also means that many smaller customers have seen a price hike.
The licensing scheme change is at the heart of the controversy. “Since the acquisition by Broadcom VMware has lost a lot of trust through their rather unfortunate communication of license model changes, product discontinuations, changes in their partner program and key staff leaving the company,” Torsten Volk, an analyst at TechTarget’s Enterprise Strategy Group, said. “This definitely has resulted in customers looking for alternatives, especially for cloud native applications.”
However, customers and partners that are deeply invested in VMware infrastructure will have a lot of “detangling” and upskilling to do to move to different platforms, Volk said. “VMware has a little more time to convince these stakeholders to stay on,” Volk said. “However, we do see organizations seeking out alternatives for their cloud native projects and for the modernization of legacy apps.”
In this battle, nothing is guaranteed, of course, as ideally VMware and Nutanix will battle it out by using their resources to deliver what DevOps teams can really use and want, with added motivation to deliver to the developer and platform engineering teams. Nutanix CEO Ramaswami seemed to agree when speaking during the analyst call:
“Again, I think we are still at a point where we have a significant and growing pipeline of opportunities that we are engaged in with prospects. But it’s hard to predict what portion of those we’ll win, how much will they, for example, bring us in as a second vendor or the sole vendor or just use us as a negotiating lever to get a better deal from VMware.
“So, there’s a lot of uncertainty and lack of predictability there for the long term. So, we’ve focused on the timing, for example, for when this might happen. So, that’s why we have — we’ve modeled some level of share gains here into our forecast for the year and it’s incorporated into the guidance. But it’s going to be — I would again emphasize that it’s going to be a multiyear thing for us here, and it’s going to be a bit of timing and the exact share gains are going to be a little unpredictable.”
In order to fend off competitors such as Nutanix as well as Red Hat, VMware must show that it has the vision and ability to deliver a tightly integrated portfolio of cloud native solutions, Volk said. “Tanzu AI clearly shows that VMware is thinking about how to best capture emerging workloads, such as LLMs and the overall Tanzu 10 release has shown that the company wants to execute on its vision of delivering a simple developer platform for the masses,” Volk said. “However, to convince organizations to move their cloud native workloads to Tanzu will require a lot more than was included in the Tanzu 10 release.”
Meanwhile, vendors such as Nutanix and Red Hat will work on making workload migration from VMware “as easy and attractive as possible,” Volk said. “Clearly, the current situation is an opportunity for these vendors to eat some of VMware’s pie, but at the same time it is up to Broadcom to double down on investing in its cloud native portfolio and other platforms.”
@Broadcom CEO Hock Tan’s keynote session at #VMwareExplore on the public cloud hangover: “The future is private..private cloud, private AI fueled by your own private data. It’s about staying on prem and in control.” @VMware #HockTan pic.twitter.com/QoegkrXn2m
— BC Gain (@bcamerongain) August 27, 2024
Again, Broadcom is at least posturing to meet the challenge with a clear vision of what it plans to deliver — and how needs are evolving and changing. As Broadcom’s Tan emphasized during his keynote, the future lies in truly achieving the goal of breaking down those silos, which is what DevOps was supposed to do years ago. “You want to deploy a new application, you need to write a ticket. You might need to write a ticket to your IT department, and you might just get that virtual machine two months later… At VMware, we believe we have the solution,” Tan said.
VCF will play a large part in what will be on offer, to help “create a single platform” that can not only run on private clouds but can extend to public clouds as needed, Tan said. “It’s resilient, it’s secure, and it costs much less than public cloud,” Tan said.
