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VMware Licensing and Price Increases: What Are Your Options?

VMware Licensing and Price Increases: What Are Your Options?

There have been many stories of price increases following Broadcom’s acquisition of VMware in late 2023. A 150% increase in VMware licensing costs. A 300% increase. How about a 500% increase? For many VMware customers, the licensing model and pricing changes were abrupt. Other customers still have time—until the end of their current contracts—to explore their options.

Broadcom, faced with backlash from existing customers, has attempted to explain the new product and licensing model in the hopes that current customers can manage the transition. This transition has included a re-engineering of its previous channel partner structure, with Broadcom focusing on a smaller number of value-added resellers and direct relationships with its largest customers. This change in sales channel could mean that VMware customers will have to establish relationships — for both sales and support — with new providers, in addition to changes in licensing models and pricing.

The new product structure simplifies the number of products and options, and bundles VMware products into different categories. The product bundles simplify the VMware product structure, but may require customers to pay for items they otherwise wouldn’t want, need, or use. The same is true for what used to be a la carte VMware products. Products like NSX Networking and vSAN are now only available as part of the bundle.

VMware has also announced that perpetual licensing is no longer an option. With this, VMware joins the majority of infrastructure providers who are embracing the software-as-a-service model and replacing perpetual licensing with subscription licensing. For IT leaders who have been in the business for a while, this is a significant change and potential price increase from the concept of owning (and paying, if desired, for ongoing maintenance, upgrades, and support) hardware and infrastructure software instead of subscribing to the hardware and software as a service. The subscription model is becoming the new normal for all types of products and services.

If an organization has been impacted by VMware’s cost increases, or anticipates being impacted, what options does it have? Below are several options (with the caveat that the landscape may change and some of these options may become more or less attractive, or even unavailable).

Option 1: Absorb the price increases

Assuming that VMware is part of the organization’s infrastructure fabric and operating model — VMware is the de facto standard for workload virtualization — the best option may be to absorb the price increases. In the short term, this may be the only practical option, as the options can take both time and experimentation. As for licensing discounts, the discounts are now built into the VMware product bundle structure. In other words, the VMware Cloud Foundation product bundle is discounted compared to purchasing the components separately. Otherwise, pricing is based on subscription list prices, with potential discounts for longer-term commitments.

Option 2: Align workloads with VMware product bundles

Although it comes with higher management costs, it is possible to license different VMware product bundles separately. This requires a workload analysis to determine how the features and functionality of each product align with the workload requirements. For example, suppose an organization does not need the functionality of vSphere Foundation for all of its workloads and can manage some workloads with vSphere Standard. There is a significant price difference between the two products (just over 60% discount on Standard compared to Foundation). The organization can reduce its VMware licensing costs by creating two environments (one with Foundation and one with Standard) and purchasing the two product bundles. This option requires the following:

  • Evaluate which workloads can work with which product bundles
  • Separating those workloads into different environments that align with the product bundles
  • License each environment with a separate product package
  • Control each environment separately, each with its own VCenter

This may not be trivial. Not only does it require more complex management, but it may also require changes to the environment based on the functionality that is lost when “downgrading” to the lower-end products. And what happens if Broadcom decides in the future to further simplify its product structure and eliminate the lower-end products?

At the same time, Broadcom has implemented a repricing strategy in which changes to existing license quantities and types can impact the pricing of other products. To understand the full financial impact of changes to an organization’s current VMware pricing, it may be necessary to model a number of scenarios.

Option 3: Align workloads with the hypervisor

There may be workloads that are certified or work well on multiple hypervisors. Perhaps a system works well on Proxmox or KVM or RedHat or Microsoft or some other platform. While VMware is the dominant hypervisor in the market and therefore compatible with the broadest range of workloads, many workloads will work with the other hypervisors. This option retains the challenges of separate environments and management, but can significantly reduce costs. The cost analysis of this option should include the change in administrator skills, as well as the impact of potential repricing of retained licenses as described in Option 2.

Option 4: Test and select a non-VMware hypervisor

There are other hypervisors (some of which are mentioned in Option 3). Some are open source and some are commercial. The challenge in selecting a non-VMware hypervisor is how well the rest of the system (compute, storage, networking, etc.) works with a non-VMware hypervisor. As a virtualization standard, almost everything works well with VMware. Does almost everything work well with something other than VMware? Despite claims that a specific service works well with another hypervisor, the prudent approach is to test interoperability and identify any shortcomings and determine if those shortcomings are acceptable or can be overcome. This testing can take time and effort (and a test environment), in addition to the time and effort to train system administrators.

Option 5: Evaluate (or re-evaluate) the cloud migration cost model

One of the factors in making decisions about cloud migration is cost (see Cloud Migration: What We Know, What We’ve Learned, and What the Future HoldsIDC #US50942923, June 2023). Perhaps an organization has factored its VMware licensing costs into its cloud decision model. If VMware licensing costs now increase by a factor of 2, 3, or 5, this could change the cloud migration decision. The same is true if an organization is making a cloud migration decision for the first time. If the organization adopts the cloud provider’s hypervisor as part of its migration to the cloud, the organization can eliminate VMware licensing costs. The changes in the VMware licensing model and costs may now be enough to tip the decision—a decision that encompasses all of the decision factors—in favor of cloud migration.

Option 6: Implement a platform change

Perhaps the organization is operating on-premises with a private cloud or in a hybrid cloud model and is facing a hardware refresh. In addition to factoring VMware costs into a cloud migration decision (Option 5), the organization should also factor VMware costs into its refresh decision. Given the updated VMware costs and the complexity of interoperability with a non-VMware hypervisor, is it time to transition to hyperconverged infrastructure (HCI)? HCI comprises compute, storage, and hypervisor optimized and tested to work together. This alleviates compatibility concerns but represents a significant strategy and infrastructure shift. But it is an option. In fact, some HCI providers have already announced their VMware migration offerings.

Recommendations

  • Regardless of which option an organization chooses, it is important to make a long-term decision. VMware is the market leader for a reason: not only has it delivered the most successful virtualization product, but it has also continued to innovate the product and the market. This begs the question: If Broadcom continues to innovate, will VMware’s licensing costs be enough to persuade an organization to change its approach to virtualization?
  • Regardless of which option an organization chooses, there is work to be done (except for option 1). There is testing to be done. There are decision models to be defined and refined. There are combinations of the above options to consider. Even if the timing is such that an organization has already accepted the new VMware pricing, the longer-term decision remains: what is the best virtualization operating model and platform for the organization? For such organizations, the testing, decision models, and combinations remain important before the next VMware license term begins or before Broadcom announces the next product deprecation, product consolidation, or licensing model change or price increase.
  • Prepare the organization for impending price increases in other elements of the technology stack. Driven not only by inflation, but also by technology providers’ investments in AI (and acquisitions of AI companies), there will likely be price increases in other areas. There will also likely be changes to the licensing model, as perpetual licensing is replaced by subscription pricing. And the above options will likely remain valid as other providers announce their price increases and licensing changes. It’s good practice to imagine the VMware scenario repeating itself for other parts of the technology stack and dedicate a portion of the IT portfolio to exploring and testing options.

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Discover the digital infrastructure priorities of more than 200 VMware customers in this research report from IDC.

Niel Nickolaisen is deputy research advisor for IDC’s IT Executive Programs (IEP). He is recognized as a thought leader in using Agile principles to improve IT delivery. And he is passionate about helping others deliver what he sees as the three roles of IT leadership: enabling strategy, achieving operational excellence, and creating a culture of trust and ownership.