Our team members have been around for a while—40+ years, in fact—and when you have been in an industry for long enough, you are able to spot some patterns. In this case, it’s the “squeeze too tight until the toy pops” pattern, and Broadcom is the one squeezing their customers. VMware was a recent acquisition of theirs, and it has been a staple in both the cloud and virtualization industries for some time now. With Broadcom now altering VMware’s trajectory, that favorable position is no longer so secure. Unfortunately for their customers, this new direction means that in the short-term it will be tough trying to escape their grip, but in the long-term Broadcom’s actions will likely be the catalyst for more opportunities and innovation within the industries they are trying to control.
We want this change. Giants in the IT industry have been gripping tighter and tighter, acting against competition and innovation in the hopes of bettering their own position. It does work, but at what cost? Both their customers, and their customers’ improvement. Plenty of businesses exist who are doing exciting, incredible things, but these corporations limit their potential by wringing more and more resources out of them. It’s a widespread problem, but today we will be taking a look at Broadcom and how they have affected the realm of the cloud, and computing as a whole.
Record#
Broadcom is not a beloved company. While they have brought many developments to hardware, software, and security markets over the years, this has not been without costs. The news of an impending acquisition made by Broadcom is often met with grim faces, from both within the acquired company and from the customers. But how did Broadcom reach such a state?
Much like any other titan in a given industry, Broadcom has changed greatly over the years and had far more humble beginnings, compared to its position now. Broadcom as it is known today traces back through two separate entities: Avago Technologies and Broadcom Corporation. The first began as HP Associates in 1961, then separated as part of Agilent Technologies in 1999. KRR and Silver Lake Partners would then acquire Agilent’s Semiconductor Products Group in 2005 and create Avago Technologies. The second entity was founded later, in 1991, as Broadcom Corporation, and went public in 1998. In 2015, Avago Technologies bought Broadcom Corp. but adopted the name Broadcom Limited. Finally, in 2017, it relocated from Singapore to Delaware and changed to Broadcom Incorporated (which will be referred to as Broadcom from now on, for ease).
It is clear to see that acquisitions and mergers have been a substantial part of the company’s history, from almost the very start in one side’s case. Thus, it should come as no surprise that Broadcom still uses acquisitions as one of their primary methods of expanding for growth and reach. We won’t be going into every single one, but there is an important pattern that has shown over the years.
Reputation#
Still during the days of Avago Technologies, certain characteristics started to become noticeable with the acquisitions of LSI Corporation and Emulex Corporation in 2014 and 2015, respectively. The first of these markers was layoffs. While LSI Corporation did say that the job cuts were not related to the acquisition, this occurred about a month after the sale was agreed upon [1]. Two days after gaining Emulex, the company announced plans to lay off 77 people [2]. The acquisition of Brocade in 2017 took that up a notch by laying off 1,100 employees, along with many executives leaving of their own choosing [3]. Now, layoffs are not inherently bad or even unexpected upon changes to a company, but there is more at play here.
The full set of indicators started taking shape with the welcome of CA Technologies to Broadcom’s ever-expanding portfolio in 2018. Along with layoffs, of course, Broadcom also divided up their newly acquired enterprise immediately by selling Veracode, an application security company, and removing a number of CA’s products [4] [5]. When reviewing 2018’s Q4, the CEO of Broadcom Hock Tan reportedly voiced a desire to focus on existing products and customers, rather than seeking new ones, which emphasized his lack of interest in research and development (R&D) [6]. The pricing would also be restructured, with Tan stating his plans to change to a subscription model which would supposedly help customers save money and be an “enterprise-wide all-you-can-eat license.”
These indicators continued to be hallmarks of Broadcom’s acquisitions, the next of which being Symantec’s enterprise security business. Broadcom claimed that this move would “strengthen its differentiated portfolio license agreement (PLA) strategy of offering significant overall savings to customers, while creating a predictable, recurring revenue stream for its business that will drive returns for shareholders” [7] What followed was Broadcom removing discounts for smaller customers, indicating Hock’s focus on the highest paying customers, and increasing licensing fees [8]. Naturally, 12,000 employees would also be laid off and some products would be retired. In early 2020, Broadcom then sold off part of their Symantec acquisition to Accenture, keeping the enterprise security products but not the managed security services.
After a failed couple of attempts to obtain Qualcomm, the corporation next obtained VMware in 2022, to the discomfort of many. A survey done by Cloudbolt—as a commission from VMware’s competitor Amazon Web Services—showed that 99% of the 300 IT leadership respondents expressed concern about Broadcom owning VMware [9]. They also expected a price hike of 301-500% [10]. There is little wonder why at this point. This acquisition also resulted in a product bundling strategy which limited customer’s options and cornered them into paying for options they very well may not be making use of at all. Perpetual and monthly licenses would be done away with. Subscriptions with three-year-minimum commitments would reign, while prices increased across the board, with some customers even noting a rise of 1,500% [11]. Unfortunately, this merely scratches the surface, so we will be doing a deep dive into VMware’s changes later on.
Relevance#
It is clear to see that, while Broadcom may be making plenty of money, they are certainly burning bridges to do it. Many of them. Layoffs, cuts to support and R&D, removing products, dividing and selling pieces of acquisitions, focusing on only top-paying customers, and increasing prices altogether do not paint a pretty picture.
Especially in the case of VMware, Broadcom knows that their customers are in a difficult position in which they are reliant upon the services and products provided by the company. As Naveen Chhabra, an analyst at Forrester Research, said, “[Broadcom] know[s] customers are not knee deep, but hip deep [in VMware]” [12]. Swapping to an alternative requires time, money, and manpower, both for the research and for the actual process. These alternatives additionally are likely not one-to-one for what was previously provided by VMware, forcing customers to put up with the price raises and complications in their formerly customized environments as many scramble to find an out that is feasible.
The irony is that much of Broadcom’s actions go against the advantages which drew people towards cloud, as opposed to on-premises, as an option in the first place. Cloud boasted of saving customers’ money by offering flexibility and scalability, to the exact amount and at the exact time needed. No longer would companies need to allocate physical capital and associated teams for maintenance, because the cloud providers had it taken care of. It was meant to save headaches, not create them. VMware once provided these offerings, but under Broadcom they move further and further away from the benefits that contributed to their success.
Response#
As a result, Broadcom’s actions have not inspired loyalty for them, but it may work out better in the long run for others as competitive alternatives rise to meet the needs of customers now disillusioned with the corporation’s treatment of them. Aggressively tightening their grip increases incentives for customers to find ways to escape. There has been a growth in businesses moving towards repatriating their infrastructures as the the cloud becomes more and more an obstacle to their development. Despite the various complications moving from the cloud can present, it is becoming a common goal [13].
Additionally, where Broadcom has dismissed innovation, flexibility, and trust in favor of short-term gain, they have left a gap that highlights the missing pieces in their customers’ businesses as well. Broadcom’s restrictive approach has blocked them and their customers from making use of the many benefits of open-source software (or open software), some of which actually match the claimed benefits of the cloud.
Broadcom has embraced being expensive, proprietary, and unsupportive, but open software inherently prevents this from happening because of the transparency in its nature. There is full knowledge of what the tools are, and they cannot be merely taken away when a controlling company decides so. No minimum-year commitments are forced; picking up and putting down is entirely by a customer’s choice. There is more efficiency with resources because the solutions are customized to the exact needs laid out. Furthermore, solutions come with more security and innovation due to the increased eyes and hands working on the open software because of its intrinsic availability.
Unfortunately, Broadcom is just one example of a phenomenon happening right now. But there are options. No two businesses are the same, and the decision to move from cloud is no light matter. There are a variety of complications to consider with repatriation, but the cloud is a sinking ship. Especially for bigger businesses, and smaller to medium businesses should have plans for what to do when they eventually outgrow the cloud. Given the world’s economy, it may also be best to look into an EU-focused solution that embraces your unique needs and offers options that work for you, not just for the provider’s pockets.
As an EU-based business, we embrace and encourage the growing desire for data ownership. Not only does this allow for more control over data, but it also opens the door to having a fuller breadth of information with which to make decisions. With this comes more assurance of integrity and security, because you have full access. No gatekeeping what belongs to you. The benefits of open software both lend and add to these aspects, which is why we choose to use it in our services. Furthermore, the flexibility of open software better allows us to provide a solution that meets your needs, and prevents you from being locked in unwillingly.
Trust is important. One of Broadcom’s biggest mistakes is thinking that breaking trust won’t matter, because they can still make a sizeable profit (for now). What they don’t seem to realize is that their customers’ success is their success. Without those customers doing well, Broadcom and its acquisitions would never have reached where they are today. We, on the other hand, want to work with you, in a way that suits your situation and your timing, and without underhanded conditions or price hikes.
If you would like to know more about us and what we offer, you can look at our Who We Are post, or get in contact with us directly.
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