Scared, angry and terminated, VMware partners unload on Broadcom

'I’m optimistic that we will meet the revenue criteria and continue to be partners, but I’m scared [expletive]-less about what is going on inside VMware,' a longtime partner tells CRN.

They might be scared, or angry, large or small, but the one thing all VMware partners have in common these days is a "termination notice" from Broadcom and questions for the company's CEO, Hock Tan.

"How do partners know they are invited into Broadcom's partner program? How does Broadcom decide? What changes can partners expect to compensation and benefits? What is the partner strategy?" asked one large partner who resold millions of dollars' worth of VMware products last year and now can't get answers to those questions.

He and thousands of other VMware resellers, distributors and service providers were told the Friday before Christmas that the partner program, along with its incentives and their status within it, was terminated. It will be replaced with the Broadcom Advantage Partner Program effective Feb. 5.

The notice told all of VMware's former partners to expect to hear this month whether Broadcom will invite them to continue to sell the products that some of their businesses have installed for decades.

"This will bite them in the [expletive]. Imagine 50,000 VMware partners with a chip on their shoulder," said one of the terminated partners who asked not to be named because his company does not yet know if it will be allowed to join Broadcom's partner program or how the business can recoup that revenue if it cannot.

Since Broadcom closed the $61 billion deal for VMware on Nov. 22, it has dramatically changed VMware's products and business organization, consolidating VMware's software stack into fewer offerings and then splitting the company between four separate business units inside Broadcom.

VMware competitors look to take advantage

For partners, confusion in VMware's channel organisation, upheaval among the products and few answers from VMware have a number of them questioning their trusted, years-long relationships with the vendor and shifting how they talk with customers.

"Do we need to start talking with Nutanix more than we've talked with them before? Do we need to get involved with Citrix? Do we need to talk with other platforms that before we didn't need because we knew the VMware product really well?" the frustrated partner told CRN. "We've always said to our customers, ‘Hey, we don't go wide, but we have these established tech stacks that we're really good at and we go very deep into them.' So that's shifting our whole discussion point now."

Nutanix and other rivals have seized on the moment, inviting VMware partners to look at the alternatives.

"You can hope for a tier-two program where the small fish can swim with the big ones … or consider the best alternative in the market: Nutanix," wrote Hadrien Dugas, a customer success manager with Nutanix, on LinkedIn with a post broadcasting the termination of VMware's partner program.

Alan Dumas, CEO of VMware partner Secberus, which primarily sells VxRail to midsize state and local governments up to enterprise-size customers, said he is done trying to work with the Palo Alto, Calif.-based virtualisation juggernaut.

"Our go-forward in the market is, ‘How do you replace VMware?'" he said. "The big mistake [Broadcom] made was telling the partners, ‘We're canceling the program and we'll let you know if you are invited to the new one.' That would leave a bad taste with anybody, especially those companies where VMware is a big part of the business. Everyone received the same letter, so that's obviously not the way to handle things."

Dumas said he is telling customers to explore SoftIron.

"They create private clouds. You don't need VMware if you have SoftIron. It's like they took a chunk of AWS for on-prem cloud," he said.

While Broadcom has not stated what criteria it would use to determine which partners are eligible to keep selling VMware, one source told CRN US that Broadcom wants partners that achieved greater than $500,000 in annual VMware revenue. Broadcom has not confirmed the figure.

Major structual changes for channel organisation

The new channel structure appears to put Broadcom's vice president of global partner, enterprise and commercial sales, Cynthia Loyd, at the head. Tara Fine told CRN she remains in place as head of VMware partners for the Americas, reporting to Loyd. VMware's former channel chief, Ricky Cooper, is now head of worldwide OEM sales for Broadcom and no longer has responsibility for reseller partners.

Broadcom described the forthcoming partner program in general terms, saying it will give resellers simplified profitability opportunities, compensation for renewals as well as incumbency protection, deal registration discounts with differentiation by program tier, performance-based incentives for renewal business, simplified certification requirements and free training for all partners.

Broadcom has not responded to CRN' USs follow-up questions about the termination notices and specifics about channel program changes and leadership.

Partners who just weeks ago had told CRN US they felt confident Broadcom would not significantly change their VMware relationship now said they were mistaken.

"I was asked a number of times, ‘Hey, what do you think of this deal and Broadcom?' And I was saying, ‘I think we're good. I'm not really concerned about it. Our bigger customers are, we're not. We think the tack is solid. Just leave VMware alone and we'll be fine.' And we were wrong. I'm optimistic that we will meet the revenue criteria and continue to be partners, but I'm scared [expletive]-less about what is going on inside VMware," said a VMware partner.

‘Reality is ugly, and reality has a lot of changes.'

Yves Sandfort is CEO of comdivision, one of the oldest and most sophisticated VMware partners in Europe, having joined the partner program in 2001. It was the first company in the world to be awarded all of VMware's Master Services competencies. Sandfort has designed and deployed massive VMware solutions for global enterprises, including a major German car manufacturer, and has worked as an adviser to VMware for previous iterations of its partner program.

Since Broadcom's termination notice, he said he has fielded dozens of phone calls from angry VMware partners and former VMware workers who have told him Broadcom's channel approach is flawed.

"The biggest complaint from partners, especially here in Europe, is that you get an email before the holiday break saying, ‘You're doomed.' They don't tell partners anything further. … Even if you call your distributor, you didn't get any answers for anything because the distributors don't know any better because even they don't know if they will be a distributor come January."

Sandfort said tier two distribution's importance to Broadcom is not clear to him at the moment, but they should be a part of the strategy for a while.

"In reality, in the software industry if I don't have a transaction issue, I don't need a distributor," he said. "It's an email. It's a license code. There's no box, nothing to ship. It's basically credit management, and there are companies that can do that more effectively than distributors."

Sandfort said worried partners need to keep one thing in mind.

"If there is anything that [Tan] is interested in, it's making money," he said. "So as long as a partner can showcase that you are part of that money-making process, you will have a clear position in that partner program. If you are one of the partners who is constantly actually just making trouble and requesting all kinds of additional discounts and incentives and you are not necessarily profitable, it's going to be a tough time to survive in this new world."

Sandfort said he is embracing the simplicity and accountability that he believes Broadcom is going to bring to the partner community.

"There will be commitments from partners expected. So as a partner you will need to say how much revenue you are going to make," he said. "I mean, he cannot enforce it like he can in other programs, but there will be consequences if you are not on target."

Under the company's previous leadership, VMware partners could miss their sales targets but still win incentives and favourable program placement.

"You had leaders like [former VMware CEOs] Paul Maritz, Pat Gelsinger and Raghu Raghuram. When partners didn't fulfil their quota it was like, ‘You really have to try harder next quarter,'" Sandfort said.

"I think that is why it's so shocking for a lot of people. Now it's like, ‘What the hell is happening? How can someone do this to us? We were always so nice to each other.' It's really you are bringing someone out of this fairy tale and actually it is like, ‘OK, here's reality. And reality is ugly, and reality has a lot of changes."

Service provider partners to be severely impacted

Among the changes are those expected to VMware's service provider partners. Those partners are usually smaller but highly sophisticated. Of the roughly 4,000 service provider partners, only 10 percent to 15 percent are expected to be invited to continue in the program, according to one source.

The other 3,000-plus, "will have to close up shop," the source said.

In cases where Broadcom has integrated other software companies with partner programs, it has dramatically reduced the number of partners and taken the top accounts from resellers. CA and Symantec's enterprise business both had channels that were gutted once Broadcom took over.

"It seems from an acquisition standpoint, companies that go [to Broadcom], you don't hear a lot about them," Dumas said. ‘I used to do a lot of work with Symantec. I haven't heard that name in ages."

From the outset of the deal in May 2022, Broadcom told VMware partners it planned to "embrace the channel," with CEO Tan taking that same message to partners during the merger process.

"He embraces the channel, but his version of the channel. You can't come into a room and tell him how the channel works. Hock tells you how the channel works," said one VMware partner who has spoken with Tan. "Whether it's true or not, he doesn't give a [expletive]."

The end of perpetual licenses: ‘We've gone through it with Microsoft.'

In addition to tougher sales quotas, VMware partners can no longer sell customers perpetual licenses. Broadcom has eliminated them entirely in a long-telegraphed move to push customers into a subscription sales model. While this does mean that partners, if they are invited back, will need to begin by converting customers to subscription stacks, that sell is not expected to be difficult.

"We've gone through it with Microsoft," said one partner who asked not to be identified. "You scream. Your customer screams. They say, ‘We just want to buy this license one time.' But you show them it's cheaper and it's an Opex instead of a Capex so they can do more with their money, so it becomes an easier conversation."

Sandfort said with Broadcom killing all perpetual licenses, partners can also put the blame on the company when negotiating new deals.

"It's a bit like if Microsoft were to say, ‘We're going to charge 40 percent more for Windows,'" he said. "Ninety per cent of the customers will complain that they will switch to Linux. The reality is they are going to stay there because it's a hell of a complex process to get off. It is more or less the same with VMware."

Sandfort disagrees with the notion that Nutanix and other VMware rivals will be able to exploit the upheaval and uncertainty around Broadcom's moves.

"There are hundreds of thousands of customers out there. They can't switch. As much as we see on all these forums, these messages like, ‘We'll switch to something else!' What do you want to switch to?" he said. "In the end, it's business we are doing. Broadcom is the owner of the company. Broadcom is the vendor, and they can make certain sets of decisions. We as partners can say we don't like them. We can ask for adjustments. But in the end, it's our business decision if we wanted to continue to do business with Broadcom, yes or no. And we need to live with the consequences. But we also had 18 months of time to prepare for the situation."