Preparing for Broadcom–VMware Licensing Negotiations
Broadcom’s acquisition of VMware brought a fundamental licensing shift: VMware perpetual licenses have been ended, and all new VMware products are sold only as time-limited subscriptions.
For example, vSphere and vSAN must now be licensed per CPU core (with a minimum of 16 cores per processor), and since early 2024, no new perpetual VMware licenses have been offered worldwide.
These changes will drive higher recurring costs and stricter audit enforcement, so CIOs and procurement teams must act proactively. This advisory outlines how to prepare internally, from data gathering and team alignment to strategic scenario planning, before negotiating with Broadcom.
Things to Do
Begin months in advance of any contract renewal. Assign a cross-functional project team (IT infrastructure, finance, procurement, and legal) to create a formal renewal playbook. Develop a clear timeline (e.g., Gantt chart) with owners and deadlines for each step.
Key tasks include:
- Audit licenses and usage. Inventory your entire VMware environment: list all vSphere/vSAN licenses, support contracts, and bundles, and map these to actual deployments (hosts, clusters, VMs, cores). Identify under-utilization or “shelfware” – for example, paying for 1,000 licensed cores when only 800 are active. Spot unused products (like NSX or vSAN features bundled into higher editions) that could be dropped or renegotiated. A thorough usage vs. entitlement audit is a critical lever in negotiations.
- Gather contract data. Compile all relevant documents: old VMware agreements, ELA terms, renewal notices, support expiration dates, and special clauses (e.g., price caps or upgrade rights). Note that Broadcom will require migration to a subscription for continued support when each perpetual-support contract ends. Understanding legacy entitlements (e.g., any “true‑up” rights or grandfathered pricing) lets you insist on honouring them or seeking equivalent value. Also, identify any auto-renew or notice deadlines in CA/Symantec contracts to avoid surprise extensions.
- Engage stakeholders early. Brief senior management (CIO/CFO) on the licensing changes and proposed strategy. To secure budget sign‑off for potential price increases and long-term commitments, involve finance and procurement. Ensure application owners and operations teams understand that VMware costs will shift to a recurring (OpEx) model. Clear communication aligns internal goals – for example, noting that VMware must now be treated as an operating expense with multi-year budgets.
- Model costs and scenarios. Build a multi-year cost model comparing the new subscription pricing against current spending. Include best- and worst-case assumptions (e.g., conservative 5–10% yearly increase vs. double-digit hikes). Develop Plan A/B/C scenarios: for instance, Plan A might renew all VMware workloads on a 3-year contract at a negotiated rate; Plan B might drop or migrate some low-priority workloads; Plan C might involve moving non-essential systems to alternative platforms or third-party support. Having these scenarios defined gives the negotiation team clear thresholds and backup options.
- Coordinate and co-term. Align VMware renewals with other Broadcom-related contracts (e.g., Symantec, CA) to enlarge your deal size. Co-terminating multiple licenses creates more leverage – for example, combining two $5M deals into one $10M renewal helped one firm win an extra 5% discount. Even within VMware, consolidate all licenses (ESX, vSphere, NSX, etc.) under one renewal date. This volume approach increases the likelihood of meaningful concessions.
- Prepare negotiation objectives. Define clear goals (desired discounts, retention of price caps, ability to reduce license counts mid-term) and fallback positions. For example, be ready to request protections (caps on annual price increases, ability to downsize mid-term) if agreeing to a 3‑year deal. Involve procurement to validate benchmark pricing and legal to pre-review new terms. Document your risk tolerance: how much penalty you will accept if a renewal lapses (Broadcom now charges a 20% “late renewal” fee!).
Where internal expertise is limited, consider external advice. Independent licensing experts like Redress Compliance and peer forums can provide audit benchmarks, pricing insights, and negotiation tactics. A trusted consultant can help ensure no detail is overlooked during this preparation phase.
What to Think About
- Unified objectives. Align business and IT on the priorities. For example, IT may need advanced virtualization features, while finance focuses on cost containment. Agree on which VMware workloads are “mission-critical” and which could be shifted or reduced. This clarity shapes acceptable outcomes (e.g., accepting higher spending to keep core data centre VMs on VMware while offloading test/dev to other platforms). Involve application owners and infrastructure teams in these discussions so project roadmaps reflect the licensing strategy.
- Budget constraints. The move to subscriptions forces VMware costs into operating budgets. Treat VMware as Opex: plan for consistent annual or multi-year payments rather than one-time capital outlays. Engage finance to model the impact, for example, adjusting budgets early to accommodate a 5–30% increase in year‑over‑year support costs. Decide how much to budget for the “worst-case” Broadcom quote (setting a ceiling beyond which alternative plans kick in).
- Risk tolerance and compliance. Recognize that Broadcom is strict on licensing enforcement. Assess your appetite for audit risk vs. investment in license cleanup. Broadcom can aggressively reclaim “unlicensed” usage if you allow support lapses or hit you with penalties. Legal should review the new terms carefully – mandatory multi-year commitments (often 3+ years) are now common, and exit clauses should be clear. Weigh the risk of vendor lock-in: how critical is VMware expertise internally, and how hard would it be to migrate workloads if needed?
- Strategic alternatives. As part of scenario planning, compare the cost and effort of alternatives. For instance, could some workloads move to native cloud services (like AWS/Azure VMs), open-source hypervisors, or container platforms? Or could third-party maintenance buy time? These strategic options provide leverage. If Broadcom knows you have real alternatives, your position will be strengthened. Still, each alternative also has technical and timing implications (e.g., migrating a core data centre off VMware might take many months). Be realistic about transition time and factor it into any “walk-away” decision.
- Feature utilization. Understand which VMware features you use. Broadcom’s new bundles include tools like Aria (OpsManager), Tanzu, NSX, etc., some of which organizations may not fully leverage. Consider how to use bundled components to get value (and avoid paying for separate tools). Discuss internally which features are mission-critical and which could be deemed “nice-to-have,” as this affects how much you’re willing to pay for higher editions.
- Future plans and governance. Finally, consider how this renewal fits into a longer-term IT strategy. Are you embarking on hybrid/multi-cloud initiatives that impact VM usage? Ensure executive sponsors (CIO/CFO) stay engaged, as their backing will be needed if costs rise significantly. Keep communication lines open with your VMware account team (or value-added reseller) to stay informed of program changes (e.g. new pricing rules or grace periods).
Practical Impact
A disciplined preparation effort pays off in clear benefits:
- Better negotiation leverage: Armed with detailed usage data and clear needs, you negotiate from strength. For example, if your audit shows 200 unused licensed cores, you can insist on downsizing that portion rather than overpaying. Likewise, presenting co-terminus, high-value renewals (of VMware plus other Broadcom products) can win portfolio-wide discounts.
- Cost avoidance: Aligning budgets and starting early helps avoid nasty surprises. Broadcom’s new terms are tough – one firm that began talks a year in advance “completely sidestepped Broadcom’s penalty fee”. By contrast, teams that delay often face a 20% late-renewal penalty or are forced into “default” pricing. Early modelling also prevents “sticker shock” – Gartner analysts advise explaining higher recurring costs to finance well ahead of renewal time.
- Reduced waste: A diligent audit often uncovers shelfware. Right-sizing licenses and embracing included bundle features means every dollar yields business value. For instance, if you only use 80% of the entitled capacity, you can shed the extra 20% rather than subsidize Broadcom’s revenue goals. Likewise, turning on any useful bundled tools (Aria, NSX, etc.) can eliminate separate support fees for third-party products.
- Aligned organization: Cross-team readiness ensures negotiation outcomes fit the company strategy. Procurement, IT, and finance will have agreed to the goals, so contract changes or price increases come as a known risk rather than an afterthought. This unity also speeds decision-making – approvals and funding are already in place, so you won’t lose momentum during a tense negotiation round.
- Risk mitigation: By understanding contract terms (notice periods, auto-renew clauses, audit triggers), you avoid unforced errors. Meeting renewal deadlines and knowing entitlement rights means compliance demands or last-minute crunches won’t blindside you. One advisor notes that “nothing will be given easily” in Broadcom talks – meticulous preparation is the best defence.
In summary, thorough internal readiness—cross-functional alignment, exhaustive data collection, and strategic planning—translates directly into stronger negotiating outcomes. CIOs who invest in this effort will minimize cost increases, manage compliance risk, and align the licensing strategy with business goals rather than reacting under pressure to Broadcom’s new terms.
Summary of Insights: Organizations should start negotiations 12+ months early with an executive-backed plan. Gather precise license usage and contract data, involve IT/finance/legal teams, and model multi-year cost scenarios.
Align all VMware renewals (and other Broadcom products) for volume leverage. Be realistic about budget impacts (shift to Opex) and risk tolerance (compliance penalties, vendor lock-in). This preparation yields stronger bargaining power, avoids waste, and ensures licensing outcomes support broader IT and budgetary objectives.
